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Bulgarian parliament committee approves last-minute electoral code changes

Asked On: October 20, 2016

Question: Goodmornig, as far as I have understood, by accepting the amendments to the election code, the “do not support anyone” will be counted as valid in forthcoming presidential elections. Thus, they won't be excluded when calculating the candidate who gathered the highest amount of votes at the first round (as far as I know, previously, parties wanted to consider this vote only for the turnout). In this case, what happens if the “do not support anyone” obtains the 50%+1 of the votes? Thank you

Answers: Thank you for the question. According to the electoral code, president (and the respective vice-president) is elected in the first round in case he/she has received more than half of the valid votes and the turnout exceeded 50%. The counting of “do not support anyone” votes will indeed make achieving such a result more difficult. The code also says that in case no candidate receives such a support, there will be a runoff within seven days. Then, the voters will choose between the two candidates that had the best and second best performance in the first round.   However, in the runoff there is no requirement for receiving more than half of the votes. Instead, the code says that the elected candidate is the one who received the most votes. The counting of “do not support anyone” hence does not prevent the election of the president.

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PNL to hold rally on November 5 to support PM Dacian Ciolos

Asked On: October 19, 2016

Question: Thanks for this article. Can you provide more details about what is proposed in the Romania 100 Platform?

Answers: Hello, thank you for the question on this topic. The “platform” Romania 100 launched by PM Dacian Ciolos is essentially a political vehicle that helps National Liberal Party (PNL), Save Romania Union (USR), President Klaus Iohannis and its author – PM Ciolos, joint together under same umbrella without breaching the Constitution and without hurting the political egos (or ambitions) of the two political actors in the group (PNL and USR), ahead of the parliamentary elections. Indeed, the platform was backed by both PNL and USR, which expect to boost their combined scores and change the political balance that at this moment, according to the polls, indicate Social Democrat Party (PSD) would form the majority with its ally ALDE. We believe such a performance (changing the balance) is not unlikely, particularly as ALDE leader (also Senate’s leader) turned radical against anticorruption directorate DNA. Making anticorruption the core electoral debate helps new parties like USR or new political entities such as Ciolos’ platform. In fact, this might be another aim of the platform – diluting the identity of PNL as an “old” party, by the addition of USR and technocrats. PM Ciolos said that the platform is for the use of any party winning the elections. This was another good marketing move. Social Democrat Party (PSD) accused Ciolos of plagiarism, claiming that all the strategies included in the platform are copy/paste from PSD programmes. And PSD leader Liviu Dragnea might be right, with the note that the general ideas expressed by Ciolos can be found in all the political strategies expressed in Romania over the past 25 year.  Structurally, the platform is designed in three layers: the first layer is for the marketing of the product, a series of ten “beliefs” expressed by Ciolos. They are designed to be strong statements (sort of political Decalogue), but some believe they are a bit excessive particularly in contrast to the "current" performance of the government of technocrats headed by PM Ciolos [the real performance of the government is likely to be measured with a lag]. The second layer describes what PM Ciolos would do as PM in the first 100 days of his new term: change the structure of the government, reduce bureaucracy and use IT extensively in public administration. Prioritisation of public investments and best use of EU funds. The third layer outlines the main national projects that, according to PM Ciolos, should be pursued by any government. This means broader public administration reform, unification of the wage system in the public sector and the enforcement of the anticorruption strategy. Among the national projects there is a document drafted by the ministry of economy (Competitive Romania 2016). There are no radical ideas included (such as questioning the role of FDI, or renewable energy above certain threshold, or protectionism). Ideologically, the economic programme is rather of neo-liberal extraction, in line with IFIs recommendations. Follows a translation of the platform (fast forward; if any clarification needed, please do not hesitate) Layer I: the Decalogue 1.       I support a corruption-free Romania 2.       I support a Romania with a responsible political class 3.       I support a Romania governed in good faith 4.       I support a Romania where everyone works and receives fair payment 5.       I support a Romania without poverty 6.       I support a Romania with a competitive economy 7.       I support a truly educated Romania 8.       I support a healthy Romania 9.       I support a Romania that has a voice as EU and NATO member 10.   I support a Romania of all Romanians   Layer II: actions for first 100 days Government must rethink ministerial-level functionality with a Cabinet formed by a handful of ministers, ministries merged with the principle of cluster development and a reduced number of implementing agencies and regulators.     