BNR: Crisis to worsen if government acts emotionally

The Governor of the National Bank of Romania (BNR), Mugur Isarescu, said that Romania must comply with the announced schedule for joining the euro-zone, but adopting the European currency is conditional upon reforms made until 2012. These reforms must be "real and competent" to ensure that Romania sails through the two years that precede its effective accession to the euro-zone.

Prime Minister Emil Boc said Wednesday that the government has a strategy for Romania to join the euro-zone prior to 2014. The reason is that a more rapid integration into the euro-zone would generate greater stability for Romania's economy.

Forecasts indicating negative Romanian economic growth in 2009 represent a danger for the implementation of a foreign deficit adjustment strategy, if the government treats the problem emotionally, through fiscal and salary relaxation measures, which would only serve to worsen the crisis. The forecast by the National Prognosis Commission (CNP) indicates 2.5 percent economic growth in 2009, but there are institutions, including foreign banks and rating agencies, which estimate that Romania will go into recession this year.

Romania must limit its budget deficit to less than three percent of gross domestic product (GDP), but has to be very careful about inflation and the exchange rate, in order not to widen the payment balance deficit, according to a statement made by Isarescu Thursday. Romania registered a budget deficit of 5.21 percent of GDP in 2008, according to calculations based on European standards. The government set a budget deficit target of two percent of GDP for 2009.

The central bank's Governor added that a series of measures by the government are essential to restore the trust of foreign investors in the Romanian economy. "Only a concentration of combined foreign deficit and budget deficit adjustment macroeconomic policies can lead to a smooth landing of the economy and an improvement in the perception of foreign investors," said Isarescu. According to BNR's governor, the recently approved 2009 budget has allocated relatively high funds for investments, which have the potential to create "spillover effects" on other sectors of the economy.

Furthermore, "the government can contribute to the improvement of the perception of foreign investors through measures such as an increased capacity to absorb European funds, or by creating jobs in fields which are insufficiently developed, which could gradually take over the role of economic growth engine," Isarescu added.

Ziarul Financiar