FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT JUNE 2012
BUCHAREST STOCK EXCHANGE
CAPITAL MARKET DEVELOPMENT AND ECONOMIC OUTLOOK
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 public-
sector 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 public-sector 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).
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
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.
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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