Thursday, June 14, 2012

Romania Gets 1 Billion-Euro World Bank Loan as Yields Rise

Romania got a 1 billion-euro ($1.3 billion) precautionary loan from the World Bank as the European sovereign-debt crisis pushes borrowing costs higher and prompts the government to sell less local debt.

The Balkan nation plans to use the new loan, approved yesterday by the Washington-based lender, to strengthen its financing buffer and cover four-month budget spending as pledged to the International Monetary Fund and the European Union, Peter Harrold, the World Bank’s country director said today. Romania will be able to draw on the money should external conditions or the debt crisis worsen, Harrold said.

Romania, which has borrowed about 35 billion lei ($9.8 billion) from the domestic market and an additional $2.25 billion from the U.S. market this year, sold only half of the planned amount of leu-denominated bills and bonds this month after yields increased by about 20 basis points.

The increase in Romania’s borrowing costs “is what you should expect as there’s a very high degree of uncertainty,” Harrold said in an interview in Bucharest. Romanian authorities “may not have had all the success they wanted but they are still well ahead with the financing program for this year. They are very close to completing the financing program for this year.”
The World Bank can extend the maturity of the Romanian loan after the initial deadline of three years expires, while the negotiated amount is fixed, according to Harrold.

The bank joined the IMF and the EU in a 5 billion-euro precautionary agreement with Romania over two years, signed in March last year. The Balkan nation hasn’t drawn any money so far from the loan.

“We judge the impact of this increase in the public debt managers’ buffer as marginally positive,” Vlad Muscalu, an economist at ING Bank Romania SA, wrote in a note to clients today. “An increased liquidity buffer can allow the public debt managers to limit issuance for a longer period but during this time frame the demand for debt does not consolidate if the buyers are in a deleveraging mode.”

Romania should not extend its “departure from usual market practices,” as the cost of returning to the markets would be steeper, Muscalu said.

The ministry sold 843 million lei in one-year bills and two-year bonds in the first two debt sales this month, less than the 1.7 billion lei planned, according to the central bank. The yields increased to 5.29 percent for the bills and to 5.73 percent for the bonds.

The country has changed two governments this year and is scheduled to hold general elections in October or November after having local elections on June 10. Prime Minister Victor Ponta’s government pledged to continue the accord with the lenders and cut the budget deficit to below the EU limit of 3 percent of the gross domestic product this year, while restoring public-sector wages after a 25 percent cut in 2010.
To contact the reporters on this story: Irina Savu in Bucharest at; Andra Timu in Bucharest at

To contact the editor responsible for this story: James M. Gomez at

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