BNR governor: 8 pct deficit sustainable

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A deficit at 8 percent of GDP is sustainable if it reflects the attraction of structural funds, direct foreign investment and long-term loans, National Bank of Romania (BNR) governor Mugur Isarescu told debates staged by the central bank on Wednesday.

He stressed the deficit, by 2014, should reach a level likely to secure the stabilisation of the public debt share of GDP and Romania’s entering the last convergence phase – ERM II (the European exchange rate mechanism) on time.

The 20 billion euros Romania borrowed from the International Monetary Fund and the European Union can be paid, since Romania can draw structural funds worth 30 billion euros, Isarescu pointed out.

‘We can pay because we must draw 30 billion euros from the structural funds, but there are thousands of projects and many of them have problems related to red-tape’, he said.

The BNR governor believes the programmes Romania has worked out in order to emerge from the recession are enough and the mixture of macroeconomic policies while rather balanced, is more difficult to implement.
‘I think we should cool off when it comes to the scores of programmes meant to combat the economic crisis. We did all we had to do.

We closed agreements with the international financial bodies. I think our mixture of macroeconomic policies is rather balanced, but it is more difficult to implement’, he said.

According to Isarescu, Romania does not have too much time to take action with respect to the tax policy, given that ‘it fired its ammunition in 2008 particularly’. ‘It is difficult to get out of a pro- cyclic tax policy’, he added.

The governor explained that basically in a market economy one should accept that there is a cyclic pattern and the state, if it steps in at a macroeconomic level, should only do this anti-cyclically, since the market cycles or the market cycle variations can be pretty big and ‘it makes no sense for the state to increase these variations’.

Isarescu said Romania has returned to its position of an importer of credibility, but added that ‘this could be the most painful thing – that we have failed in proving we can become an exporter of credibility’.

‘A country should export credibility, meaning it should prove that at hard times it knows how to act and not resort to the international financial bodies.
… We imported credibility in order to show that our policies, the policies we promote are good and that we keep our foreign solvency and liquidity at the required level’, he stressed.

The central bank head pointed out Romania will further have a current account gap for several decades from now on, given the need of investment in infrastructure; the deficit levels to be expected on the medium-term should not pass 5 or 6 percent, since imbalances could arise if this figure is exceeded.

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