Looking for money across Europe

Traveling across Europe on a Harley Davidson, trying to raise money: The Minister of Finance, Sebastian Vlădescu, is leaving today on a tour across Germany, Switzerland and the United Kingdom, in an attempt to attract investors for Romanian Eurobonds worth EUR 1 billion.

The caravan for raising 1 billion Euros from the major European investors departs today, led by Sebastian Vlădescu, the minister of Finance.

The "Roadshow" for Romania"s Eurobonds issue was initially scheduled for the October 1st - October 15th, but the political crisis overturned the plans of the ministry, which was forced to postpone its issue of Eurobonds for a more auspicious time. Before the fall of the Boc government, the Ministry of public finances had planned an Eurobonds issue, worth between 500 million Euros and 1.5 billion Euros, with a maturity of 5 to 10 years.

Cristian Popa, deputy governor of the NBR, could not be reached for statements, as he had already left with the team of the Ministry for the presentation tour of the Eurobonds issue.

Together with the three intermediaries - Deutsche Bank, EFG Eurobank and HSBC Holdings - they will work on advertising Romania"s economy in London, Frankfurt, Geneva or Zürich. The "roadshow" will go through several major countries.

Where the money would go is still a question that few would venture to provide an answer to.

Lucian Croitoru, advisor to the NBR governor, Mugur Isarescu, said that the funds raised through the Eurobonds issue will definitely go to the Treasury, but after that there are numerous potential ways they could be used.

"The Ministry has several alternatives, either to use the funds to make various payments, or to keep them in order to get more bargaining power for its future domestic loans", Mr. Croitoru explained.

On the other hand, Daniel Dăianu, former finance minister, said that the presentation tour is a difficult trial, especially giving the current aridity in the markets.

"We have the arrangements with foreign investors, which is beneficial for Romania", Mr. Dăianu said. When asked if the money raised from the Eurobonds issue would be directed towards plugging the budget deficit, he said that there are no specific ways of doing such a thing, so it is not accurate to say that the money will be used to pay wages and salaries, since they only account for one third of the budget deficit.

Romania"s agreement with the IMF involves a loan of 12.95 billion Euros, and together with the money from the European Union, the World Bank and the EBRD, its foreign loans will amount to EUR 19.95 billion Euros. Half the money, which will go o the Ministry of Finance, will be intended to cover the budget deficit, and the other half will be used for the monetary policy, coordinated by the Central Bank.

The Government agreed with the IMF to lower the budget deficit to 31.9 billion lei to 36.1 billion lei in 2009.

On the interest rate for the Eurobonds, experts say it will depend on LIBOR, as well as on the spreads for Romania"s CDS.

• CDS spreads down

The spreads for CDSs - which measure Romania"s risk of default - continued to drop to 234 basis points, according to data by CMS Data Vision, thanks to the improvement of investor sentiment towards emerging markets, which include Romania.

Bankers consider that a drop of CDS quotations can mean an improvement of Romania"s perceived risk, caused by various factors such as the lower risk of economic decline or expectations of appreciation of the leu.

Romania"s risk premium is currently higher than that of Hungary (214.5). France for instance, has a CDS spread of just 42.94 points, while Greece, which is considered the ninth riskiest country in the world, the CDS quotation is 307.19 points.

The current drop in CDS quotations is felt in the shrinking cost of foreign borrowing, since lenders (banks, foreign companies) become less interested in insuring their receivables towards the borrowing institution, (banks, municipalities, or the Romanian government itself), given the fact that the risk of default has been considerably reduced.

Apart from the role of protecting creditors, CDS quotations are increasingly used for determining the interest rate for large loans. For instance, for the syndicated loan that the government took from banks in July, the interest was set based on CDS quotations (400 at the time).

• Băsescu: "Made up bonuses" could force us to take out another loan

Due to expenses incurred with "made up bonuses" and all kinds of "special benefits", Romania runs the risk of taking out another loan by the end of this year, president Traian Băsescu said, during the session of the Ministry of Defense for the evaluation of last year"s evaluation.

"Let"s imagine that the government will not fail to impose some reasonable expenses for the operation of the state, which also includes all kinds of expenses with made-up bonuses and all kinds of special benefits and so on. The effect would be that by the end of 2010 we would be required to take out a new loan just to pay up all the facilities that some types of employees have received without any reason - smile bonuses for local administration employees, appropriate dress code bonuses, and I don"t know what else. I"ve given just a few examples which illustrate that we"ve gone too far with unbridled spending, without demonstrating the maturity of asking ourselves how we are going to pay for everything", Traian Băsescu said.

He said he would support the government in optimizing the expenses of the state. "We can"t just sit by and let things go on the way they are, which would cause the need to borrow more money in 2011-2012, because doing so we would be sacrificing Romania"s very chance of development", the head of state added.

BURSA recently published an article on the ridiculous bonuses received by public sector workers over the last two years, such as the bonuses for improving work conditions, the bonus for recovery after the holiday or the dress code bonus. (I.S.)