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Isarescu: Hasty adoption of EUR could affect fiscal policy and wages

According to the Governor of the National Bank, Romania should avoid macroeconomic imbalances and should ensure real convergence with the EU, simultaneously with applying sustainable economic adjustment policies.

The hasty adoption of EUR, without ensuring real and nominal convergence and macroeconomic balance would be reflected, in the context of a fixed exchange rate, either in the modification of the fiscal policy or in the adjustment of wages, Mugur Isarescu, the Governor of the National Bank of Romania (BNR), stated yesterday during a debate on the effects of the economic crisis, Agerpres informs.

‘One of the lessons that Romania should learn from the economic crisis is that the adoption of the Euro cannot be a substitute for economic adjustment. The accession to the Euro Area should be done by taking into account the nominal and real convergence. The adoption of the Euro at an inappropriate time and only based on the mass-media's chatter would mean giving up the monetary policy before assuring convergence. At a fixed exchange rate established by the European Central Bank, and maybe an inappropriate rate for Romania, and at high inflation rate volatility we might end up adjusting the wages or the fiscal policy,' Mugur Isarescu explained.

The Governor stated that the timetable for the adoption of the EUR is ‘slightly ambitious' now and that if the ERM II criterions will be fulfilled then Romania could adopt the EUR after a minimum of two years, most likely at the end of 2014 or on January 1, 2015.

On the other hand, after years in which the economic growth was based on foreign loans, on savings drawn from abroad, a fact that has led to a current account deficit of 14 per cent of GDP, the year 2009 will mean returning to a more normal rhythm, Mugur Isarescu, the Governor of BNR, stated yesterday. Isarescu explained that at this time the crisis has heightened the dependence on foreign resources and that the adjustment will be painful, set to range from 14 per cent to 7-8 or 9 per cent.

Nevertheless Isarescu pointed out that only 40 per cent of the short-term foreign debt was incurred by the banks, the difference belonging to private corporations that resorted to foreign loans for investments.

Romania has to learn two main lessons from the crisis - avoiding macroeconomic imbalances and ensuring the real convergence with the European Union, simultaneously with applying sustainable economic adjustment policies, BNR Governor Mugur Isarescu said yesterday.

Another lesson consists of the failure of the regulation and over-watch institutions that were unable to keep up with the market and of the need for structural reforms in the European Union. The structural reforms would consist of the setting up of the European Systemic Risk Council that would issue economic risk warnings and solutions. However, the Central Banks will remain the main macroeconomic over-watch institutions.

The final two lessons have to do with the re-establishment of the IMF importance, with the IMF being the only institution that can evaluate at a global level the effects of the crisis, the anti-crisis measures and the measures on ensuring long-term fiscal sustainability.

US real-estate crisis was the trigger, not the cause of the crisis

The real-estate crisis in the US was the trigger of the crisis, not one of its causes. The latter consist of the macro and micro-economic situation and, on a deeper level, of the human society's evolution, BNR Governor Mugur Isarescu also added.

‘The real-estate crisis on the American market was a trigger, certainly not one of the crisis's causes. The profound causes were of macro and micro-economic nature and going beyond the economic sphere there are also deeper causes that have to do with the evolution of human society and globalization,' Isarescu stated. ‘Likewise, the security excesses, the faulty financial intermediation and the excessive and insufficient regulations have also led to this financial crisis. Since emerging countries such as Romania tend to become the crisis's receivers, our top priority is to avoid that,' BNR Governor Mugur Isarescu concluded.

Popa: Negative economic growth in the ballpark of 1.5 pc in 2009

Cristian Popa, the Deputy Governor of BNR, has stated yesterday that this year Romania could register a negative economic growth in the ballpark of 1.5 per cent, with the current account deficit set to be adjusted up to 7.5 per cent of GDP or lower, Agerpres informs. Popa explained that the current account deficit has already been adjusted in January by a significant 54.6 per cent. Popa considers that to be a quick correction in the external deficit, a correction that will continue this year and next year.

Cristian Popa also stated that Romania will officially sign the agreement with the IMF in May, Agerpres informs. Asked about the conditions set by the Fund during the negotiations, the BNR Deputy Governor stated that no condition stood out. ‘The IMF is relying on BNR's annual prognoses. One of the principles imposed by the Fund was that Romania has to preventively strengthen the banks' solvency,' Popa stated.

In what concerns the financial stability recently registered by the region following the pact signed by four Central Banks, including the National Bank of Romania (BNR), Popa stated that the investors should be aware that ‘the economic fundamentals are better than previously thought.'

 

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Tags: mugur adjustment economic bnr stated lsquo crisis convergence should fiscal could adoption isarescu policy romania governor wages euro

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