Romania's Central Bank governor: I wasn't expecting Romania to become a shopping centre so soon

BNR governor Mugur Isarescu presented a current account deficit analysis during „Aspects of the saving process in Romania” symposium. Talking about the economic growth from the last years, he said: „The temptation was huge. We were at pains with avoiding the current account deficit for the last fours years. In the ’90, we knew who was Romanian judging by the number of plastic bags they were bringing in. There were no shopping centres internally. But that is not the case anymore”, he explained.

Main statements

One can’t say that it is a bad thing for a country to have account deficit.

The country went through a dramatic experience. For ten years, it struggled to pay foreign deficits that it had created. These cycles last for generations.

The increase in the account deficit is difficult to avoid if we consider the cyclical nature of capital inputs.

The temptation was huge. We were at pains with avoiding the account deficit increase during the last four years.

I was not expecting Romania to become a shopping centre so soon.

In the ’90, we knew who was Romanian judging by the number of plastic bags they were bringing in. There were no shopping centres internally. There are no Romanians carrying plastic bags in airports because there isn’t the need anymore.

The current account deficit could have been reduced if certain unsustainable conditions from the private sector would have been compensated through the public sector acting prudently.

The unsustainable conditions in the private sector are:

– the increase of the real incomes in a rhythm superior to the production gains;

– the highly increasing credit trend.

Starting with 2006, the saving rate increased, but we also started to consume more because it was easier to get foreign money.

The inevitable happened when the source disappeared.

I did not assist to money being redrawn from Romania, but money has not been brought in anymore.

Mother banks have been extremely generous until September, last year. Even in September, they were sending love letters to clients to take up credits.

It was no news to us that a reflux was next. But in truth, its magnitude was underestimated by BNR.

I believe there will still be sufficient adjustments addressing the GDP and the industrial growth until we realise the intensity of the „hard landing”.

I don’t think we have too much time to act regarding the fiscal policy because we used our bullets already, namely in 2008.

From now on, the only economic direction is upwards, but we don’t exactly know the speed at which growth will happen. I can only say there are many uncertainties. The exterior factors are uncertain, but we’ve got several more certain internal factors:

– the stability of risk aversion for foreign investors;

– the current account deficit – there is no magic number, we will not propose any.

Where will Romania return the 20 billion borrowed euros from? From the 30 billion euros we should get from the EU. Only these are made from tens of small projects and each one has its life, stumbles upon a bureaucrat or a legislative blockage – it will not be easy to attract them.

It wasn’t necessary to inject eight billion lei on the market. The market has lei, but we needed those operations because the interests were going up since the banks do not lend each other.