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March 25, 2023

Spending had gone too far in 2006-2008, Isarescu says

Business success in Romania derived from the particularities of transition, rather than strategy, the Central Bank governor stated.

Preserving the stability of each commercial bank is not synonymous to macroeconomic stability, the Governor of the National Bank of Romania (BNR), Mugur Isarescu said in a press conference yesterday, quoted by HotNews.ro.

“When everybody makes budget cuts, things may go differently at macroeconomic scale. Keynes said that, when crisis starts and companies switch to tight budgets, it is bad news for macro-economy. Economy is a science, an art that is prone to sophisms,” the Central Bank governor explained. According to Isarescu, the examples that are appropriate at company scale, by aggregation, are no longer good at macroeconomic scale.

Isarescu reminded that, during 2006-2008, the engines of the economy overheated. “Why don’t we ask ourselves how come that consumption increased so much in the years before the crisis? There were increases by as much as 80 pc, spending with public salaries rose by more than 100 pc during 2006-2008, the same as the number of employees. We had gone too far,” Isarescu pointed out.

Success stories in Romania derived from the particularities of transition, rather than strategy, and obsessively repeating the fact that companies got closed eludes a clear truth, Isarescu warned. There is a terror of figures – 140,000 firms were closed. Many were apartment firms, operating in sectors that experienced an explosive, but unsustainable growth, such as real estate,” he added. According to the governor, Romania should take the path of a sound and uneventful economic growth that will not rely only on consumer loans.

BNR criticizes oil companies for repeated hikes in fuel prices

The National Bank of Romania (BNR) harshly criticized the oil companies which hike the price of petrol every time oil prices rise, blaming it on international quotes or on the depreciation of the US dollar, Realitatea.net reports. The critical remarks come at a time when the reference price for oil reverted to the December 2010 level, the dollar slumped and oil companies maintain fuel prices high.

If the oil companies took into consideration the latest trends, the price of petrol should revert to its level at the end of last year, i.e. fall by 12 pc. The central bank representatives warned the oil companies against defying the logic of the market. “There is a simple explanation for it: there are three components making up the inflation rate in Romania: a structural component, an adjustment component, as adjustments occur in the administered prices, and an emotional component. The emotional component is a damn big one! There are no strong voices in Romania to speak up on the market, as is the case in France. In France, no company affords to hike the prices whenever it feels like it, because it may be made accountable for it,” Adrian Vasilescu, adviser to the BNR governor, explained.

According to the latter, there is such a thing as the logic of the market, which should be abided by, even by the companies which sell products in Romania. “When international quotes slump, the companies no longer have an excuse. They probably turn their gaze to the National Bank and feel like saying something about the RON, but, sadly, the national currency’s fluctuations do no justify a hike in petrol prices,” Vasilescu concluded.

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