The Romanian economy seems unable to meet domestic demand, which, at this point, is fuelling imports instead.
"We are at a crossroads. Once more, we are waiting for the Romanian economy to react to this surging demand. Imports need to be replaced by locally-made goods," National Bank of Romania (NBR) Governor Mugur Isarescu said yesterday.
Isarescu fears that macroeconomic progress may not be accompanied by accomplishments in the real economy. It remains to be seen whether the Romanian offer will react to bigger demand in due time.
"The first reaction is an increase in imports, which conceal subsequent inflationist pressures," Isarescu stated.
The Romanian industry's inability to meet and benefit from increasing demand is proved by the $200m growth in imports of processed foods, in the first nine months of 2003.
At the end of October, consumer lending had increased four times as compared to the year-ago period. These loans were used to buy imported durable goods and housing construction materials, as domestic production failed to meet demand.
The imports' growth resulted into a soaring current account deficit, which amounted to 1.64bn euros at the end of September, up 61% as compared to the year-ago period.
Both NBR vice-governor Cristian Popa and the former Finance minister Daniel Daianu feel that the current account deficit will go beyond 5% of GDP by the end of the year, although the level approved by the International Monetary Fund is only 4.8% of the Gross Domestic Product.
"Any economic growth that fails to boost exports is risky. At the same time, elections will surely be lost if an export-induced growth is forced during an electoral year. This may be in fact the political problem," the central bank's head said.
According to the NBR Governor, a limitation of non-government lending (viewed as a potential cause of the imports' growth) and measures to keep the current account deficit under control are needed, first of all to preserve Romania's foreign credibility.
"Domestic demand and, implicitly, aggregate demand, will have to be pushed down. Whoever fails to control aggregate demand is ignorant of the ways of macroeconomic policies," Isarescu stated.
Given the IMF's urging, the National Bank will announce a series of measures in the next few days, administrative steps included, aiming to put a lid on non-government lending, although the banks are saying such measures are not actually needed.
razvan.voican@zf.ro
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