The tables have turned: the money in the treasury allows the Ministry of Finances to feel comfortable enough to reject the interest rates offered by banks during T-bills tenders, to extend the maturities for the money it borrows - all that without having to resort to the foreign capital markets in order to avoid the big interest rates levied by the local banks.
With budget revenues posting a constant increase and with interest rates dropping, the Finance Ministry is now able to try and resume their strategy to finance the budget deficit and the public debt by T-bill issues with increasingly longer maturities, characteristic for the mature financial markets.
Even though the banks are not rushing to tie up their cash for two years instead of six months, for instance, the Ministry of Finances is using the monthly schedule of T-bill issues to rule out short maturities. As the Romanian market's history of instability is well-known, even two years can be deemed as long-term, and the attempt to force an extension of maturities is still a major credibility test, similar to the effort aimed at maintaining the declining inflation trend.
The State Treasury managers are so optimistic that they are even planning to test the market's appetite for government securities maturing in five years, at a fixed interest rate. According to Finance Ministry officials, they will also continue to offer five-year bonds with interest rates that follow the inflation trend. However, this type of instruments has not been very popular lately, as the market has been asking for margins larger than five points over the forecast inflation rate.
After a fourteen-month break, the Ministry of Finances last week accepted to borrow money from the domestic market at a two-year maturity, managing to obtain a maximal rate of 13.95% annually. This is close to the July 2003 levels, when the yield curve for this maturity was broken.
In July 2004, after a long break, the first T-bills maturing in three months were sold, for an interest rate of 13.90%. Since then, only two other bids were accepted, with the rate having gone down to 13.15% annually.
At the same time, the Ministry of Finances cancelled, during the course of a month, previously scheduled issues of T-bills maturing in up to one year, and announced new issues, maturing in two and three years.
As for financing from international markets, which was heavily promoted by the Ministry of Finances last year, the launch of a new eurobond issue has been postponed for next year. Thus, after four consecutive years of struggles to make a comeback on the foreign markets, Romania has decided against enriching its portfolio of instruments in 2004, leaving the investors to play with the old bonds.
But why is the Ministry of Finances relying on such a strategy? After the first seven months of the year, the budget deficit was merely 0.1% of GDP (2,930bn ROL), down more than half a percentage point from the end of the first half.
razvan.voican@zf.ro
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