BRD Predicts 11 Percent Inflation Rate

• BRD president Bogdan Baltazar: "Lack of restructuring is causing macro-economic tensions"

This year's inflation target of nine percent appears too ambitious to Bogdan Baltazar, chairman of The Board of The Romanian Development Bank (BRD) - Groupe Societe Generale. He added that the bank was expecting a full-year inflation rate of 11 percent. Almost four months through this year, The National Bank's interest rate is 21.25 percent and chances are that it will not decrease over the next three months. The high official rate reflects inflation-generating tensions in the economy. "You realize how swift disinflation measures - that is, real disinflation, not cosmeticized disinflation - will have to be in the second half of the year " Baltazar added. He pointed out that, given the current inflation target of nine percent, The National Bank's rate should be 13-to-14 percent.

Although last year's macro-economic indexes appear satisfactory, significant tensions emerge from the lack of economic restructuring. "We do not know how much of last year's economic growth is healthy growth. Public consumptions gained 4.6 percent last year, while the quasi-fiscal deficit accounted for five percent of the GDP," Baltazar remarked. The bulk of last year's arrears were generated by State-held companies and formerly State-held companies privatized to political coteries. Moreover, these companies are also among the country's largest importers and therefore significantly contributed to deepening the foreign deficit. Baltazar added that these companies' debts to The State had increased last year by 28,000 billion ROL to 97,000 billion ROL (three billion USD). "It was the profligacy of the management of State-held companies that fueled the current account deficit, and not consumer credit, which only accounted for five-to-six percent of the deficit," Baltazar stressed.

In the absence of major foreign investments, Romania's industry, with the exception of a few pockets, is as efficient as it was back in the "60s and "70s and therefore cannot make more exports. Moreover, the industry is excessively dependant on intermediary imports. "The outlook for 2004 comes with few positive certainties," Baltazar concluded.