Isărescu: We will only exit the crisis through harsh budget restraints

Romania can only exit the recession through harsh budget constraints, says the governor of the NBR, Mugur Isărescu, who said that he didn"t agree with the statement that the IMF saved us as a country, made by his advisor Lucian Croitoru yesterday. He said that the IMF simply financed our payment balance.

"The IMF didn"t save us as a country. It was created to finance the payment balance, subject to certain terms. The IMF said that it has done its duty, but Romania did not do its duty towards the IMF. We hope the increase of the budget revenue will stop here. The IMF was not being generous with us at all. Regrettable confusions have been created that are posing problems for us as well. We will only exit the recession through harsh budgetary constraints", Isărescu explained.

Lucian Croitoru yesterday stressed that the public sector has successfully adjusted to the changes that the crisis brought about, but the state failed to cut its expenses, which caused the need to borrow from the EU and the IMF.

"The private sector operated the necessary reductions in spending immediately after the beginning of the crisis, but the state failed to do the same, so we needed the IMF to do what? To rescue the state itself, which let"s be honest would have gone into bankruptcy otherwise. But what the IMF asked for in exchange for this help was to make adjustments where they were needed", said Lucian Croitoru.

In May 2009, Romania signed a 20 billion Euro loan agreement with the European Union, the International Monetary Fund and the World Bank. This year, Romania"s foreign creditors have demanded harsh public spending cuts, as the budget deficit has again climbed to 7% of the GDP, far above the 3% limit of admitted in the EU.

• Increasing difficulties in funding the structural deficits

The financing of Romania"s structural deficits is becoming increasingly and visibly difficult, and these imbalances are becoming a cause for concern, the governor of the NBR, Mugur Isărescu said yesterday.

He said that right now, state budgets are "suffering" everywhere, and there are already social conflicts looming.

"We are seeing the same situation in Romania. We are not making an exception, even though some figures, like the sovereign debt, are hardly dramatic in terms of size, but they do pose a concern, because of their trend", the governor of the Central Bank said. He said that the concern does not only stem from the size of the deficits alone, but from their structure as well.

"These are structural, chronic deficits, which are hard to correct. A structural deficit can not be corrected through a structural deficit", Mugur Isărescu explained. He added that there financing these deficits is becoming increasingly difficult, as illustrated by the rising interest rates.

Mugur Isărescu also discussed the notion of pension funds, and said that Romania essentially has pension budgets instead of pension funds.

"The pension funds are in fact pension budgets. Romania a pension budget, not pension funds. There is a discrepancy between the two terms. The idea that pensions in Romania are paid out of the contribution of the current retirees is mistaken. It doesn"t mean that a person"s pension needs to be paid out of their own money. Their money paid for the retirement of those who came before him. I would like to see as many Romanians as possible return home to contribute to the pension budget", said Mugur Isărescu.