Analysts say the package may have to be larger than the likely current intentions of the Romanian authorities (12 bln euro from IMF and 7 bln euro from European Union), if they seek to reduce the imbalances that result from overvalued exchange rates.
A funding package of roughly 19 bln euros would not fill the financing gaps both for 2009 and 2010 estimated by Merrill Lynch analysts at 26 bln euros in 2009.
Merrill Lynch’s baseline scenario is quite conservative, assuming a relatively low rollover ratio of 55%. “We do see a risk that a package of the size reported sought by the authorities could be insufficient to plug the financing gap for 2009 and 2010”, Merrill Lynch says.
Merrill Lynch has drastically revised forecasts for Romania’s economic growth for this year and 2010, lowering the average growth forecast for Central and Eastern Europe by 1.9 basis points.
For 2009, Romania’s economy could fall by 1.5%, compared to prior estimations of 1.5% increase, while for 2010, Merrill Lynch sees 5% decrease of economy versus 2.7% increase in prior expectations.
The adoption of an IFM program will lead to a wide narrowing of the budget deficit and of GDP in 2010.
Merrill Lynch’s expectations are slightly more conservative than JP Morgan’s scenario wherein the local currency would follow a similar performance as the forint. “It is likely to see a weakening of the leu if the central bank will not try to defend a certain exchange rate”, Poljhar added.
“An IMF rescue package does not alter the fact that the leu remains fundamentally overvalued”, reads a report of British research institute Capital Economics.
“The currency has remained suspiciously stable during the recent turmoil, perhaps suggesting that the National Bank has been intervening to smooth fluctuations in the exchange rate”, Capital Economics analysts said.
The leu’s neared 4.30 lei/euro in today’s early trades, in tune with the regional market sentiment, almost all emerging currencies in the region loosing massively against the single European currency.
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