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December 1, 2021

Balcerowicz: Countries maintaining mandatory pensions deserve commendations

The countries that enforced and are maintaining the mandatory pensions pillar, such as Romania, deserve being commended, especially in the context of the aging population and the high public debt in all countries.
“The problem of public debt was suspended, but not solved in the majority of large economies. Since the beginning of the crisis, it advanced by more than 100 pc in all states. Statistics only include the explicit debt. In the USA too, implicit debt is much bigger, it includes all the promises, especially the pensions. (…) Either you receive less, or you increase the taxes and damage the economic growth,” explained Leszek Balcerowicz, former Deputy Prime Minister and Finance Minister of Poland, as well as former chairman of the National Bank of Poland – considered Poland’s reformer. The statements were made during “The Coface Conference on Country Risk 2014”, organised yesterday by Coface and the press agency Mediafax. Poland and Hungary nationalised the pension contributions paid to the mandatory pension funds.
Balcerowicz mentioned that there also are big states that have not solved their structural problems, such as Italy and France, concluding that, in these conditions, the large emergent states will not be the growth driver at global scale, as expected by analysts.
The West must take tough non-military measures against Russia, not just tough statements, in order not to validate de facto the interventionist policy of Putin, which will lead to a resuming of the arms race and the loss of the value of security guarantees, Leszek Balcerowicz added. According to the Polish reformist, the Russian doctrine said that Putin’s Russia has the right to intervene whenever it believes that Russia’s interests are threatened.
The all-evil deflation – a fabrication
According to Balcerowicz, the lax monetary policies, supported by politicians and analysts, bring short-term gains and allow government to delay structural reforms, which however are irreplaceable, and the massive cash injections are justified by the danger of deflation, which is a fabricated story. He explained that the states which began the first structural reforms and the fiscal consolidation, like Ireland, the Baltic States or Bulgaria, were able to return to growth before the other states. Balzerowicz gave as negative example Greece, which postponed the debut of structural reforms and conducted the fiscal adjustment by raising taxes in a time of crisis, which is wrong.
Daianu: The Euro adoption process must be sped up
The Euro zone has increased geopolitical relevance in the context of the crisis in Ukraine and the accession process should be sped up, as it is a strategic choice in geopolitical terms, at a moment when supplementary risks and costs exist for the states of the region, considers Daniel Daianu, former Minister of Finance and acting vice-president of the Financial Supervisory Authority, who attended the event. He believes that the situation in Ukraine could generate the “erosion” by 0.2-0.3 percent points of the economic growth anticipated for the states of Central and Eastern Europe this year, against the background of uncertainty, geographic proximity or relocation of resources.
“There is the cost of uncertainty, the problem of economic proximity, some will be very cautious with making certain investments. We refer to reallocating resources, maybe we must reallocate more to defence, not only in a country, but throughout the region. There is the problem of the security of supply, because in any country, supply has a cost,” Daianu explained.
In his turn, Valentin Lazea, chief economist of the National Bank of Romania (BNR), said that Romania needs 10 years at least to reach a GDP per capita that will be 60 pc of the European average, thus being admitted in the Euro zone. However he spoke in personal name and not in his position of BNR official. According to Lazea, Romania’s potential GDP in the current conditions, as it is determined by the objective factors which compose it (capital, labour force, total productivity of factors) amounts to approximately 2 pc a year. The data presented by Lazea show that, before the crisis, Romania had a GDP growth potential of 5 pc a year, which diminished to 2 pc a year after the crisis, an involution caused by the significant reduction of foreign direct investments, the decrease in the number of persons fit to work and the modest evolution of productivity.
Returning to Daniel Daianu, according to the economist, the Ukrainian crisis tests the capacity of the European Union to deal with a geopolitical threat. He added that Romania and Bulgaria should accede to the Schengen zone and strengthen their economies. As for the Euro currency, Daianu believes it is overvalued at a parity of 1.37 USD/EUR, at a moment when the Euro zone has a surplus of current account.
Coface improves economic growth forecast to 2.3 pc
Coface improved the forecast of the economic growth of Romania this year to 2.3 pc, a figure that is more optimistic than that of authorities and international financial institutions, which is 2.1-2.2 pc, according to data released at the Country Risk Conference. At the beginning of the year, Coface estimated a 2.1 pc increase of local economy, against 3.5 pc last year, driven by a slower increase of exports and the sluggish return of consumption, because of very low confidence among consumers. “The quality and pace of economic growth in Romania depends on infrastructure and the quality of the business environment. Infrastructure is a problem in Romania, while as regards governance, Romania, same as Poland, fares better than other countries from emerging Europe, but there is room for better,” Coface chief economist Yves Zlotowski said Wednesday. In his opinion, Coface made several adjustments of the evolution of macroeconomic indicators in Romania, but the real worry now is the level of bad loans. In this context, BNR chief economist Valentin Lazea added that the impact of crediting on economic growth is overrated, as the advance of GDP is also possible without bank loans. On the other hand, according to Lazea, data show that population crediting has a smaller impact on economic growth, while the evolution of the GDP is more influenced by the loans granted to companies. With regard to crediting the companies, the BNR official believes that, although it has stronger effects on the GDP, it still did not have the expected effect.
BNR will most likely miss the inflation target for this year, which is currently estimated by the Central Bank at 3.5 pc, said Vlad Muscalu, chief economist of ING Bank, who expects consumer prices to advance by more than 4.5 pc until the end of the year.

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