The next Minister of Finance will have to know macroeconomics

Interview with Mr. Cristian Sima, chairman of the brokerage firm "WBS România" - part I

• The position of Minister Finance - the worst position in the government

Reporter: Are you concerned about the prospects of Romania"s economy for 2009? What do you think are the weak points of the Romanian economy?

Cristian Sima: I"m very worried. The weak points are the macroeconomic imbalances, the rising budget deficit, the exchange rate, the growing interest rates, the minimum mandatory reserves and the current account deficit.

Reporter: Could the Euro go above 4 lei in 2009?

Cristian Sima: That could very well happen in the next days, but, on the other hand, the Euro could reach 3,6 lei in 2009. The exchange rate will be extremely volatile, it could go to 4,1 lei, but it could also go back down to 3,7 lei. In 2009 we will see both 4,1 and 3,7 lei exchange rates for one Euro.

Reporter: What is the new government to do in order to protect Romania"s economy?

Cristian Sima: To find a Minister of Finance that knows macroeconomics and support him if he chooses to take drastic steps.

Reporter: Who do you think would want to be a Minister of Finance, at a time when we are affected by the international crisis?

Cristian Sima: Everybody wants that position, because most of the people who want it know very little about macroeconomics, they don"t even know what they"re getting themselves into, but it will be the Minister of Finance that will be holding "the hot potato", it will be the worst position in this government, because everyone else will be asking for money, and the Minister of Finance will be tasked with raising it. The Minister of Finance will have to juggle giving money to everybody else and keeping the macroeconomic imbalances in check at the same time.

Reporter: What"s the most pessimistic scenario for Romania?

Cristian Sima: Recession. Among emerging countries, Romania is like a romantic hero, it rises and falls abruptly, but Romania is faring better compared to other countries in Eastern Europe, a lot better.

Reporter: Could this encourage foreign investors to come to our country?

Cristian Sima: That"s not enough. We need measures to avoid the crisis. We barely felt this crisis, we "dipped our toes" in it, we"re "getting out feet wet", but nothing more. If we had a 9% wage tax, if VAT for luxury goods were raised to 36% and if we freed the lending system and we would bring liquidity to the market, then investors would come. Even if we were to have an exchange rate of 4,1-4,2 lei, we could withstand it, and having the exchange rate at 4,1 - 4,2 lei would right off the bat give us a drastic drop of the current account deficit, and even though it would be artificial, it would be good, because we have no way of funding it anyway, even if it were 50% of what it is now.

Reporter: Do you think there is a need for the revision of the lending regulations?

Cristian Sima: Regulations are good. You don"t lend too much or else people would get into serious trouble, because Romanians still want to borrow, they still haven"t learned their lesson, they won"t learn it by the end of 2009 either. However, the National Bank of Romania should cut the minimum mandatory reserves, both for leu and for foreign currencies, to half of what they are now.

Given the current circumstances, it is important to stimulate consumption. Otherwise, there is no way to get out of trouble. We shouldn"t be afraid of inflation, it can be beneficial in times of crisis, the Americans and the Europeans are faced with deflation. We have interest rates at 10,25%, with an inflation rate of 6%, meaning the inflation-adjusted interest rate is 4%. Americans have 5% inflation and their interest rate is 1% and they"re considering a 7% inflation rate and they"re not afraid. It"s all about economic growth, jobs, consumption.

Otherwise, it means we didn"t understand a thing about economics.