Hiking VAT at 24 pc was a big political mistake backed by PDL too, a mistake that delayed the end of recession. Economy is an unofficial champion when it comes to dodging fiscal laws, Romania had to dodge “next year’s political risk,” Traian Basescu said, referring to the agreement with IMF.
President Traian Basescu stated yesterday during a conference organized by ‘Ziarul Financiar’ that he is optimistic about the economic growth this year, pointing out that he believes it is possible for it to surpass the 2 per cent level. Nevertheless, the economic growth target is still 1.5 per cent for 2011 and 3.5-4 per cent for 2012, the President underlined, pointing out however that it remains to be seen how the economy will evolve.
The President also stated that the current account deficit needs to be stabilized, the goal being 5 per cent of GDP this year. Basescu considers that this goal is “difficult to attain,” but not impossible. The Head of State also said that the government should remain reticent when it comes to excessively stimulating consumption.
On the other hand, the President pointed out during the same conference that the Romanian economy is an unofficial champion when it comes to dodging fiscal laws and that the Social Insurance Contributions (CAS) cannot be lowered this year because the state budget cannot afford the risk of growing imbalances. “A 2 per cent cut won’t be a shock liable to stimulate good faith. It will be small support for those that pay,” President Basescu added, pointing out however that a solution would be for all companies to pay CAS, with the contributions set to be cut by at least 2 per cent when that happens.
Concerning the VAT hike, the President considers that it was one of the big political errors, one actively backed by “the big men that clashed at PDL’s Convention” too, an error that delayed the end of the recession by at least six months. Basescu stated that he backed the cutting of pensions by 10 per cent as a temporary measure but the Constitutional Court turned it down. He added that another proposal was a temporary 10 per cent tax on all pensions, ranging from the largest of them to those totaling just RON 340. Basescu stated that that tax could have been eliminated quickly, possibly in two stages, by January 1, 2012, while lowering the VAT is a matter of years. The Head of State added that the hiking of the VAT delayed the end of the recession by at least six months.
IMF is not whip of God for Romanian Government and Parliament
President Traian Basescu also stated, during the same conference, that the idea that the IMF is “the whip of God for the Romanian Government and Parliament” “is false.” At the same time he pointed out that the new agreement with the IMF is “100 per cent a Romanian Government programme,” pointing out that its goals are fiscal consolidation and the growth of competitiveness.
In this context Basescu pointed out that Romanian authorities were the ones that raised the issue of large state agencies, this being the first time when issues concerning the restructuring of state companies are introduced in an agreement with the IMF. Traian Basescu claimed that the IMF expertise was necessary and that Romania had to dodge “next year’s political risk.”
“My fear was that when 2012 comes there will be the temptation of adopting populist measures. (…) We’ve always damaged our macroeconomic stability during election years. (…) I would like for 2013 to be a year of continuity, not for us having to repair what was damaged the year before,” the Head of State underlined.
Liberalizing electricity and natural gas prices – an urgency
President Basescu also tackled the issue of the liberalization of electricity and natural gas prices. He opined that the programme has to be prepared “very quick” because otherwise the National Bank of Romania (BNR) cannot correctly establish inflation rate targets, Mediafax informs. The Head of State backed the need to come up with a “programme to liberalize administered prices,” pointing out that there is the need for a debate in order to opt for one of the two options. An option would be to liberalize the said prices in stages, he explained. “Or we could say: we stay put and we liberalize prices only where there are losses and we set a deadline, let’s say July 1, 2013, for price liberalization,” the Head of State added.
Replying to the president, Iulian Iancu, social-democrat head of the Chamber of Deputies committee for industry and services, said yesterday liberalizing the natural gas market is a ‘fundamental mistake.’ Iancu added this would affect Romania’s security and lead to higher prices. He opined some companies will be forced out of the market and out of the competitiveness area, Mediafax reports.
Ghetea: first house 4 credits to be lent in 3-4 weeks
Radu Ghetea, president of the Romanian Banking Association, said that the first credits under the programme First House 4 could be lent within the coming three to four weeks, after the National Credit Guarantee Fund for Small and Medium-sized Enterprises will send banks the conventions necessary for introducing the norms and launching crediting, Mediafax reports. Ghetea also said that there are five to six banks willing to join the programme, among which the CEC Bank.
The ARB president said that crediting will recover in the second half of the year, as consumers will regain their credit appetite once economy is out of recession. “You shouldn’t think consumption will return to what it was in 2007. However, I believe we will see a credit invigoration,” Ghetea said, who added that very few companies are sound banking wise, as many enterprises emerged “worn out from the crisis”. “I am optimistic that the relationship between economy and banks will reach a reasonable level of intensity and fairness,” Ghetea also said.
Vasilescu, BNR: monetary policies can no longer keep inflation in check
The monetary policies adopted by the central bank can no longer keep inflation in check, especially in an open economy, crossed by permanent flows of capital, which leads, eventually, to a globalization of the money supply, Adrian Vasilescu, adviser with the National Bank of Romania (BNR) governor, also attending the seminar, stated. “The national bank never sets out to modify the inflation target because the inflation target is a reference point for the society at large, indicating the point which may be reached if certain correlations are met,” he argued.
According to the advisor to the BNR governor, the battle to reduce inflation must begin, and, next year, the authorities should push the pedal, to consolidate economic growth, as well as to make possible the adoption of the euro in 2015, if this target is maintained.
In his view, Romania would have emerged out of recession last year, if the VAT had not been hiked.
No one intends to raise taxes applied to banks
The president Traian Basescu further stated that the authorities did not envisage raising taxes applied to banks. “I discussed the matter with the prime-minister, with the Finance Minister, and there was never any mention of boosting revenue by applying higher taxes to banks,” he argued. The president further said that such a measure would not be taken “as long as they (e.n. the banks) make efforts to lower the cost of loans”. At the same time, the head of state voiced his hope that “at least now, when we are trying to get economy back on track, the banks won’t hurry to try to make up for their loss in underperforming loans”. “Give it some 15 years,” Basescu added, laughing.