Romania"s risk premium increasing

Romania"s perceived risk reflected in the quotations of CDSs (Credit Default Swaps) started rising, and it depends largely on the visit of the IMF, whereas the reverse is happening in the other countries in the region.

The cost of insuring Romania"s five-year sovereign debt reached 306.35 basis points, according to CMS DataVision and could continue to grow due to political uncertainty.

A CDS is a financial instrument which allows transferring the credit risk associated with a debtor. CDSs become more expensive as the risk of debtor default increases, in the case of companies, as well as in the case of countries.

The current level puts Romania among the ten riskiest countries in the world. Amid increased politic risk, Romania"s quotations started rising last week, with the leu losing ground against the Euro. "This is a reaction to the political instability, which is reflected in the exchange rate.

This means less investment opportunities in Romania and more expensive financing", an analyst said.

The top spots in the ranking of the countries with the highest risk of default for five-year sovereign debt are held by Venezuela (1092), Argentina (745) and Greece (663), according to Bloomberg. Also, countries for which risk perception has worsened lately include Dubai (414.65) and Ukraine (508.98), which have very high levels of public debt.

The lowest quotations are those of Bulgaria, (223), Hungary (275) and Russia (143), whereas Norway is well perceived among investors, as its CDS is quoted at 22 basis points, followed by Sweden with 29 points.

In the beginning of 2009, the perception of Romania worsened, and its CDS quotations climbed to 600-700 basis points, 2-3 times higher than the level at which they stabilized after the conclusion of the agreement with the IMF and the European Commission. In March 2009, Romania"s CDS quotation reached 760 basis points, as investors were worried that many European countries would experience major economic issues, which caused their sentiment on Romania to turn negative.