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December 9, 2022

Daianu: Cost cuts – winning ticket for avoiding default

Former Finance Minister Daniel Daianu holds that the cost cuts programme negotiated with the IMF can be a winning ticket for avoiding Romania’s default despite the fact that it is costly for certain social categories and that it will lead to recession in 2010 too.

“In my opinion such a programme makes it highly probable that Romania will remain in recession in 2010 too because I don’t see the pistons. Consumption will be affected, investments will be affected. It’s an austerity program,” Daianu stated during a TV show. He believes that Romania currently finds itself in the situation of choosing between various austerity measures that could mean higher costs for certain social categories but a programme of cutbacks such as the one recently approved by the government can be a “winning ticket” for avoiding default. Asked what would be the effects if the government is eventually forced to hike taxes, Daianu answered that the impact would primarily be on the inflation rate, the latter’s hike forcing BNR to raise the monetary policy interest rate.

“Romania has no way of avoiding this type of pain that has its roots in the austerity programme,” Daianu said, pointing out that in the current situation cost cuts are nevertheless preferable. He explained that European funds are the only “motive power” that can work against the economic policies’ procyclical nature. According to the former finance minister, unlike Greece, Romania has a significant advantage in the exchange rate’s flexibility but also in the fact that its public debt is still at a sustainable level that “does not crush you.” Daianu pointed out that the danger for Romania would be the impossibility of borrowing from external markets. He underlined that at this moment Romania finds itself in a novel situation, namely that of going through reforms that are characteristic of the transition period, not of a period in which Romania is an EU member state.

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