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| THE NATIONAL BANK AND THE CRISIS 09/07/2010 |
| (2010-07-09) |
| Last updated: 2010-07-12 16:02 EET |
There is the prevalent perception in Romania that the inconsistent and risky measures taken for many years now have fully destroyed the credibility of the entire political class, whether in power or in the opposition. This is why, in the context of the continuing economic crisis, the assessments made by National Bank experts are viewed as more reliable, thanks to the effectiveness that governor Mugur Isarescu's team has shown over the years.
“The Constitutional Court could dismiss even the law of gravity as unconstitutional,” Isarescu said, and added that the Court's decision to reject the 15% cut in pensions, along with the government's decision to raise the VAT by 5%, make inflation the only way to reduce spending. Inflation, he said, will affect retired people’s spending power more severely than the 15% pension cut would have done. Still, Adrian Vasilescu, adviser to the National Bank governor, tries to add some nuances to the pessimism expressed by his boss. According to Vasilescu, in spite of the VAT raise, the year-end inflation might stand below 8%, the rate forecast by both the National Bank of Romania and by the IMF. Adrian Vasilescu mentions the so-called psychological factor, and the fear that business operators might lose their customers:
“I believe this psychological factor will play a significant role, and we'll see how those who rush into announcing price increases today will back down tomorrow, when no customers buy their products.”
Vasilescu admits, however, that Romania stands no chance of overcoming the recession this year. He emphasised that recession and budgetary imbalance cannot be handled simultaneously, and that the measures aimed at narrowing the budget deficit – the VAT increase and the public-sector salary cuts – will have a negative effect on consumption. The good news is that central bank officials firmly deny the rumours that Romania is threatened by payment default. Vasilescu speaks the fifth instalment of the IMF loan, which has recently entered the National Bank accounts:
“It's a good signal for investors. It's a good signal for all the partners of Romania, and a signal of confidence in Romania's ability to cope with any foreign payment challenges. So all rumours, all ideas, all opinions that Romania might default on payments are absurd.”
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