Tuesday, October 28, 2008

Romania's Foreign Debt Cut to Junk by S&P on Budget

By Adam Brown and Gavin Finch

Oct. 27 (Bloomberg) -- Romania's foreign-currency debt rating was lowered to junk by Standard & Poor's as the global financial crisis weighs on the Balkan nation's economy and the government boosts spending before parliamentary elections.

The rating was cut to BB+, one step below investment grade, from BBB-, with a ``negative'' outlook, S&P said in a statement from London today.

``Difficult global and financing condition, accompanied by expansionary fiscal and income policies ahead of the upcoming elections, have progressively heightened downside economic risks,'' the ratings company said in the statement.

Emerging market nations including Romania are suffering from an outflow of capital, falling currencies and plunging stock markets as international investors shun risk during the deteriorating global economic outlook. Romania also faces Nov. 30 elections and lawmakers approved spending increases that Finance Minister Varujan Vosganian said may boost the 2009 budget deficit to 7 percent of gross domestic product from a target of 2 percent.

``Foreigners are going to be very skeptical now,'' Ionut Dumitru, the chief economist at Raiffeisen Bank Romania, said in an e-mail today. ``The rating decrease was unjustified. It's true that things have gotten worse and there were many electoral promises but the rating was already very low.''

Wage Battle

Romanian President Traian Basescu said today he favors a wage increase for health workers after he approved a 50 percent raise for teachers. His chief political rival, Prime Minister Calin Tariceanu, has said the raise would trigger demands and strikes from other state workers and ruin next year's budget.

Finance Minister Varujan Vosganian has said the raise would prompt strikes from other workers and may drive the budget deficit to as much as 7 percent of gross domestic product next year from the targeted 2 percent.

Politicians are increasingly fighting over state wages ahead of Nov. 30 parliamentary elections. The elections are a three-way fight between the opposition Social Democrat Party, the National Liberal Party led by Tariceanu, and the Liberal Democrat Party, which backs Basescu.

Sed Lex, the union that represents more than 100,000 public sector employees said it will strike as early as this month to back a 50 percent raise for all its members.

``In 2009, the rapidly worsening economic outlook is likely o lead to an even wider budget deficit,'' S&P said today. ``The negative outlook reflects the possibility of a downgrade in the event that tightening of external finance conditions lead to a sharp downturn in economic growth.''

To contact the reporter on this story: Adam Brown in Bucharest at abrown23@bloomberg.net

1 comment:

Drago said...

Does anyone have some general predictions on this? What will happen to Romanians because of this lower rating? I'm asking mostly for educational reasons..