Restructuring central government by amending Law 90/2001 sanctioned by law on the organization and functioning of the Government, to include a model of internal organization for each ministry, explaining powers to eliminate the risk of duplication of tasks.     Governance is built on cross-sectoral objectives, clearly assumed the benefit of citizens (eg coordinated investment, reduce poverty, reduce bureaucracy, administration digitization, modern infrastructure, etc.).     #ComisiadeTaiatHartii 2.0 (paper-cutting committee 2.0) becomes an independent institution within the Government Chancellery reduce bureaucracy and continue their mission in support of the citizens, entrepreneurs and simplify inter-institutional relations.     Institutionalizes government #GovITHub and Information Technology Coordinator. These institutions aim to ensure that IT investments of public institutions be made effective as a strategy and in the interests of citizens.     Government strategies, public policies and legislative projects undergo an initial assessment of their impact when adopting or once every 3 years. Those who fail the test the effectiveness and impact ceases automatically.     Consolidation of all national and European funds earmarked for development and a real multi-annual approach to their use. Budgetary funds which distributes money based on political clientelism without the basis of projects or plans for development and control mechanisms must be abolished.     Clearly prioritized public expenditure, impact assessment. Be operationalized and strengthened the Chancellery institutional assessment unit public investment. All government investments pass through this filter.   Layer III: broad national projects Public administration reform: amending Law 188/1999 regarding the status of public introduction of new criteria for recruitment, evaluation and their incentive. The objective is to create a public administration professional, competent, integrity, transparency, both at central and local level.     Changing the Framework Law 284/2010 on the unitary pay of personnel paid from public funds to eliminate discrepancies and discrimination between different sectors of the public sector.     Operationalization of the National Anticorruption Strategy, strengthening the National Agency for Administration of Goods seized (ANAB), Covenant multiannual financing and strengthening the judiciary.     Assuming and operationalization of the 17 chapters of Romania Competitive Strategy.     Creating a national program to support entrepreneurship as an engine of Romanian economy. Each dollar invested in public funds should support sustainable economic growth, quality, creating jobs and attracting private capital.     Continued anti-poverty package with budget allocation, legislative changes, deadlines for fulfilling commitments annually.     Legislative proposal to establish a multiannual financial framework, to ensure continuity of major investments in the economy by hiring multiannual budgetary resources. Romania's budget will be prepared to follow the program and objective, not the need for institutions to justify their existence.     Establishing a portfolio of investment projects of national interest, which benefit from European funds and national budget in health, education, infrastructure sea.     Prioritization of applied research, development and innovation as elements of growth of value added in the economy.     Encouraging the participation of the Diaspora in the economy through approaches such as "RePatriot" and follow-Diaspora Start-Up.     Review of legislation and creation of national forests program for the conservation and sustainable exploitation of them.     Reorganization of State Domains Agency in a structure that allows the purchase of agricultural land, land consolidation and reselling them to young farmers, so as to support local agricultural development, strengthen family farm, the associative forms and the middle class in the countryside.     A legislative package to encourage agricultural production and marketing (including export) of added value, the branch association and organization in agriculture and establishment of Agricultural Chambers as independent agricultural advisory structures and support for farmers, coordinated by them.     Continued investment in the cadastre of the country, especially for agricultural land.     Continuation and improvement of the program of prevention and risk management of earthquake and other natural disasters.     Continuing the change of perspective in the implementation of EU programs, with an emphasis on simplification, increased quality and impact of projects that they have funded programs in economics. Initiated development of innovative financial instruments using European funds.     Implementation of strategies for Integrated Territorial Investment from EU funds and national budget in the Danube Delta, the Jiu Valley, Moldavia, Rosia Montana-Western and identify other areas that require integrated intervention packages of public and private funds.     Training in optimal conditions Romanian Presidency of the EU Council in 2019.     Development of Bulgaria-Romania-Hungary pipeline Austria (BRUA) continuing the energy interconnection and strengthen the independence and energy security of the country.     Multi-annual approach to upgrading of the national historical and cultural heritage.     Supporting sports performance and development of a national program to promote mass sports.

