The Government has promised, half-heartedly, to reduce the budgetary deficit to less than 2.5% of GDP, to straighten out public spending and to avoid offering any "electoral giveaways", while the NBR "will remain aggressive" if necessary to curb inflation. This was the conclusion of yesterday's talks held by Prime Minister Calin Popescu-Tariceanu, NBR Governor Mugur Isarescu, and Finance Minister Varujan Vosganian.
"We are all responsible officials, aware of the special situation the country is going through," Isarescu said.
The three officials appeared before the press after an hour of talks, in a public image exercise that the head of government wanted to conduct as early as last month to show the markets that he coordinates his efforts with NBR's to maintain the macroeconomic balance.
The steps discussed were only outlined: the Government's intention to keep the budget deficit below 2.5% of GDP reestimated for 2007, the attempt to persuade local authorities to stop the spending "frenzy", avoiding the avalanche of spending made by ministries, limiting salary raises to 10-11% in the education and health care sectors, to 5% for the military and public peace sectors, and 4% for magistrates, the control over spending by ministries for equipment and the restructuring of CFR (national railway company). NBR's position under the circumstances? "If need be, we will remain aggressive, because we have a certain autonomy. We will take every step we deem necessary to reach our inflation target. NBR's reaction was the right one because we are having an outburst of inflation. We have a dramatic change of attitude towards Romania and a tendency to exaggerate on the part of markets," Isarescu said. NBR increased the monetary policy interest rate for RON by one percent again on Monday, which has now reached 9% from 7% in October.
The head of the central bank told ZF in November "the price for excessive use of certain instruments to push disinflation may be unbearable for the society. For it may cause economic recession."
Finance Minister Varujan Vosganian says budgetary revenues in January "substantially increased." "We have prepared a formula to cut some expenses by up to 1 billion euros. We will avoid the excessive deficit procedure of the EU, as well as any asymmetry in public spending," Vosganian promised.
"I hope the markets will read determination and consistency into this meeting and will expect steps to be taken accordingly," NBR Governor Mugur Isarescu stated.
He spoke about the "more difficult moments", about the "temporary loss of confidence in RON".
"I believe the absolutely necessary consistency will be achieved that will maintain a sustained economic growth rate of around 6% and will bring the inflation back towards the targeted interval by the end of the year, even though these goals are not easy to accomplish," Isarescu said.
He is to announce the detailed steps to increase reserves for loans in foreign currency granted to people who earn their incomes in RON tomorrow. The next monetary policy meeting of NBR's Board of Governors is scheduled for March 20.
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