NBR Governor's speech at ZF's 10-year anniversary

In 1998, ZIARUL FINANCIAR was launched at the headquarters of the National Bank of Romania, and has since reported on ten years of economic change in Romania. Mugur Isarescu gave a speech about the past economic decade and the challenges that Romania will face in the coming years. Here is an extract of the NBR Governor’s speech:

“It is a great pleasure for me to be present at this anniversary. The newspaper’s ten years of existence coincide with a tumultuous time in Romania’s history. I would first like to refer to the events that happened shortly after the appearance of Ziarul Financiar. After the crisis in Russia and South-Eastern Asia, Romania’s need for foreign funding became much harder to meet, while the level of the foreign exchange reserves at the time did not leave the authorities with a lot of room for manoeuvre. Then, just as now, rating agencies were very circumspect towards us, and the main news concerning Romania, which was repeated obsessively for over a year, painted Romania as heading for an imminent default on its foreign debt. An even more problematic issue was that the International Monetary Fund tried out a new approach for indebted countries, called P.S.I. (Private Sector Involvement), which it tested on four countries including Romania. This approach ultimately proved to be a failure, and the International Monetary Fund abandoned it. However, Romania was faced with two options: either adjust its foreign deficit through its own resources, or borrow from the external market under excessively demanding terms. Romania opted for the former solution and then concluded an agreement with the IMF. However, Standard & Poor’s, which had quickly lowered our rating to just one notch above a level that would have indicated that Romania was behind in repaying its foreign exchange debt (which was not the case), maintained this low rating for a long time after Romania had moved past that critical situation, and the country’s reserves had started to grow. I have highlighted this event that happened ten years ago, because, over the last few months, I have had a strong feeling of deja vu. First came the bleak evaluations of foreign analysts, then the failed attack on the RON, and then the lowering of the country rating below investment grade – Romania being the only EU country in this position. Yesterday, I read a commentary by Bloomberg, according to which Romania and Bulgaria, as sovereign countries, risk defaulting on payments of primarily private foreign debt. By upholding this view, they put forward the most far-fetched arguments – they present cases of other countries in the region, which concluded agreements with the IMF; they say the Bulgarian and Romanian currencies have depreciated against the American dollar. In fact, the Bulgarian currency is pegged against the euro, and fluctuates against the dollar at the same rate as the euro. The RON, in turn, is traded against the euro. To a certain extent, this is the same approach as in 1999. There is, however, an essential difference, but it is mentioned only in passing, that Romania’s foreign exchange reserves are now larger than the country’s entire public debt. Therefore, with the appropriate domestic policies, we are likely to move past this period on better terms than in 1999. Romania’s joining NATO and the European Union also place Romania in a political context that favours sustainable economic growth. This year’s gross domestic product will amount to around 140 billion euros, i.e. 6,500 euros per inhabitant. In 1999, Romania’s GDP stood at merely 33 billion euros, while the GDP per inhabitant was lower than 1,500 euros. This leap, which led to significant changes including improved consumer standards, must go hand in hand with a similar progress in understanding economic matters, in order for the path forward to be as smooth as possible. I would like to end on an optimistic note, due to the fact that Ziarul Financiar has supported this optimism most of the time, and I hope will continue to do so. Just like you, I am very confident in our country’s future. I also wish, as you do, that wisdom will prevail over impatience and that the risk of a severe downturn will not materialise.”