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STOLYPIN: Late Putinism – between limbo and the lightning bolt

Asked On: October 12, 2016

Question: What is the latest on the missiles repositioning close to the Polish border?

Answers: Thank you for your question. The latest official Russian comments on the movement of the Iskander-M missiles to the Kaliningrad region of Russia that borders with Poland and Lithuania came on October 8. Major General Igor Konashenkov of the Ministry of Defence told reporters that the deployment of this particular missile systems in the region has happened in the past and will continue in the future as part of Russia's scheduled military exercises. No timeline for future exercises was provided. Earlier unnamed sources told Reuters that Iskander-M missiles were already transferred to Kaliningrad region during exercises in 2014. Meanwhile, Polish defence chief Witold Waszczykowsky on October 10 called the Russian actions an "inappropriate response to what NATO does". There has been no further Russian response that we are aware of. Best regards,bne IntelliNews team

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Turkey, Russia sign key pipeline deal as ties improve

Asked On: October 11, 2016

Question: what are the real chances of building of the second pipeline branch whose aim is to sell gas to Europe through Turkey? Has Gazprom the money to pursue in parallel all the projects it has announced (Nord Stream 2, Turkish Stream, Russia-China pipelines)? What would be the benefit of the second branch of the pipeline for Turkey since it would increase its energy dependence from Russia?

Answers: Thank you for your question. The net cost of the Turkish Stream project is still not clear at this stage. According to unconfirmed reports, Gazprom will be responsible for financing the sea part of the Turkish Stream, with the cost of the underwater construction estimated at between $3bn and $5bn.  This makes a considerable part of the $17bn investment program that Gazprom has reportedly announced to foreign investors earlier in 2016 and together with Nord Stream II and Sila Sibiri projects could indeed be a strain on Gazprom. At the same, time an unknown share of this amount has already been invested by the company in the Southern Corridor gas pipeline infrastructure, which has trasnformed itself into Turkish Stream. Also the final discount on gas purchasing price for Turkish Botas will influence the cost of the project. Given the political significance of the Turkish Stream project, it is also very likely that Gazprom will receive indirect state support to support the investment, such as an exemption or reduction of the new 50% of IFRS net profit dividend requirement for state-controlled companies (in January-June 2016 Gazprom made roughly $10bn in net profit). The Turkish Stream will indeed increase Turkey’s dependency on Russia which is already Turkey’s largest supplier of natural gas.  But Ankara hopes to get a 10% discount on the price of natural gas it imports from Russia as part of the deal. That would help Turkey reduce its large current account deficit in due course. Ankara would also benefit from transit fees. Best regards, bne IntelliNews team

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Azerbaijani financial authorities move to stabilise troubled Bank Standard

Asked On: September 28, 2016

Question: Dear Sirs,please let me know the 10-12 banks in Azerbaijan with low capitalization or probably at risk.Thank you

Answers: Dear Mackis,   The Azerbaijani financial regulator has not made the list of at-risk lenders public. However, based on the information we have, the following banks have low capitalisation: NBC Bank (AZN51mn in Q2/2016- minimum capital requirement is AZN50mn); BTB Bank (AZN51mn in Q4/2015); Nikoil Bank (AZN34.5mn in Q4/15) and Turanbank (AZN54mn in Q2). The banks with the highest percentage of NPLs are International Bank of Azerbaijan, Bank of Baku, Unibank and Accessbank. Please note that the majority of lenders (18 out of 33) have not reported any financial results this year, though, and it is believed that they did that in order to conceal their results.  This is all the information we have available at the moment.   Best regards,

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State giants reportedly agree to carve up Raiffeisen's Polish business

Asked On: September 12, 2016

Question: Is this type of collusion legal under Polish law?

Answers: Hi and thanks for your question. No, there does not seem to be anything problematic with this. Raiffeisen Leasing is a separate entity from Raiffeisen Polbank and whoever bids for RBI's Polish businesses does not have to bid for both leasing and banking operations.

