Coface: Tax Payers Will Pay For Wage Hikes

Given the substantial increases in the State"s costs on the eve of elections, it is very likely that Coface will reduce Romania"s country rating in January, according to Cristian Ionescu, CEO of the credit insurance firm Coface Romania. He expressed the company"s concern with the serious and long-lasting consequences that the increase in public costs may have in the absence of a healthy basis in the economy. One possible results could be a destabilized macro-economic status resulting from a halt on governmental investments prompted by a need to cover groundless costs. Alternatively, the budget deficit could be increased. However, if the budget deficit rises, financing it could be a problem in the global context of the ongoing financial crisis and the tax payers will have to bear further additional costs. Despite initial opinions that the international crisis would not affect Romania, the Romanian currency has already lost serious ground to the EUR and the USD, while the Bucharest Stock Exchange reported substantial setbacks. "Very few Romanian companies have prepared strategies to protect themselves against currency risks. Considering that the Romanian economy depends on imports, the depreciation of the leu will generate financial losses. Also, harder crediting terms will slow down the companies that rely on borrowed money," Ionescu added. In order to mitigate the effects of the financial crisis, companies should better plan their expenses, cut costs, protect themselves against currency risks and reconsider the investments they were planning to make with borrowed money. As far as exporters are concerned, Coface believe that, although they could gain from the depreciation of the national currency, they will still suffer because of an economic stagnation or even a recession among European economies which have so far been their best customers. "Amid the global crisis, we believe that foreign investments will slow down, while Romanians working abroad will start sending less money home. All this will put pressure on the current account deficit, which could deteriorate and therefore lead to further depreciation of the national currency, Coface believe. This general context is likely to lead to an increase in the number of bad debtors to the banks, especially in the businesses of construction, construction materials, electronics, IT and the meat industry.