Stewart believes it is regrettable that the international financial world no longer has the powerful leaders of the past to get together and decide on a way out of problems.
He notes that, back in the days of the Latin America debt crisis in the eighties, major U.S. banks had famous bankers at the helm, as did the Federal Reserve and the Treasury, who got together, talked and found a solution to restructure debt. Today, he no longer sees similar people in major banks in the world so that decisions in unison “are much more difficult to make”.
Stewart warns that it will take many years for banks to reduce exposure, which will translate into low economic growth.
“You cannot get out of a twenty-year massive lending streak in only three years.”
Commenting on the Finance Ministry’s policy, James Stewart says that it is back to announcing one thing and doing something different at government paper auctions. The market sees it as an alarm signal, which will eventually lead to higher costs, even though the government is currently pressuring for lower interest rates.
“The financing program announced is a reference for investors and the public debt strategy sets the rules of the game. If I as an investor look at the rules and see you drastically deviate from what you said you would do, I take it as an alarm signal and yields shoot up,” Raiffeisen Bank’s official says, explaining that investors adopt a specific position when they know the Finance Ministry sticks to the program, which changes when they have no idea what the ministry is going to do.
“The cost will eventually be higher but this price of inconsistency is not yet understood,” Stewart said commenting on the Finance Ministry’s decision at recent auctions, when it turned down lots of bids and only raised 15% of the announced issue values.
This dispute between the ministry and banks is nothing new, and two sides react the same way on various occasions. The moment there is pressure on yields, the Finance Ministry slashes the amount raised and reverts to low maturities of six to nine months, to attracting short-term deposits or to unusual maturities such as the recently launched eleven-month maturity.
The government believes it saves money on short term but bankers say costs will be higher in the long run. What’s for sure is that twenty years down the line Romania still has no long-term reference rate for the leu and also no long-term leu loan market.
On the other hand, one of the consequences of the low development level of the country’s capital market is that the money collected by pension funds goes abroad because the local market is much too thin and does not provide the investment opportunities such investors look for, Stewart says.
Generali, for instance, has 40% of its portfolio invested in stocks in France and Germany, while BCR invested 23% on the stock market of Poland. The bourse in Vienna is yet another destination for local pension funds.
Raiffeisen official admits he would really like to see a more powerful stock market in Bucharest but believes the trend will ultimately be for a regional consolidation of such markets especially when the euro zone advances towards the East.
The banker, who has a twenty-year Wall Street experience says he would like to see Romania’s government make as much progress as Poland’s when it comes to floatation and privatization of state-run companies, and work with more specialized companies to improve the professional standards of such operations.
(English version by Loredana Fratila-Cristescu)