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Romania’s PSD considers breaching integrity code to allow former PM Ponta to run for parliament

Asked On: September 9, 2016

Question: Could you send me some links or some info on the policy pledges of some of the smaller parties: ALDE, the national alliance, united Romania and the union to save Romania pls? Also what is their approval rating at the moment? thank you

Answers: Brief comments on the small political parties in Romania ALDE [7%] – was founded by Senate’s head, high-profile politician Calin Popescu Tariceanu, formerly member (and president) of the National Liberal Party PNL. Of liberal orientation, Tariceanu advocates strongly for an alliance with the major Social Democrat Party PSD. He resigned from PNL in 2014, when PNL (at that time headed by Crin Antonescu, now quasi-retired politician) pulled out from the USL alliance with PSD. The purpose of ALDE was replacing PNL in the USL alliance with PSD. Tariceanu was perhaps the first high-profile politician to openly criticise prosecutors of the National Anticorruption Directorate (DNA) for what he called “abuses”. He is involved in several corruption scandals and other might follow, but was he is indicted so far only for perjury. Preferred political ally: PSD Will it meet 5% electoral threshold? – most likely yes PRU [-] – was founded om August 2014 by former PSD low-profile (MP) member Bogdan Diaconu. At launch, the party has expressed extreme nationalist views. But the party has remained virtually unknown until September 2016, when a large number of MPs have migrated mainly from PSD [but not only] to PRU. Part of these migrants have integrity issues, under the PSD definition, hence cannot run in the Dec 11 parliamentary elections.  The party has toned down extremist views recently, but retain a “moderate” nationalist orientation. The strong flow of new members, not necessarily sharing extreme or even nationalist views, might change the party’s image. There were rumours about former PM Victor Ponta joining the party as president or about Mircea Geoana’s PSR merging with PRU. None of the moves was confirmed. At this moment, it remains a niche party, likely to absorb the nationalist voters [left without an option after the collapse of Romania Mare party with the death of its founder Corneliu Vadim Tudor], unless it turns into something completely different by merger or by attracting a high-profile leader like Ponta. Preferred political ally: any Will it meet 5% electoral threshold? – depends on which scenario develops before Dec 11 elections. With no “strategic investor” in party’s credibility, definitely no. With Ponta heading it, definitely yes. PMP [6%] – was formed by former Romanian President Traian Basescu after his term expired in November 2014. Basescu refused to return to his party, PLD, which was absorbed (though officially was a merger) by the National Liberals (PNL).  The party’s image is dominated by the personality of former president Basescu and has no clearly defined orientation or political doctrine. PMP has also absorbed UNPR – the union for Romania’s progress of former vice-PM in the cabinet of Victor Ponta Gabriel Oprea. Notably, PMP absorbed UNPR – an organisation formed mainly by retired career officers, only after Oprea stepped down and was replaced by Valeriu Steriu – who enjoys far more credibility than Oprea. UNPR was joined by some high profile public persons before Oprea’s retirement. Oprea had developed a “doctrine” of “national security” or military extraction but now the party’s orientation remains vague. It still probably holds developed country-wide network, which is essential for the parliamentary elections. Preferred political ally [for PMP]: hard to say Will it meet 5% electoral threshold? – very likely yes USR [4%] – was founded by the NGO activist Nicusor Dan, formerly founder of USB (Save Bucharest Union). After USB performed particularly well in Bucharest with the help of entrepreneurs and NGO activists, Dan was encouraged to expand his Union country-wide. The party enjoys the support of young voters, mostly from the newly-formed middle class. It is unsure whether his party will succeed in meeting the 5% electoral threshold.   Preferred political ally: none Will it meet 5% electoral threshold? – hard to say, no hint expected before elections PSR [-] – was founded by former PSD high-profile member (and president) Mircea Geoana after the presidential elections of November 2014 when PSD candidate Victor Ponta lost in front of PNL candidate Klaus Iohannis. Will it meet 5% electoral threshold? – most likely no, unless in an alliance; Preferred political ally: aby [but none really interested in it] Scores for the parties were derived from: Avangarde poll Jul 25 – Aug 2 PSD - 38% PNL - 29% ALDE - 7% PMP - 6% UMDR - 5% USR - 4% PNȚCD - 1% PER - 1% Others - 9%

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Russia offers EU a backdoor out of gas war

