Isarescu Warns About "Exotic" Crisis Talk

Talks about the financial crisis seen from a broader perspective that tends to zoom out from our domestic problems could make us forget the issues which are specific to Romania as far as the impact of the crisis is concerned, National Bank Governor Mugur Isarescu told a conference titled "International Crisis Influences on the Romanian Economy." One of the imperfections of globalization is that Romania is treated "in bulk" with other countries grouped by various criteria, geographical or otherwise, Isarescu added. He exemplified saying that, in the previous six months, Romania had been compared with several countries, such as Iceland or the Baltic states, despite very reduced similarities.

"Comparisons to Iceland referred to the high current account deficit, but the most significant similarity I can find is the number of inhabitants," said the governor. As for the comparison to the Baltic states, the monetary policy framework is very different, as these countries have a Monetary Council (the national currency is tied to a foreign currency at a fixed exchange rate - the Baltic currencies and the Bulgarian lev are tied to the euro), while Romania has a managed float of the exchange rate, he added.

Referring to the domestic financial market, Isarescu explained that the rumoured lack of liquidity did not exist and that the country was transitioning from a massive liquidity surplus until the Spring of 2008, when sterilization problems existed, to a more moderate surplus in the second half of 2008. The governor recalled the attack on the leu in October 2008, when the National Bank had to intervene to protect the national currency as an essential confidence factor. "Many banks said at that time that we took the lei away from them, that we created a lei shortage on the market. The same banks now tell newspapers that they have excessive liquidity," Isarescu added.

• Finance Minister Pogea: We will make public investments, which require foreign financing

The specific problems of the Romanian economy and the solutions identified by the Government were presented to the conference by Finance Minister Gheorghe Pogea. He explained that the Government"s intervention in the economy in the form of public investments scheduled for the near future could partially compensate for the economic recession and the downsizing of private business.

Pogea explained that, as such investments required foreign financing, the Government would seek to ensure an optimum financial package from the European Commission, private abnks and other international institutions. The minister explained that the Government was currently exploring possibilities for a foreign loan and was discussing the volume, structure and conditions with the European Commission and the IMF.

The minister assured that, should Romania have problems, the mandatory structural expenses would be secured. Such expenses include public pensions, military pensions, maternity support, veteran pensions, student scholarships and the public debt service. Should revenues decrease, the Government would take steps to cut spending that did not lead to economic growth and had "gone rampant lately."

Budget rectifications to recalibrate spending are another option, considering the uncertainties surrounding budget revenues. "We will rectify the budget as often as needed, but not too often," the minister added. "Flexibility must be the answer to inconsistency," he said. Regarding taxation, the minister said he was contemplating the introduction of a flat tax in the form of a flat sum to replace the flat tax in the form of a flat percentage for companies in the red. The idea will be discussed with the business environment in order to define criteria for eligibility. The flat sum tax would apply especially to construction companies, freight forwarders, hotels, restaurants and handicrafts.

The minister also announced he was considering several steps to simplify taxation, such a reduction in the number of taxes, which is now 485.