Banking Analysts Warn Of Possibly Higher Taxation In 2009

The effects of the financial crisis are starting to become obvious in Romania"s economy, according to several economic analysts who attended a debate organized by the Associated Financial - Banking Analysts (AAFBR) yesterday. The situation is likely to go back to normal in up to two years. Until then, the economic growth forecast for 2009 is below 6%. According to the attendants, Romania"s economic growth will incur a substantial setback in 2009, but this is not regarded as unusual, but as a way a returning to a normal state of affairs.

The capital market will stabilize towards the end of 2009, according to Intercapital Invest CEO Razvan Pasol, who stressed that the prices of shares will remain low, as would liquidity. The following year is going to be difficult for companies, which will suffer major profitability declines and partial losses on certain markets, according to Florian Libocor, Chief Economist with BRD- GSG. He added that all this was part of a cold shower for most companies. However, things should go back to normal towards the end of 2009, when the business climate is likely to revigorate.

Companies and individuals who currently owe a debt to a bank will be the most affected by these circumstances, according to Libocor. Similarly, Interamerican Investment Manager Radu Craciun believes that the middle class will suffer the most serious effects. Specifically, the middle class will have to be more cautious about consumption, although some of the well-to-do will probably not cut spending.

Raiffeisen Bank Chief Economist Ionut Dumitru believes that most individuals have not become aware of a dire need to be more cautious about their spending, partially because of the Government"s revenue policies. In turn, BCR Chief Economist Lucian Anghel believes that the future Government will have to immediately respond to the severe economic growth slowdown, because the National Bank will not be able to solve long-term issues on behalf of the Government.

The decrease in budget revenue and the economic growth slowdown will prompt authorities to take measures to fill the gap, but the Government will probably not manage to cut expenses in order to avoid higher taxation, analysts believe. Ionut Dumitru explained that there was a general agreement on the fact that economic corrections would be very necessary in 2009, because of more limited access to resources and higher financing costs.

Analysts believe that the new Government will increase taxes in order to supplement budget revenues, especially considering the mass salary raises approved in end-2008 for 2009. The much more painful alternative would be to increase the inflation rate through more pressure on the exchange rate. The general opinion is that taxation adjustments would be lesser evil.

Radu Craciun believes that the measures which the new Government is going to take in the first six months in office will make a tremendous difference for Romania"s accession to the Euro Zone. Under these circumstances, Romania"s greatest problem is the inflation rate and, in the absence of prudent economic policies, the adoption of the euro in 2014 is at risk, Craciun believes. Ionut Dumitru is more optimistic on this topic, as he believes that the 2014 Euro Zone accession target is achievable, if coherent economic policies are in place.