Asked On: September 8, 2016

Question: Good morning, I am studying the OPAL case due to the rumours of a possible revival of the amendment to the 2009 exemption and have a few questions. It is not fully clear to me why Gazprom has never fulfilled the conditions of the 2009 100% exemption (i.e. the 3 bcm gas release), which seems a low price to pay. Secondly, the 50% revised exemption which was asked by Gazprom in 2014 would potentially create competition: why would that be in Gazprom's interest? Conversely, if in fact the latter 50%exemption would result in the fact that the 50% of the auctioned capacity would probably be almost totally won by Gazprom, how would that be in the economic/strategic interest of the EU in the current circumstances?. Finally OPAL is linked to better use of Nord Stream 1 - but what would be the impact on nord Stream 2 (i.e.would full use of NS1 decrease the case for NS2, or rather encourage NS2)? many thanks in advance

Answers: Thank you for your questions. Please find the answers the below: Why Gazprom has never fulfilled the conditions of the 2009 100% exemption (i.e. the 3 bcm gas release), which seems a low price to pay. - The 2009 ruling by the EU stipulates that Gazprom is required to cap its use of OPAL at 50%, not 100%.  Secondly, the 50% revised exemption which was asked by Gazprom in 2014 would potentially create competition: why would that be in Gazprom's interest?- The formulation of your question implies that 50% limitation is in Gazprom’s interest and was initiated by the company, which is not the case. It is Gazprom’s obligation under the EU’s Third Energy Package to provide up to 50% of OPAL’s capacity to independent suppliers.  Conversely, if in fact the latter 50% exemption would result in the fact that the 50% of the auctioned capacity would probably be almost totally won by Gazprom, how would that be in the economic/strategic interest of the EU in the current circumstances?- Gazprom, as a shareholder in OPAL controlling both the supplies of gas and gas transportation, is required to provide 50% of the pipeline’s capacity to independent suppliers and cannot participate in the auctions of the freed up capacity.  Finally OPAL is linked to better use of Nord Stream 1 - but what would be the impact on Nord Stream 2 (i.e. would full use of NS1 decrease the case for NS2, or rather encourage NS2)- Nord Stream 2 is an extension of Nord Stream 1 pipeline, running parallel to it and seeking to double its annual capacity from 55bcm to 110bcm. The project is initiated by Gazprom and its European partners – Gazprom (50%), E.ON (10%), OMV (10%), Shell (10%), Wintershall (10%) and ENGIE (10%) and is planned to be brought into operation by the fourth quarter of 2019. Given that the involved parties are moving forward with the project and are actively seeking both political and financial support for it, one can assume that they see Nord Stream 2 as viable even should Nord Stream 1 operate at full capacity.  In a broad geo-political sense Nord Stream 2 is a plan of Russian energy strategy of bypassing Ukraine with European gas supplies by 2020. Consequently, the most vocal opponents of the project in EU are Poland and Slovakia, that both warn of energy security consequences and are risking to lose substantial transit fees revenues. Nord Stream 2 has not yet received EU regulatory approval, but one could make an assertion that any rule on OPAL positive for Gazprom and its German affiliates could be viewed as also favouring Nord Stream 2.Kind Regards,bne IntelliNews team

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US expands list of sanctioned Russian persons and entities

Asked On: September 5, 2016

Question: When you mention that sanctions have undermined and delayed a number of major long-term hydrocarbon projects, to which ones you specifically refer? many thanks in advance

Answers: Thank you for your question. The most notable cooperation in the hydrocarbon extraction field that was undermined by the sanctions is ExxonMobil and Rosneft’s joint ventures in the Arctic offshore shelf and the Sakhalin LNG project. Other reported cases of extraction projects compromised by the sanctions include the Rosneft deal with Norwegian offshore drilling company North Atlantic Drilling Limited (NADL). Although not directly attributed to the effect of sanctions, US oil and natural gas major ConocoPhillips also exited a joint venture with Rosneft. For further details please see bne IntelliNews stories: Thank you, bne IntelliNews team

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Kosovo sells €25mn of 12-month T-bills, yield drops

Asked On: August 18, 2016

Question: Good morning, I would like to hear from what webpage you get information regarding public debt levels? I had a website of the Ministry of Finance previously but the page has been deleted. Many thanks in advance.

Answers: Good morning, The exact URL is:,44   Starting from the finance ministry’s home page, you can go there by selecting “Departments\Treasury\Public debt\Public Debt Reports”.

