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Investors prefer Hungary as the reform in Romania seems good only on paper

Hungary and Romania, both beneficiaries of financial support on the part of IMF approached different policies for economic relaunching, but the conservative strategy adopted by the authorities in Bucharest does not draw investors, Reuters says.

Even if the majority of economists are reluctant to Budapest's concentration on demand stimulation, instead of reducing the budgetary deficit, the analysts say the high yields of bonds and higher liquidity on the financial marekt keep the presence of investors, Mediafax says. The way chosen by Romania towares an economic growth estimated at 4 – 4.5% in 2012, a campaign of cost reduction under IMF supervision, seems more convinging according to analysts, but the markets are so small that investors in Central and Eastern Europe do not feel obliged to get involved.

« Both countries try to solve budgetary matters by different approaches. But the realities of the market are very different » Koon Chow, analyst with Barclay's Capital says. The two countries have debts and liquidity and differ as regards the manner in which the government of Romania was capable to control every element on the market by intervention, as well as by the refusal to sell bonds over a certain yield » Chow said.

IMF estimates for Hungary an economic growth of 3% in 2012, but premier Viktor Orban aims at an advance of 5% after rejected the Fund's recommendation to reduce public expenditure which represent 50% of GDP. In spite of ratings at the level of « junk » non-recommended for investments, the cost of ensuring the debts (CDS) was on Friday 260,260 dollars for 10 million dollars. In the case of Hungary, whose rating is superior by one level, the CDS costs were higher 275,730 dollars. The forint had a better evolution than the leu, with a growth of 2% for this year, as compared to a depreciation of 0.7% of the Romanian currency.

IMF and the European Commission supported Hungary and Romania during the peak moment of the financial crisis, with programmes of financing of 20 billion euro each, in exchange for some tough measures of austerity.

Premier Emil Boc makes efforts to observe the recommendations of the Fund, by reducing the salaries of public servants, pensions and other costs, while Orban decided not to prolong the agreement with the Fund and finalise the expenditure and reductions of taxes by a special taxation of the big companies and renationalisation of some pension funds of 14 billion dollars.

There is the chance that Hungary observes the target of economic growth of 5% after getting a new production unit for Daimler in 2012 and finalising the extension of the Audi factory.

IMF and the former budget council in Hungary, dismissed by the government last year anticipated that the advance of the GDP would be under the level of expectations. IMF warned that the budgetary deficit would go up to 7% of GDP.

The fund recommended the authorities in Budapest to reduce public expenditure by almost 4% of the GDP, as the level is higher by comparison to other states in the region. IMF warned that fiscality reduction could lead to smaller budgetary income as there is not strong coming back of economic activity.

On short term, investors considered that special taxes imposed to companies in some sectors and the nationalisation of pensions funds will allow Hungary to be financed for at least one year. The market expects details as regards a three-year plan, of 600 – 650 billion forint ( 2.98 – 3.23 billion dollars) of reduction of the budgetary deficit.

If the Hungarian government does not present accoutable measures « the market could adopt a different position against the present one » Elisabeth Gruie, analyst with BNP Paribas said. The analysts consider that the majority of investors prefer Hungary, instead of Romania whose markets benefit from a reduced foreign participation and fewer assets for sale.

The National Bank of Romania intervened last year to keep the leu at almost 4.1-4.3 units/euro and the government refused to sell bonds at high yields, thus reducing the opportunities.

« Investors give Hungary the benefit of the doubt, as it is a market actively traded » Nigel Rendell, analyst with RBC says.

He explained that investors are willing to accept this fact, as they get yields of 6% instead of 3.5% as in Poland. In the case of Romania, it will take two years for the market to become attractive, Rendell considers.

Sursa: http://www.actmedia.eu

Tags: market raquo dollars investors budgetary economic hungary romania audi euro

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