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BNR chief economist: 'Romania's banking system will not be affected by the ongoing world crisis'

Financial stability in Romania's banking system will be almost unaffected by the ongoing world crisis, chief economist of the National Bank of Romania (BNR) Valentin Lazea told daily Cotidianul in an interview carried on Thursday.

'In a narrower sense, financial stability in Romania's banking system will be mostly unaffected, because very few of the commercial banks operating in Romania are global players (SocGen, ING), and consequently their exposure to the US subprime instruments is limited. Nonetheless, the banks' chance of easily raising foreign credit will diminish, which in macroeconomic terms would be a welcome adjustment: there will be less money for financing imports, and thus consumption will be brought down to more reasonable levels,' Lazea explains. In a larger sense, stability in other sectors, such as the stock exchange, will stand to suffer because of the quality run of the international investors, says Lazea. An alarm should be sounded in the real estate sector, he argues, which has recorded a boom over the past years on very limited segments. Recent experience of the UK, Ireland and Spain indicates that such booms are unsustainable, adds Lazea. In relation to Romania's economic strategy, the BNR official warns that certain parts of it are more vulnerable than others to the swifts in the world context. One such vulnerability, he adds, is forcing economic growth to bridge the gap separating Romania from other Central European countries as soon as possible, even at the price of macroeconomic disequilibria, such as a widening foreign trade deficit and rising inflation. Other countries that have passed through unsustainable growth cycles finally realised that any growth grounded in deepening disequilibria cannot be a viable objective, says Lazea. He goes on to mention what he considers to be destabilising elements in the growth model adopted by the Romanian economy: exacerbating consumption, particularly credit-funded consumption, which becomes very risky under world financial turbulences; not stimulating domestic savings, which, at 13 percent of the Gross Domestic Product (GDP) in Romania is the lowest in the European Union; betting on drawing external savings through loans, which are now covering half of the current-account deficit. Lazea says the solutions become obvious: drastic limitation of consumption by a mix of conservative fiscal and wage policies; increasing the commercial banks' attention to boosting domestic savings, at the same time with decreasing foreign loans; a policy of differentiated encouragement by the authorities of the foreign direct investment in areas where there are export potentials - the processing industries, tourism and transportation - to the detriment of those without such potentials - trade, real estate transactions, banks and insurance. 'These should become long-term strategic choices, not mere tactical measures, until the world financial crisis is over,' Lazea says. Sursa: http://www.rompress.ro

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