The euro yesterday hit a record low against the American dollar, the value of one euro being worth 0.08822 dollars. Forecasts are very gloomy for the following period as well, which affects Romania as far as exports and inflation are concerned.
Romanian exporters maintain that following the euro’s decrease they will lose one billion dollars this year, as over two thirds of the exports’ volume are aimed at the European Union.
This year’s inflation increase was based on the euro’s depreciation, triggered by the decrease of the leu-dollar exchange rate imposed by the National Bank of Romania (NBR), which intended to indirectly avoid an appreciation of the leu/euro exchange rate, which affects exporters even more.
This is why the leu/dollar exchange rate is one thousand lei higher than scheduled. The leu’s depreciation influences inflation by more expensive imports having as consequence, for instance, establishing public utilities tariffs according to this indicator.
The leu depreciated against the euro by 12% as compared to the beginning of the year, while the dollar went up by 27% and inflation might stand around 30% over the same period, given the figure registered after the first seven months, of 24.1%.
“Taking into account that Romania’s exposure towards the EU is of 60-70%, revenues derived by Romanian exporting companies might be affected. If imports meant to add more dollars to the initial export figure are made, effective financial losses will be registered,” says Cornel Stanescu, Romanian International Bank vice-president.
Exports might be protected by indexing clauses against the dollar for the price of foreign trade contracts, but analysts say that these mechanisms are unknown by most Romanian exporters
“Considering that Romania’s exposure toward the EU is of 60-70 percent, revenues derived by Romanian exporting companies might be affected. If dollar-denominated complementary imports are operated, then effective financial losses will be registered,” says Cornel Stanescu, vice-president of Romanian International Bank.
Exports could be protected through indexing riders against the dollar for the price of foreign trade contracts, but analysts say that most Romanian exporters, which are old state-owned enterprises, are not acquainted with these mechanisms.
“Romanian exporters are not that powerful and their goods are not in such high demand for them to be able to negotiate with German importers for instance, but they simply export at lower prices.
Therefore, they cannot impose indexing riders to cover losses derived from the devaluation of euro and implicitly of the Deutsche mark,” says Daniel Marinescu, executive manager with Vanguard Asset Management investment company.
“Most Romanian exporters are old state-owned enterprises. For their managers, hedging remains an unknown notion. Managers should get down to reading or export to America. There are no easy solutions for a complicated issue,” he says.
“Exports for those who count on relations with the EU will be smaller, but I am sure that the EU will remain the main retail market for Romanian exports.
I do not think there will be major re-orientations, especially since products are not very easy to sell allowing us to afford changing France for America, for instance,” says Radu Gratian Ghetea, chairman of the Romanian Association of Banks ad prime vice-president of Alpha Bank.
Exports call for the introduction of a currency basket made up of the euro and the dollar, in proportions corresponding to those of the Romanian foreign trade, but its introduction under the current circumstances is difficult from a technical point of view as it imposes two payment currencies. Moreover, evolutions registered on the international capital markets might reverse.
The basic explanation behind the drop in the single currency is the difference between the economic growth posted by the United States and Europe.
The United States is registering the highest economic growth of the last ten years based on the new economy, being a step ahead Europeans and attracting more European money.
Therefore, there is not much exporters can do. A possible solution would be firm procurement contracts on the domestic market with protection provisions against price increases.