Franklin Templeton executive: Romania has gone from risky to Eastern Europe’s darling

The severe measures taken by the Romanian authorities in the wake of the financial crisis have paid off, as they restored the country’s competitiveness and made it attractive for foreign investors. However, Romania must work on developing its equity market, which lags behind the bond market, according to David Smart, Managing Director of Franklin Templeton Solutions. As the head of Franklin Templeton's sovereign funds division, David Smart was one of the key people who helped the American group set foot in Romania and win the contract to manage Fondul Proprietatea, Romania's largest investment fund, in 2009. Those were difficult times, when Romania would turn to the International Monetary Fund and the European Commission for a EUR 20 billion loan to keep its banking sector afloat and to prevent an abrupt depreciation of the local currency. David Smart thinks that Romania has made much progress since then in balancing its economy and financial situation. “Romania and the Baltics took some short-term pain after the financial crisis, implementing harsh austerity measures, but they are better right now than most of Europe. Romania has gone from being perceived as a risky investment destination to being the darling of Eastern Europe,” Smart said in an interview with Romanian journalists at the Franklin Templeton brand new headquarters in London. He said that Romania is interesting for International bond investors due to several factors, such as the robust economic growth (+2.9% in 2014), the low public debt to GDP level (under 40%) and the stable exchange rate of the Romanian currency to the euro (around RON 4.45 per EUR). He also mentioned the progresses the country has made in recent years in fighting corruption and in improving the corporate governance of state-owned enterprises among the reasons why Romania is now more popular. “As long as complacency doesn’t set in, there is a good chance Romania will continue to do rather well. The country’s labor market is very competitive, and the quality of the people is a key cornerstone for its development,” Smart said. He added that Romania’s Ministry of Finance is going in the right direction as it has been working on extending the maturity of the public debt. Last year, Romania went out on international markets with 30-year bonds in US dollars. The Finance Ministry sold bonds in foreign currency worth USD 2 billion and EUR 2.75 billion in 2014. The yields on Romanian 10-year bonds declined from 6.8%, in January 2012, to under 3%, in October 2014.

“The fundamentals have worked very well. Romania has been a good place to be invested in the bond market. Not so long time ago we would get 2-figure interest rates. Now, the 10-year bonds pay some 2.9%, which is still generous compared to the rest of Europe. This is why you will probably find higher interest in the Romanian bond market, as the RON is stable to the euro,” Smart said.