Radu Craciun: Foreign deficit adjustment crucial in 2009

The big unknown as regards the trend of economy in 2009 is the fiscal policy and depending on the moves the government makes in the first six months of next year we'll see whether the outlook of Romania switching to the euro in 2014 is viable or not, believes Radu Craciun (photo), an investment officer with Interamerican Pensii. He believes the key element will be the successful adjustment of the foreign deficit, which is the main vulnerability point and makes the RON become subject to speculative attacks. A middle scenario would be based on a combination between two vital elements: an interest rate that is somewhat higher or at least kept at the level it is today (10.25%) and a cautious fiscal policy. Another possible scenario in Craciun's opinion would entail a foreign deficit correction induced by a steep RON interest rate hike. An extreme adjustment scenario would be based on a massive RON depreciation, to a level of 4.5/5 RON against the euro. At any rate, Craciun believes we need an adjustment that should cut the foreign deficit by 2-3% in GDP so that the rest should be more easily financed through foreign direct investments that will continue to drop. Craciun maintains authorities' tendency to automatically copy West European reactions to the crisis is "totally wrong, because it ignores the specific features of the Romanian economy".