Hard times may be looming ahead for Romanian economy

Analysts are warning that 2002 will be the year of adjustments, necessary to control the negative pressures accumulated this year in the economy because of insufficient reform.

The Government will not have too much room for manoeuvring, because of the stipulations included in the stand-by agreement signed with the International Monetary Fund.

“The matrix will be very rigid next year. We will need to target adjustments, rather than economic growth. GDP growth must be the last issue on the list of priorities, not a target in itself,” says Misu Negritoiu, ING Bank deputy general manager.

Negritoiu finds it hard to believe that the 5% economic growth target will be reached together with the projected cut in inflation (down to 22%). “Something will have to go down and this must be economic growth,” Negritoiu maintains.

“I do hope I am mistaken, but I believe that this year accumulated certain pressures that will lead to very difficult times next year,” says Bogdan Baltazar, chairman of BRD-SocGen. In his opinion, one must not forget that “reform was not further implemented this year, arrears and trade deficit went up, investors are having a tough time, while nothing much was done in the field of privatisation, except for Sidex.”

One of the pressure sources in the economy is the gap accumulated over the past few months between inflation and the ROL depreciation against the US dollar, which posted a visible slowdown.

Analysts feel the inflation rate will exceed the 30% level at the end of December, while the target of the Government and Central Bank, also stipulated in the IMF agreement, aimed at 29% inflation.

“The ROL is over-appreciated now. Practically, the balance between inflation and depreciation is broken. It looks like the exchange rate is being used to keep inflation under control, but this leads to a deterioration in the current account,” Misu Negritoiu told Ziarul Financiar.

The Central Bank aimed at a 4% real appreciation of the ROL for this year, but the level is likely to reach 6-7%, as nominal depreciation barely reaches 22% and inflation is bound to exceed 31%.

“It’s high time we understood that the ROL’s real appreciation is a necessity for the real economic flow,” said Adrian Vasilescu, advisor to the Central Bank Governor.

According to Vasilescu, the market set the exchange rate this year, just like it happened over the previous years.

“The Central Bank’s interventions generally aimed at purchasing foreign currency in order to increase the depreciation and to support exporters. This will be the exchange rate, as long as the market has a say,” Vasilescu maintains.