Isărescu: Banks are responsible for one quarter of Romania"s foreign debt

Romanian banks are to blame for 22 billion Euros of Romania"s total foreign debt of 90 billion Euros, the governor of the NBR said yesterday, at the 13th edition of the Banking Forum.

Out of that 22 billion Euros of debt, loans granted by the banks account for around 21 billion Euros, which, according to the NBR, "acted like a broker that took out money from their parent banks and then lent them to Romanians so they could buy cars and refrigerators".

"In my opinion, when we ask about who is to blame for Romania going into debt, we need to take this rather significant element. Businesses served as intermediaries, if we were to be mean, we could say that they"ve lured Romanians into borrowing money, but in the end it was Romanians who borrowed money, not banks themselves", Mugur Isărescu explained.

He added that 50% of Romania"s population took out loans (4.5 million people) and in the 2007-2009 period alone, 1 million new cars were bought, while 3.7 million people bought durable goods, such as refrigerators, washing machines and others.

"It"s an illusion to say: I"ve got money. We started spending, we raised wages because we had money. The reason we actually had money was because the economy had overheated, the 1 million vehicles had been imported with the help of the Romanian banking system, and VAT and other taxes were paid for those cars", the NBR governor said, who added that banks have become more cautious when it comes to lending.

• Romania"s foreign debt amounts to 70% of the GDP

Romania has a foreign debt of almost 90 billion Euros, which accounts for almost 70% of the GDP, and 17.6 billion represent the short term debt, Isărescu added, who said that out of the total foreign debt, 9 billion Euros lies with the NBR.

"Between 2008 and 2010, the NBR"s forex reserve increased from 25.9 billion Euros to 32.3 billion Euros, which nears the 9 billion Euros that represent the NBR"s foreign debt", Mugur Isărescu explained.

With the help of the reserves it currently has, the NBR succeeded in lowering the minimum mandatory reserve by five billion Euros in 2008, money which entered the economic circuit.

The governor said that Romania"s entire money supply has a foreign currency equivalent, (11 billion Euros).

"We have bought the excess liquidity that we are going to leave on the market to prevent banks from using the lack of liquidity as an excuse for denying loans", Isărescu said.

The minimum required reserves in foreign currencies amounts to 6 billion Euros, and the "NBR will try to eliminate it gradually", he added.