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Polish banks set to loosen corporate loan terms

Asked On: August 2, 2016

Question: Do you have the actual volumes in lending for 2015 and 2016 for all segments mentioned in the note?

Answers: Thank you for your question. The volumes are as follows: in the entire corporate segment, the loans portfolio at the end of 2015 came in at PLN325.9bn (up from PLN300.9bn at the end of 2014). Out of that, the loans portfolio for large corporates amounted to PLN141.5bn (at 2014, year end - PLN125.3bn), for small and medium-sized enterprises - PLN184.5bn (at end of 2014 - PLN175.6bn). The volume of mortgages at the end of 2015 was PLN378.1bn (at end of 2014 - PLN353.5bn), while the volume of consumer loans came in at PLN126.5bn at the end of 2015 (at the end of 2014 - PLN118.4bn). This year (dat for end of May), the corporate segment's loans portfolio was at PLN339.8bn. Out of that, the loans portfolio for large corporates amounted to PLN148.9bn and for small and medium-sized enterprises to PLN190.9bn. Mortgages amounted to PLN384.8bn at the end of May, while consumer loans were at PLN130.4bn.

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EU's posted workers rules anger Eastern Europeans

Asked On: July 21, 2016

Question: HI can you send me the link to the proposal please? thank you


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Asked On: July 21, 2016

Question: hello, when the foreign currency loan conversion bill will be discussed by parliament again?

Answers: A new round of amendments to the bill on foreign currency loans' conversion [drafted by MP Ana Birchall] will be discussed on Septemnber 5, the initiator of the amendments Catalin Zamfir announced in late June. The amendments regard conversion of the loans to local currency at the exchange rate prevailing at the time the contract was signed. There is another bill on the same issue, at an earlier stage of discussions in parliament. It also regards the conversion at the average exchange rate in the month the loan was extended.

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France to provide €66mn loan to Kosovo for wastewater treatment, PM Mustafa says

Asked On: July 12, 2016

Question: Can you direct me to any official releases confirming this development?

Answers: Thank you for the question. Below I have pasted links to two official releases, on the websites of the office of the prime minister and the ministry of finance.,9,5993,2,310    

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Polish government seeks to end constitutional row

Asked On: July 8, 2016

Question: "the opposition claims that a number of other provisions within the new legislation make it clear that PiS is merely posturing ahead" What are the provisions the opposition finds objectionable?  

Answers: Thank you for your question. Some of the opposition's biggest issues with the new law are that it makes it easy for PiS - it has 6 judges in the Tribunal and will appoint the Tribunal's head in December - to hinder the ruling process. Four judges can motion for a delay of most rulings for six months. Also, if TK convenes in full line-up (at least 11 out of 15 judges), the meeting must be attended by prosecutor general or his deputy. The opposition fears PiS will use that provision to paralyse important rulings by simple means of prosecutor general or his deputy being absent. Finally, the Tribunal will rule on most cases in order of their submission, not importance - the opposition claims it can delay rulings on important issues for years.

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Asked On: July 5, 2016

Question: Hi, thanks for this article. Are the 2nd pillar OFE assets currently in individual accounts?

Answers: Thank you for your question. Yes, money paid into OFE are in individual accounts. The difference between the 2nd and the 3rd pillar - known as IKE, or Indvidual Pension Account - is that the 3rd pillar is voluntary. It has not been very popular, with only around PLN20bn (€4.5bn) stockpiled in it, even if money paid into the 3rd pillar was exempt from some taxation.

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Stock market spooked as Poland outlines pension reform plan

Asked On: July 4, 2016

Question: hi - could you send me a list of the latest major spending plans commented in the last month by gov officials? I saw the retirement age cut, corporate tax cut and I think also an increase in the tax free threshold thanks

Answers: Thank you for your question. The government has talked about a number of spending measures in the past few months indeed.  First and foremost, there is the so-called Family 500+ scheme, which is a benefit of PLN500 (some €112) per every second child in family (and for first children in families with less income). Apart form the spending measures (or ones resulting in less income for budget) related to the programmes you mentioned – lowering of the retirement age, lowering of corporate tax (although that concerns small and medium sized companies) and higher tax free threshold - the government also plans at least few more. The government has earmarked about PLN1bn for restructuring of the loss-making coal mining sector, PLN2bn for de-freezing of wages in the budget sector, a one-off add-on for pensioners that will cost about PLN1.4bn. Apart from those measures, there are a couple that remain unclear. First, it is not yet clear how much cost – if any – conversion of forex mortgages into the Polish zloty will cause. The most recent proposal from the president’s office avoided details.  Finally, a big item in PiS’ electoral campaign, cheap medicines for the elderly, has gone off the table, at least for the time being, as officials have kept quiet about it recently.   

