Romanian economy has loads of money but cannot use it

Romania has no decent highways, no hospitals, no houses. But the country does have something else: money. However, how can someone have money and be unable to use it? Inflation and the lack of economic restructuring are to blame. Since the money is in the economy, it must be somewhere. Until two years ago, the Finance Ministry had the money. Now the National Bank of Romania (NBR) has it. More exactly, the issuer rushes to take the money back.
The Romanian economy is being flooded with money and the National Bank has to pump it out. Two years ago, the Finance Ministry was in charge with absorbing the economy’s vital resources: money.
At the beginning of this week, the NBR attracted the equivalent of $600m in ROL-denominated deposits maturing in one week or one month. This is a huge amount – more than Romania will borrow from the international markets this year.
The National Bank had attracted more than 65,000 billion ROL in deposits by the end of last month, that is almost two billion dollars. Double as compared to last year, ten times more than two years ago.
All this time, the Finance Ministry’s “hunger” for money was appeased with foreign loans and direct credits from the population: government credit (the money taken by the state from the banks) has dropped from $1.5 billion two years ago to several hundred million dollars at the end of last year.
Isn’t this a paradox, in an economy where both companies and natural persons are starving for loans? What would happen if the NBR stopped attracting these resources?
“Given the still high inflation, NBR has no choice. This evolution measures the economy’s absorption capacity, given the need for money, which should be directed at the economy. It must be said this is an anomaly. Banking credits are still scarce, especially in the consumer field, even if they have grown lately,” says Lucian-Liviu Albu, general manager of the Economic Prognosis Institute with the Romanian Academy.
“The Finance Ministry usually takes only what it needs from the market liquidity and is not interested in anything more. On the other hand, the National Bank simply applies its tight monetary policy, which will target lower inflation as of next year, as we already know. Let’s not forget that last year’s inflation cut, from the initial 22% target to 17.8%, was only possible because the central bank maintained the ROL exchange rate stable and permanently sterilised the amounts that were in excess on the money market,” says Cristian Sporis, chief dealer with Raiffeisen Bank Romania.