15.5 C
Bucharest
March 4, 2021
BUSINESS

Isarescu, BNR: If state engages in procyclical policy, it would be better for it not to intervene

The state may intervene in the economy in order to limit economic cycles and the corrections’ effects on society, National Bank of Romania (BNR) Governor Mugur Isarescu believes, adding that in case of procyclical policies, which is Romania’s situation, it is preferred for the state to abstain from intervening. “One of the economists’ conclusions after the 1929-1933 crisis is that the economy has cycles, some say human nature itself has them. The reason the state intervenes is to flatten the cycle. When the decline comes and unemployment and social conflicts appear. (…) That is why the policies have to be counter-cyclical,” Isarescu explained at a conference organized by the Romanian Academy at the closing of a post-doctoral studies programme financed with over EUR 18 M through POSDRU, Mediafax informs. According to the BNR Governor, anti-cyclical policies have to represent the basic rule of a state that acts wisely by lowering public expenditures and budget deficits during periods of economic expansion and hiking expenditures during periods of economic recession. The head of the Central Bank states that he understands the difficulty with which a politician can apply these principles, especially since intervals of economic expansion feature a positive feeling at the level of the whole society. He pointed out that an economic correction that follows a phase of growth in which the state had a procyclical policy forces the state to remain procyclical. “This is Romania’s problem, because it didn’t have resources to become anti-cyclical it remained procyclical,” Isarescu stated. The BNR official explained that the history of the last 60-70 years also established an economic law that clearly circumscribes the monetary policy and fiscal policy goals. The BNR Governor believes however that the reverse relation is very dangerous, pointing out that a drop of the monetary mass has a powerful impact on economic growth, which in fact explains the massive liquidity injection policies adopted by the Federal Reserve System and the European Central Bank. In what concerns lowering interest rates, the head of the Central Bank argues that such a solution could not consistently support crediting because without foreign investments the resource has to be drawn internally, hence properly remunerated. “I don’t believe this country will find the miracle of obtaining economic growth without investments,” Isarescu underlined.

Related posts

Inflation in H2 to grow slightly but remains within 3-4 pc target

Nine O' Clock

Ministry of European Funds takes over POSDRU and POS CCE

Nine O' Clock

Hidroelectrica once again activates the force majeure clause

Nine O' Clock