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Romanian lawmakers to discuss forex loans conversion

Asked On: June 21, 2016

Question: Hi, could you specify if this bill will affect EUR and CHF loans and if it is likely to be approved pls? Looks like it to me

Answers: The direct impact of this specific bill is fully predictable, since it refers to existing loans only. It breaches the non-retroactivity principle in this regard, but this has not prevented the government and a group of lawmakers from backing versions of this bill. This (predictability of impact) was not the case with the debt discharge bill, which has been subject of fierce disputes between lawmakers and central bank, while the quantitative evaluations were not high on the agenda. This time, we have a specific loss that has to be shared (or not) between banks and debtors. In early 2015, the size of this loss was estimated at €1.3bn, or 0.8% of GDP, and it would be incurred 100% by banks for the conversion at historic XR. In the meantime, however, some banks have already converted the CHF loans under own programmes (such as Banca Transilvania, very successful programme given the discount, and BCR). But there are also indirect effects. The bill would come after another controversial bill [on debt discharge], further deteriorating the credibility of the lawmakers and the regulatory predictability in general. The debt discharge bill will soon face Constitutional Court's ruling and this might play a role in the endorsement of other bills on this topic -- the forex loans conversion bill included. In case Court rules against the debt discharge bill on grounds of retroactivity, there's a big problem with the forex loans conversion bill as well. Please note that a third law on this topic, of personal bankruptcy, was already enacted and will come into force this December. Particularly after part of the CHF loans were already converted, the impact of the forex loans conversion bills looks not a systemic risk for the local banking system. Shared with debtors, it could amount to a quarter of banking system's profits [€260mn in Q1] or so. But it would still be a significant risk of credibility. Inter alia, the deputies have voted 5% cut in the social contributions recently, visibly against government's recommendations. The cut needs senators' endorsement, but it says a lot about the responsibility of the lawmakers and their drive toward cheap votes at the cost of sustainability. In regard to whether the bill is likely to be endorsed by lawmakers, there are some elements to be considered. First of them, the timing. It will probably not be endorsed quickly, before the summer recess. After the recess, MPs will work part-time, ahead of the general elections. There is no robust support for the bill, in terms of PR. The bill has been already discussed for years and further delays will make it less relevant [people will have dealt with the issues one way or another in the meantime]. Secondly, the history. the debt discharge bill has been drafted, discussed and endorsed quickly. Superficial debates, lots of petty politics. It is unclear whether the new bill will be promoted at the same speed. The MP having promoted the debt discharge bill started campaigning, but the timing does not help him. Furthermore, the authors of the versions of the bill have not been successful so far in promoting their versions. Given the precedents, it not impossible that the conversion bill be eventually endorsed. It is no more inappropriate than the debt discharge bill. It is rather less likely (to see it endorsed), particularly on short term (given the timing and the coordination among those who drafted/proposed the bill) -- and the time is an important ingredient here. If eventually endorsed, the impact will not be dramatic -- particularly if shared with debtors and diluted by the debt discharge bill and personal bankruptcy bills, likely to have been invoked already by some debtors by that time.

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Moldovan lawmakers prepare to discuss 2016 budget as funding sources remain unclear

Asked On: June 9, 2016

Question: Hi, thank you for this informative article. What is the fiscal deficit envisioned under the draft budget? Also, has there been any discussion of external financing on commercial terms? ie a Eurobond issuance or syndicated bank loan? I don't quite understand the conversion of emergency aid. Do you mean that the banks will pay 5% interest on EUR 610 mln to the govt and then pay ben the entire amount in 20-25 years? Or are these the terms of the bonds to finance the govt's aid to the banks? Thanks, Kurt

