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.
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.