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BNR's Croitoru: Romania is challenged by reinvigorated capital inflows

Romania is challenged by reinvigorated capital inflows that put pressure on the local currency, the leu (RON), which has forced the leu to appreciate, Lucian Croitoru, adviser to Governor of the National Bank of Romania (BNR) Mugur Isarescu, told a conference on exports on Tuesday.

He mentioned that at the same time with this appreciation pressure there is inflationary pressure as well. 'Changes have occurred in Romania that are well regarded by foreign inventors overseas and changes are expected in the indicators related to the exchange rates, which are also appreciated. That makes many capital flows chose Romania for a destination,' said Croitoru.

Croitoru told Reuters recently that the exchange rates in Romania are much in line with the fundamental economic changes the country is undergoing. Very many interpreted this statement by a BNR official as meaning the leu is exactly where it should be and that BNR will not intervene in the market.

Massive capital inflows following Romania's 2007 accession to the European Union are those blamed for an overheating of the Romanian economy, with analysts saying this was the reason for the severe recession of 2009.

Massive capital inflows also led to the strengthening of the leu against the euro to an exchange rate of RON 3.1 to the European single currency, heightening the risks for severe subsequent depreciation.

The leu has not been spared speculative attacks, such as the one of October 2008, immediately after the collapse of the US Lehman Brothers bank. Speculative attacks were later discouraged under a stand-by arrangement between Romania and the International Monetary Fund, under which BNR was extended large amounts to fend for the local currency.

Social Security Cuts Good For Economy

Lowering the general social security contributions would help stimulate business competition in Romania, Croitoru said Tuesday, adding that the measure shouldn't take too much of a toll on the government budget. 'It appears corporate taxation is very high in Romania (...). Social security payments must be lowered as soon as the necessary criteria are met,' said Lucian Croitoru, adviser to the central bank governor.

Speaking at an economic seminar organized by Ziarul Financiar, Croitoru said the decision to cut social security contribution is financially sustainable. However, the Finance Ministry has the last word on the issue, he added.'To summarize: if you want to stimulate competitiveness, then you should reduce the social contributions,' Croitoru said.

Romanian government is considering cutting the general social security contributions to 41% from 44% presently by reducing the taxes paid by employers.The measure would be part of a larger package meant to jumpstart the economy, which contemplates lowering the flat tax rate up to 12% from 16% currently and introducing dedicated credit cards for small- and medium-sized enterprises.

Sursa: http://www.actmedia.eu

Tags: romania security social inflows capital croitoru euro bnr

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