Isarescu: NATO accession may come with capital surplus

Romania’s invitation to join NATO could bring a capital excess on the domestic market, which will entail a series of costs in order to pinpoint the efficient investments, the National Bank of Romania (NBR) Governor Mugur Isarescu told a banking reform seminar.
“Success comes with a price tag, too. It is now necessary to find the viable projects and identify the capable managers,” the governor said.
The bulk of funds entering Romania lately have been coming from the Romanians working abroad, but once the invitation to join the NATO has been extended, Isarescu feels this amount will be outstripped by foreign investment.
The NBR vice-governor Mihai Bogza explained that, although the banking brokerage was still low, the increase in non-government lending had to take into account the fact that the level of the company-to-company debt and of the arrears to the state budget was still high.
Therefore, the central bank limits the liquidity at the disposal of the banks by sterilisation, that is by attracting the excess on the market. This money could be used by the banks, in the absence of an NBR intervention, for lending more to the real economy.
According to the NBR governor, the increase in non-governmental lending cannot be joined by an economic restructuring at the same pace, which might lead to an increase in non-performing credits. Under the circumstances, the NBR will keep attracting significant amounts of cash from the interbank market.
Isarescu added that NATO accession meant joining a club where the democracy and market economy rules have to be strictly observed. “Following enlargement, NATO no longer has strictly military purposes and is a club of democracies, stressing on conduct rules, along with a newly-added anti-terrorist dimension. At the same time, an enlargement to include Moldova and Ukraine over the next ten years is being discussed, which can help us clear things up with Moldova,” Isarescu added.
Although occurring at different times, NATO accession can be an exercise for the European Union accession. The efforts to attain the nominal and real convergence as required by the EU have led to a decline in the interests at which Romania has borrowed money from the international markets, although its ratings were not upgraded much by the rating agencies.
“Romania has gained something from the convergence game, as it benefits from the interest of those investors looking to place their money for a ten-year maturity, knowing our country would cut interests in a matter of years, to come close to the European Union rates. The countries in the first EU enlargement wave benefited from a rating upgrade, but the effect was the exact opposite, because investors would rather go for the countries with a good interest level,” Cristian Popa, NBR vice-governor said.