Answers: Thanks for the interest in our reporting on Moldova’s macro developments.   Typically, Moldova's budget deficits have been moderate -- 2.23% of GDP in 2015, under 2% of GDP in 2013-2014 and within 2%-2.5% in 2010-2012. This was partly because of the scarce financing resources -- including bilateral loans from IFIs [external financing] and local bills and bonds with maturity of no more than 3 years. At the end of April, the public debt was $1.36bn [external; creditors are IDA (41%), IMF (21%), EIB (11%)] and MDL8.4bn [$425mn expressed in US dollars, domestic]. In total, the public debt was 26.9% of the GDP projected for this year.   This year, the government envisages 3.2%-of-GDP budget deficit. The higher value seems to be caused by the planned bond issued by the state for covering the losses in the banking system. [though the economic recession is also likely to contribute to deficit widening] The central bank has extended MDL13.6bn ($687mn, more than 10% of this year's expected GDP) emergency loans to the three banks involved in the frauds.   The three banks are being liquidated. The $1bn lost / siphoned by the banks might never be recovered. UK consultancy firm Kroll is currently evaluating options for recovery. The good assets and the liabilities were already transferred to other banks on a competitive basis. The central bank however holds claims on the banks under liquidation and will use any funds recovered from the foreign debtors [UK registered shell company Fortuna] or by any other means to diminish the value of the claims.   Since the central bank can involve in bank rescuing only under emergency plans, the government plans to issue bonds of same amount and pass them to the central bank [which will thus close the case -- possibly at a loss]. The government will also become the holder of claims of the loans extended by the three banks to Fortuna. Naturally, in case this is possible, the government will use the funds recovered on the behalf of the three liquidated banks to buy back part of the bonds. But this seems rather in theory, at this moment.   An agreement on the MDL13.6bn bonds was already signed between central bank and government, but the bonds were not yet issued.   They would have 20-25yrs maturity and carry a 5% coupon. So the government will pay to central bank 5% interest. It was not disclosed [or maybe was not decided] whether the central bank will sell the bonds on the market. Only the interest, not including any principal payments, will cost the government 0.5% of GDP in the first year after the issue.   Returning to foreign financing -- as mentioned above, Moldova relies on IFIs. The country has not issued Eurobonds and under current prices the price would be prohibitive. It pays preferential interest on loans from IMF and other IFIs. At this moment, Romania has endorsed a €150mn loan, for instance, to be extended at the cost paid by Romanian state. But the loan is delayed until Moldova reaches an agreement with IMF - -which will most likely have a loan attached as well. The EU is also waiting for the agreement with the IMF to be reached.   Realistically, it is unlikely to see the agreement with the Fund signed quickly -- meaning in order to include the attached loans in this year's budget. Which the government did. Indeed, Romania might extend a first tranche of the €150mn in the first stages of the negotiations with the IMF.  One option for the government, in case the negotiation linger, is to further delay the issue of the MDL13.6bn bonds -- and the central bank will incur the related costs. This might decrease the costs incurred by the government this year. Still, the lack of external financing will put under pressure the expenditures. The government has already halted investments and all the other not urgently needed spending. Sources: 2016 budget planning Public debt at end-Apr 2016 IntelliNews on latest MD macro forecast

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Russia's Economy Ministry suggests ban on foreign apps for officials

Asked On: May 30, 2016

Question: Hi, does the Kommersant say when such proposal could be implemented? Many thanks.

Answers: Dear Marcus Thank you for your question. The Kommersant article gives no indication when this measure could be introduced as the proposal was only sent to President Putin on May 26. However, since this comes amid broader efforts to exclude potential IT security risks within state organisations, it can be assumed that it will move quickly if/once Putin approves it, and especially in the light of Russia's overall (if often very inadequate) import substitution efforts. It's worth noting that the proposed foreign app ban will have the support of Russian Security Council Secretary Nikolai Patrushev, who like Putin is a former head of the Federal Security Service (FSB). It was Patrushev who last year pushed the issue of security risks inside Russian state structures posed by foreign software. As of January this year, their direct purchase of such software is prohibited. Under the new Economy Ministry proposal, this ban would also be extended to include software rental and related maintenance services. There is also a suggestion of extending this to state-controlled companies and companies where the state has a significant stake, according to Kommersant. I hope this helps. Regards, Nick Allen, East Europe desk editor

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