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Romania’s rocky road to reform

Romania is vulnerable to the global credit crisis, with its current account in deficit, a budget shortfall and a domestic credit binge.

A time to borrow

Its current account deficit, budget shortfall and domestic credit binge are certainly a worry, but solutions are in sight. Chloe Hayward reports from Bucharest.


ROMANIA IS PARTICULARLY vulnerable to the global credit crunch, unlike many emerging countries. It has a worryingly large current account deficit and an increasingly leveraged economy. The market is certainly pricing in tougher times ahead. Five-year credit default swap spreads for the sovereign doubled in the first six weeks of this year, reaching a high of 175 basis points, and the Bucharest stock exchange slumped by 24%.

Some believe that the pessimism is not warranted. "We think that the CDS widening in Romania has been a bit overdone and have been recommending selling CDS protection," says Arend Kapteyn, chief economist for Emea at Deutsche Bank. "The country is vulnerable but the government balance sheet is still OK and the central bank has about €25 billion in FX reserves, which covers 150% of short-term debt."

Alia Yousuf, head of emerging markets at Standard Asset Management, says: "Investors panic. It’s not so much that Romania has become a bad country – fundamentals don’t change that quickly.