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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011
BUCHAREST STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The government will continue to face legal
challenges from the opposition as it tries to
pass laws through parliament by "taking
responsibility" for legislation, which prevents
laws from being debated, or amended, in
parliament. This in effect forces the opposition
to call a vote of no confidence, which requires
a majority of both chambers of parliament
(236 out of 471 potential votes, regardless of
the number actually voting) to be successful
and overturn the legislation. The government
"assumed responsibility" for the draft unitary
wage law and the draft law on the publicsector
wage bill for 2011 on December 14th.
The opposition filed votes of no confidence in
the government to oppose the bills, but both
attempts to defeat the bills failed.
The unitary wage bill, which establishes a
single wage "spine" for all public-sector
workers, with jobs graded according to
predetermined rules and a maximum
differential between the highest and lowest
wage, will enable the government to determine
the total size of the public-sector wage bill and
prevent the payment of arbitrary wages as a
form of political patronage. The public-sector
wage law for 2011 establishes that publicsector
wages will rise by 15% in 2011
compared with their October 2010 level,
following the 25% cut in public-sector wages in
July, which opposition parties, together with
the junior coalition partner, the Hungarian
Union of Democrats in Romania (HUDR), had
viewed as a temporary measure. Both bills
were required under the IMF stand-by
agreement.
Economic Environment
The continued build-up of stocks in the third
quarter prevented a more substantial fall in
GDP than the recorded year-on-year fall of
2.5% (2.2% when adjusted for seasonality and
the number of working days). The Economist
Intelligence Unit estimates on the basis of data
provided by the National Statistical Institute
(INSSE) that increases in stocks were
equivalent to 5.2% of GDP (unadjusted for
seasonality and the number of working days)
in the third quarter of 2010, compared with
0.9% in the year-earlier period. Additions to
stocks, after adjusting for seasonality and the
number of working days, were equivalent to
3.7% of GDP. There was also a modest
improvement in net exports, which rose from
minus 7.2% of GDP in the second quarter to
minus 4.3% in the third quarter on a gross
basis, while the trade deficit (including
services) improved as a percentage of GDP in
each quarter of 2010 (adjusted for seasonality
and the number of working days).
Data from the INSSE indicate that gross fixed
capital formation (GFCF) grew from the
equivalent of 17.1% of GDP in the first quarter
to 26.8% of GDP in the third quarter on a
gross basis, while consumption fell from 90%
of GDP to 72.2% over the same period.
However, after adjusting for seasonality and
the number of working days, GFCF fell from
25% of GDP in the first quarter to 21.3% in the
third quarter, while consumption rose slightly
from 79.6% to 80.7%. GFCF (on a gross basis)
fell by 13.7% year on year in the third quarter
and by 16.1% in the first three quarters.
Sovereign risk
Stable: Domestic public debt is rising fast, but
foreign-exchange reserve coverage is good.
The Economist Intelligence Unit expects the
authorities to sign a new IMF agreement in
early 2011, and Romania should not
experience financing difficulties in 2011-12.
Currency risk
Stable: Estimates of equilibrium exchange
rates suggest that the leu is still overvalued,
posing problems for competitiveness.
Although the leu steadied in the third quarter
of 2010, it remains vulnerable to negative
market sentiment.
Banking sector risk
Stable: The risk of contagion from the Greek
crisis has receded. However, the wider euro
zone crisis remains a cause for concern.
Banks face deteriorating asset quality and
rising provisioning costs that are squeezing
profits.
* The Economist Intelligence Unit, January 10, 2011
Information obtained from the Exchange.
Key Information Contacts
National Securities Commission www.cnvmr.ro
National Bank of Romania www.bnro.ro
National Institute of Statistics www.insse.ro
Ministry of Public Finance www.mfinante.ro
Romanian capital market www.kmarket.ro
Romanian Asset Management Association www.aaf.ro
Private Pension System Supervisory Commission www.csspp.ro
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