Financial Times: Economia Romaniei, intr-un real pericol de supraincalzire

Autor: Bancherul.ro
2008-03-10 10:40

Economia Romaniei se afla intr-un real pericol de supraincalzire, se arata intr-un articol publicat de Financial Times.

Influxurile de investitii, pe termen scurt dar si pe termen lung, a determinat o crestere puternica a consumului, ce a determinat indatorarea puternica a populatiei, in special in valuta, o majorare a preturilor imobilelor si un tot mai mare deficit de cont curent pe balanta de plati.

Problema este daca o incetinire inevitabila a acestor tendinte de crestere in 2008, in conditiile in care criza financiara limiteaza resursele de imprumuturi din strainatate, va duce la un reasezare usoara (soft landing) sau va cauza un soc (hard landing) economiei romanesti.

FT REPORT - ROMANIA 2008: Debt fuels over-heating
By Quentin Peel, Financial Times
Published: Mar 07, 2008

The European Union has been good for the Romanian economy. Ever since the prospect of EU membership started to look plausible - back in 1999 - the growth rate of gross domestic product has averaged around 6 per cent a year.

"Investors believed the European Union convergence story, and bought into it in a substantial way," says Cristian Popa, deputy governor of the National Bank of Romania, the central bank. "Romania is growing fast also because it is catching up with the other new EU member states."

Rapid growth from a low base - in 2006 Romania’s income per capita was still less than half that of Hungary - has seen a rising inflow of foreign direct investment. It hit a high point of €8.7bn in 2006, including €2.2bn from the sale of Banca Comerciala Romana to Austria’s Erste Bank, before slipping back to €7bn last year.

"In the past two years we attracted more foreign investment than in the past decade," says Varujan Vosganian, the minister of economy and finance. "The increase in FDI has been directly related to our integration into the EU."

Yet the traditional picture of Romania as a low-wage economy has changed. Wages and incomes have increased rapidly, at an average annual rate of 25 per cent in recent years.

Squeezed by the twin pressures of economic growth and continuing labour migration to the rest of the EU - especially Italy and Spain - unemployment has dropped to 5 per cent, and skilled labour is in short supply in many sectors.

"The time when Romania was chosen because of low wages belongs to the past," Mr Vosganian admits. "Now it is chosen because the market is quite large, there is fiscal stability, low taxation on incomes, and because competition is not quite so tough as in other countries. Compared with other countries, however, Romania is not so cheap."

Indeed, today the danger is quite different: little more than a year after joining the EU, the Romanian economy is in serious danger of over-heating. The inflow of capital, both long and short-term, has fuelled a boom in consumption, a very rapid rise in household indebtedness - especially in foreign currency - and property prices, and a soaring current account deficit on the balance of payments. The question is whether an inevitable slowdown in 2008, as the international financial crisis starts to squeeze sources of foreign borrowing, will result in a hard or soft landing for an economy that has only just begun to enjoy the fruits of EU membership.

The central bank increased interest rates by a full percentage point to 9 per cent in early February, the third increase in four months, in a bid to curb inflation running at 6.6 per cent at the end of 2007, compared with a target for the year of 3.9 per cent. Yet the bank faces a real dilemma between fighting inflation, controlling credit expansion, and seeking to cap the rise in the current account deficit, up by €7bn to €17bn. If a higher interest rate stabilises the leu, which fell 16 per cent against the euro last year, it would put further pressure on the trade deficit.

"Domestic demand - and especially consumption - is rising unsustainably fast," says Mr Popa, based on income growth, increasing bank credit, and remittances from abroad (more than €6bn according to official statistics). "This mirrors a large current account deficit (our estimate for 2007 is 14.3 per cent of GDP) that is too high to be sustained year-in, year-out. This deficit needs to be contained and then gradually reduced."

The government has come in for criticism from the International Monetary Fund and the European Commission for running a lax fiscal policy, with a forecast budget deficit for 2008 of 2.7 per cent of GDP.

Although he is defensive, Mr Vosganian has agreed to try to cut the deficit to 2.2 per cent in an emergency budget revision, trimming public spending on equipment and cars. That does not tackle the real concerns of the critics, who are worried that in an election year the government is pumping too much money into public wage rises, as well as social spending. Romania is particularly vulnerable to wage-led inflation because public sector workers have repeatedly succeeded in winning inflation-busting wage rises.

"I do not see the difficulty regarding public spending," Mr Vosganian says. "Since 2001 we have kept the deficit under 3 per cent. There is no other solution to diminish the gap between Romania and other EU countries than overheating the economy. How is it possible to be a member of the EU with an average wage of €300? It is essential to increase wages."

He is likely to hear a very different story at the annual consultation with the IMF in April.

"We are still betting on a soft landing," says Juan José Fernandez-Ansola, the resident representative of the Fund. "But that depends on policies becoming more realistic. If wages are driven by the private sector, it would be rational. But the public sector has been taking the lead, crowding out the private sector."

Productivity growth is increasing by around 10 per cent or less per year, against wage increases above 20 per cent, he says. "That cannot end in a good place."

The slow process of economic reform in Romania during the 1990s has left over-manning throughout the public sector. More than 40 per cent of the workforce is still on the state payroll. In a tight labour market, many could be absorbed by the private sector.

The other critical bottleneck is infrastructure, where spending on communications such as roads and railways tends always to be squeezed by current spending towards the end of the budget year. Poor project design and management capacity is one factor. Another is the lack of any tradition of multi-annual budget planning. A third is a lack of co-ordination between central and local government. Too often they are at loggerheads.

All those problems are high on the list to be tackled with training and assistance from Brussels, and from the European Bank for Reconstruction and Development. Romania must improve its administrative capacity - not least in the finance ministry - to qualify for all the funds on offer from the EU budget.

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