Massive capital outflows prompt foreign currency deficit

Money is leaving Romania. Have the multinationals reached the consolidation stage and stopped reinvesting their profits? It is certain that capital outflows have been obvious on the interbank forex market for some time, as demand clearly exceeds the offer. Last month, the foreign currency deficit reached 150 million euros. Since the beginning of May, the deficit has gone up to 77 million euros.
There are no official explanations for this phenomenon yet, but the capital outflows have been confirmed.
There is one plausible explanation – the mother-companies of the foreign capital firms on the Romanian market want their money to come home. This is mainly the case of those companies that were established several years ago and have completed their investment programmes for the current stage. Moreover, the plunging rates offered by Romanian banks for deposits have worked against keeping the money in the country.
IMF experts have also noted that Romania has been facing larger-than-expected capital outflows in the first months of the year, but their exact nature “has not been identified yet.”
“After five years of operations, it is only natural for a foreign company to start repatriating earnings. The foundation is already there. Moreover, why should they reinvest now, when there are no fiscal incentives to prompt them to do it,” says Mihaela Mitroi, a tax director with PricewaterhouseCoopers.
National Bank of Romania (NBR) Governor Mugur Isarescu last week acknowledged the significant foreign currency deficit from the interbank market, but volunteered no further details as to the causes behind this situation.
“As a general formula, and not very explicitly, it can be noted that we have a weaker capital account than we did last year,” Isarescu said.
According to the NBR Governor, the transactions concluded in the first months of the year have showed that more foreign companies choose to repatriate profits, as they have stopped reinvesting profits.
The increasing foreign currency deficit, as compared to the past years, has triggered a more significant climb of the exchange rate.
Former Finance minister Daniel Daianu feels that capital outflows have been triggered by the plunging passive rates. At the same time, the analyst notes much larger profit repatriations as compared to last year and identifies liquidity problems for those international companies that pull their funds from the emerging markets.