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Two faces of crisis

The global financial crisis has both negative and positive effects on Romania's economy. On the one hand, expensive financing puts increasingly stronger pressure on local enterprises to increase final prices, while on the other the shortage of financial resources will determine banks to encourage savings through attractive interest rates, daily Gandul writes in its today's editorial.

The paper argues that the global financial crisis has not damaged the Romanian economy much yet, but the damage might be great if production continues to decline and credit is blocked. Falling production, it says, means, among other things, less money in the Government's coffers. Since there is no room for cutting Government spending, measures will be required to increase the Government receipts. Preventing the slippage of the public finance is a huge stake, the paper says.

The consequence of widening domestic imbalances will be a widening external deficit, which would further increase Romania's vulnerabilities. Governor of the National Bank of Romania (BNR) Mugur Isarescu warned well before the November 30 parliamentary election that the current-account deficit must be rapidly adjusted, because nobody will be able to finance a deficit higher than 14 percent of the Gross Domestic Product (GDP). The main risk facing Romania is given by the increasingly more limited possibilities of financing the external deficit.

Narrowing the external deficit, the paper says, is necessary not only to reduce the vulnerability of the Romanian economy to external shocks, but also because its current structure is no help to economic development. Had foreign companies invested in boosting production and exports, the paper argues, the deficit would have been financed to a large extent by the expansion of the Romanian economy, but in Romania tens of billions of euros have been invested in consumption, instead of in production. European banks opened credit lines for their local subsidiaries that loaned money to Romanians, but the goods and services acquired with on such loans were mainly imports, not of domestic provenance. Such investments have failed to sustain economic efficiency gains and have generated a dangerous external imbalance, the paper argues.

Among the positive effects of the crisis, the paper mentions the fact that the freeze on credit lines of the local banks has compelled the banks to follow an aggressive policy to draw in disposable domestic resources. When attractive interest rates are offered, people tend to stack their cash in banks rather than spending it, the paper says. This way, two birds are killed with one stone: the economy grows and consumption declines.

This way, the paper argues, the crisis helps us make the corrections we can no longer postpone now, particularly as far as consumption is concerned, as consumption very often exceeds the possibility of being satisfied by domestic production and get the country deeper into foreign debt.

The paper concludes that the future Government, irrespective of its political hue, will have to make the correct assessment of the implications of the global crisis, so that not only the medication, but also its dosage may help cure the Romanian economy, which not even the ongoing crisis was in much sound a health state.

 

Sursa: http://www.rompress.ro

Tags: domestic external deficit crisis production economy banks paper bnr

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