Romanian Govt. will eat into cash buffer as banks are reluctant to finance the state
Romania’s finance minister Eugen Teodorovici announced that he instructed the Treasury to no longer borrow money from the local market since the cash buffer is large enough to finance the deficit for six months.
“Once again: the Ministry of Finance has enough money to finance [the deficit]. You know this very well: we have in the Treasury enough money to finance [the deficit] for a long time, at least six months,” Teodorovici said, according to local Agerpres.
On Tuesday, January 29, the Treasury rejected all the offers submitted by banks for bonds with a residual maturity of slightly over ten years.
While the Treasury’s buffer could well cover six months of Government’s net spending, a significant decrease in cash reserves would have a major impact on the cost of borrowing.
It is rather an escalation, highly risky and potentially costly for the Government, of the tense relations with local banks, which started with the supplementary tax on financial assets, adopted at the end of December, with no prior consultation.
Eugen Teodorovici implied that the Finance Ministry's decision not to borrow from local banks came as a result of an artificial increase in borrowing costs.
Minister Teodorovici said that he wanted to discuss with the banks’ association ARB and the National Bank of Romania (BNR) on the effects of the emergency ordinance 114/2008, but “one of the parties” refused the dialogue. Nonetheless, the Government will have the opportunity to discuss with BNR officials in the macro-prudential surveillance council CNSM that brings together both sides.
(photo source: Gov.ro)