Volatile exchange rate upsets corporate budgets

Increasingly profound exchange rate fluctuations are giving headaches to managers that chose to borrow in foreign currency and also to those trying to conduct their business in an environment that has suddenly become completely unpredictable and marked by threats.
The shareholders and chairmen of a number of major companies on the market say the NBR should do more to ensure exchange rate stability, to reflect the over 25bn euro foreign exchange reserve.
They wonder whether the RON can be considered a defenceless currency amid tensions on the international financial markets.
“Monetary policies need to be enacted so that the domestic currency does not face speculation. The depreciation of the RON is a problem that should concern the entire business community,” stated Dan Ostahie, chairman of Altex, the largest electronics retailer on the domestic market, whose business stands at 300 million euros a year. He says that the volatility of the market has been even worse than the depreciation of the exchange rate in the past year, given the 20% fluctuations of this rate.
Dan Sucu, Mobexpert group owner, says that such a high volatility prevents him from building long-term plans.
Last summer, the RON reached 3.11 RON/EUR, after an almost constant appreciation of nearly two years. Last autumn it started to go up, and peaked at 3.62 RON/EUR (the official exchange rate) and then went down towards the end of the year, when the remittances of those working abroad put pressure on the exchange rate.
The euro resumed appreciation at the beginning of 2008, speeding towards 3.8 RON/EUR.
The automotive industry, one of the most important economic sectors in terms of export value could be the worst hit sector if the RON exchange rate does not stabilise any time soon.
“We weren’t ready for a 3.7 RON level. We had anticipated a 3.2-3.55 RON/EUR level. At 3.7 all producers will be affected and problems will come up,” said Constantin Stroe, vice-president of Automobile Dacia.
Despite the depreciation of the RON that upset the budgets of many domestic companies, there are also players who took steps to shield themselves from the major fluctuations on the forex market.
Alro, ArcelorMittalGalati and Carrefour are some of the companies that preferred to shield themselves from the exchange rate fluctuations, while others like Rompetrol Metro and Selgros do not believe they need to.
Aluminium smelter Alro Slatina, controlled by Vimetco Netherlands signed two forward contracts with Deutsche Bank last week, worth 131 million RON (37 million euros). For both agreements the transaction starts in February and ends in December.
Steel producer ArcelorMittalGalati has taken similar steps and applied hedging policies through the banks with which it works worldwide, like Citibank, ABN Amro and BRD.
Petroleum company Rompetrol taken over by Kazakhstan-based KazMunaiGaz did not believe forward contracts were necessary, because both the raw material and its exports are paid in dollars.