1. ING main colour pallet 0 102 205 102 0 180 195 225 178 181 180 120 140 200 123 125 124 ING secondary colour pallet 255 205 171 81 83 82 211 224 202 210 212 211 200 220 240 162 189 144 Map colours 230 232 242 185 191 219 FillLine Financial Markets-Economics “Romania- Ready for lift-off?” Florin V. Cîţu-Chief Economist November 2006

2. [Financial Markets] Page 1 Roadmap Overview of the global economy The Romanian economy Prices Interest Rate Exchange rate Convergence to the EUR

3. [Financial Markets] Page 2 Global economic health Strong global growth, at least in the near term Emerging markets seem better equiped to deal with any increase in volatility Central and EE economies are growing strong Banks in the region are booming While international imbalances are widening And inflationary risks are intensifying But reactions from regionals central banks show that risks are closly monitered

4. [Financial Markets] Page 3 US to slowdown while EU will grow faster US GDP (%QoQ ann) US Fed fundsEBC refi rate EU GDP (%QoQ ann) Source: ING forecasts

5. [Financial Markets] Page 4 The regional economic view EU enlargement has brought stronger growth Central and EE economies are growing strong Banks in the region are booming Romania’s underbanked economy offers the most potential for credit growth in the near future

6. [Financial Markets] Page 5 Growth remains strong Czech Republic (% YoY) Hungary (% YoY) Source: ING forecasts Poland (% YoY)Romania (% YoY)

7. [Financial Markets] Page 6 Increasing Indebtedness Until late 1990s it was not possible for households to be indebted, but now consumers can leverage themselves up significantly – a key factor driving economic growth in the next 5 years. For example, in 1995 in Greece and Portugal private loans/GDP were at 34% and 75% respectively. Ten years later this ratio reached 79% and 150%.

8. [Financial Markets] Page 7 Romanian credit set to grow further With few exceptions credit has continued to grow in all EE econmies in the last 10 years. However, in Romania credit has only started to support growth in the last couple of years, but it is likely to pick up pace in the next couple of years. Romania

9. [Financial Markets] Page 8 EE experience supports RON credit growth New EU membersFuture EU members Except for Czech Republic, where we saw a boom and bust scenario, all the other countries show strong and sustaible penetration of lending into the real economy. In the same time of all the furture EU members Romanai is the most underbanked economy and thus has the greatest potential to develope further.

10. [Financial Markets] Page 9 Romania offers many opportunies Lending to the private sector + Gov’t debt (2005) Countries with the best outlook are on the right-hand side of this chart and include former Soviet countries as well as Romania and Mexico (even accounting for problems with IMF methodology re: Mexico’s public debt).

11. [Financial Markets] Page 10 After the EU entry - convergence EU enlargement brings stability Produces fast growth Helped by convergence funds FDI is attracted by cheap educated labour force, low tax rates and prospect of EU funding improvements to infrastructure Romania’s relatively cheap labor and improving corruption record bodes well for FDI prospects Eventual Euro adoption (2012-2014) should secure low interest rates and eventually lower inflation But Romania has some way to go to fulfill the Maastricht criteria

12. [Financial Markets] Page 11 Convergence funds evolution Convergence funds have been established that are dedicated to the convergence trade. Within the €100bn C4 debt market (€50bn Poland, €30bn Hungary, €10bn Czech Republic and €5bn Slovakia – vs €1bn in Romania), the bulk had to be allocated to Poland and Hungary. Holdings have risen from €4bn to €35bn since 1999. Flow of funds into local debt markets (€m)

13. [Financial Markets] Page 12 Maastricht criteria-budget deficit Romania EU countries in the convergence trade have few problems funding budget deficits, perhaps encouraging high deficits. Romania has acted more responsibly but it shows signs that budget deficit will grow. Although, close to the Maastricht criteria.

14. [Financial Markets] Page 13 Maastricht criteria-public debt Both first and subsequent EU enlargement countries tend to have low debt (public debt, external and internal), decreasing the risks of a financing crisis. Here Romania looks very well, with plenty of room to increase its public debt

15. [Financial Markets] Page 14 Maastricht criteria-inflation Higher inflation in second-wave countries Interest rates should remain high for a longer period of time It translate in more real currency appreciation

16. [Financial Markets] Page 15 FDI-Romania well placed to receive more Czech/Hungary now look expensive relative to others in the region. Poland/Slovakia remain attractive for FDI based on lower wages and high labour supply. Romania far cheaper and has the advantage of low tax rates, but corruption is still a problem and overall competitiveness is lower. Wages (EUR) 2005E Unemployme nt (%) Dec-05 Corp taxCompetitivene ss (6 = best) Per capita GDP (US$) Under or overvalued (- ) currency vs Spain Corruption (10 = least corrupt) Czech Republic 6.58.7244.4211,800314.3 Hungary 7.2 164.3811,600205.0 Slovakia 5.115.5194.319,300234.3 Poland 5.417.6194.007,600333.4 Bulgaria 2.111.9153.833,400314.0 Romania 2.65.8163.674,500113.0 Sources: ING, EU Commision2006 ratesWorld Economic Forum ING, 2005 data ING, PPP comparisonTransparency International

17. [Financial Markets] Page 16 The bottom line The global economy is expected to grow at a strong pace over the next 6 quarter. IMF has revised upwards it’s world growth for 2006 and 2007 Emerging markets are well placed to grow fast because 1) bank lending will grow, 2) government policies are better and having a positive effect 3) commodity prices are still high, although the latest data shows that they might have peaked Within Emerging Europe, the EU convergence story adds further lift 1) low external debt spreads, 2) low local interest rates, 3) high FDI flows as manufacturing moves from western Europe to new member states, and services sector expands rapidly 4) EU cash transfers that will be 3-4% of GDP annually Romania has the opportunity to adopt the Euro by 2012-14, and catch up with central Europe, unless it follows the populist route of central Europe Euro adoption in six years would support a fairly bullish view on the RON, stability in nominal terms and appreciation in real terms.