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May 8, 2021

Without EU funds for infrastructure, private investments jeopardized

Structural fund absorption can be facilitated, especially where the absorption rate is concerned, if banks become involved in the process, Bogdan Olteanu, Vice Governor of BNR says.
Without European funds for the Romanian road and railway infrastructure, private investments are “in very serious danger,” central bank officials have warned. “There is one vital area without which Romania has no chance at long-term development – infrastructure. If we don’t succeed in bringing in European funds for road and railway infrastructure, Romania’s private investments are in very serious danger,” Bogdan Olteanu, Vice Governor of BNR, stated at a conference entitled ‘Structural Funds for Stimulating Development. The Role of the Banking System in Romania in the 2014-2020 fiscal period.” Furthermore, investments will last as long as the highways do, he added. “If we stop the construction of the highway connecting us to the West at Sibiu, that’s as far as most foreign investors will go as well. If we manage to create a highway connection to Moldova through a more functional railway, we will succeed in balancing the industrial development and the industrial investment flow to that area, since we obviously have an imbalance at the moment,” Bogdan Olteanu said. He underlined European funds are “an economic growth alternative” in the medium term, given that “private investments are now much less available than before the crisis.” The BNR official believes the current growth rate is “too small to make up for laggings,” achieve true convergence, or “possibly accede to the Euro Zone.”
Moreover, Bogdan Olteanu said attracting the banks’ interest in the European funds project would be a good thing, adding the Romanian state should be responsible for managing these funds. “Managing European funds through banks is a good idea. I believe it’s a good idea to manage European funds through banks due to their years of experience, but also due to our pre-accession experience with projects carried out through banks. This proves there will be a better management and a better blending of the banks’ responsibility to ensure basic payment mechanisms and its participation in the financing. If we want to facilitate European fund absorption and accelerate the absorption rate, I think we should opt for introducing banks into the circuit in the next fiscal period. The Romanian state has an obligation to manage these European funds,” Bogdan Olteanu concluded.
In turn, Mihaela Toader, General Manager at the Minister of European Funds, stated Romanian banks could be intermediaries if they became involved in European fund absorption and were able to pay penalties in case the failure rate was exceedingly high.
Danescu (ARB): Insolvency in Romania is 20 percent of GDP
Currently, Romania’s insolvency rate is 20 percent of the Gross Domestic Product, while banking assets are 64 percent of the GDP, Florin Danescu, Executive Manager of ARB (the Romanian Banks’ Association), stated at the event. “In Europe, the banking multiplication effect translates into 366 percent of the GDP of the European banking assets, while a 200 percent lending activity is comparable to the European GDP. In Romania, banking assets are 64 percent of GDP. Therefore, banks have not completely taken over in Romania. On the contrary, structural funds are essential in covering the existing gap between Romania and other European countries. (…) We, banks, much like other industries, want a better dynamic for the Romanian economy,” Danescu said. According to the ARB representative, the banks’ contribution to the current European fund absorption rate is essential.

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