Thursday, October 2, 2008

Romania's ecomomic buoyancy holds good for investors

BUCHAREST, Oct 1 (Reuters) - Romania's buoyant economy and its vast retail market are too attractive for foreign investors to see any major fallout from global financial crisis, a senior government advisor, Razvan Orasanu, said.

The current financial crisis has heightened concerns, voiced by rating agencies and the International Monetary Fund, that Romania is more vulnerable than many of its regional peers because of a large current account deficit, high rates of hard currency borrowing and inadequate fiscal and wage policies.

The fear is the Romanian economy could be destabilised if global cash flows and foreign investment dry up and are no longer sufficient to plug the double-digit external deficit.
But an advisor to Prime Minister Calin Tariceanu said the economy was in "a good state" and resilient to external shocks.

"Internal demand is one factor, the fact that foreign direct investment remains high is another. The other factor is the sheer need of several industries to get from the development stage to the developed stage," he said.

"This is regardless of what goes on ... The need to penetrate the market is still there," he said, adding he meant retail and financial services industries, in particular.

The government forecast this year's FDI flows to reach 10 billion euros, from 7 billion in 2007. The economy is expected to grow by more than 8 percent, largely due to rampant domestic consumption, a good harvest and a thriving real estate market.

Orasanu added some signs of slowdown in the economy, which is widely seen losing some steam next year, were already apparent, particularly in the buoyant real estate.
"I see a little bit of slowdown in the madness of property development," he said.

FISCAL DILEMMAS

He also defended the government's fiscal policies which the central bank and many economists have said are too loose at a time of fast economic expansion.

"We are not complacent. We are vigilant," he said.

"The constant criticism is that we have pro-cyclical fiscal policy. The rule is ... when the economy is strong you must put some money aside ... and use it when the economy is in a recession," he added.

"This may work in an economy that's established and functioning and going through cycles so it cannot grow by 10 percent. But Romania can grow by 6-10 percent."

The ruling centrists, who reformed large swathes of the economy at the start of their mandate four years ago, are now under pressure to hike wages and welfare spending ahead of a parliamentary election on Nov. 30.

Public opinion polls show Tariceanu's ruling Liberal Party poised to come in third in the ballot, but political observers say it is likely to join a future coalition government with one of the parties now in opposition.

The centrists argue extra spending is made possible by fast economic growth -- at 9.3 percent on the year, Romania was the fastest economy in the EU in the second quarter -- and is necessary to alleviate poverty.

"The government has to balance economic stability with an increase in people's welfare," Orasanu said.

Romania plans a fiscal deficit of 2.3 percent of gross domestic product this year, down from 2.6 percent in 2007.

Orasanu also said privatisation should be speeded up and focus more on outright auctions.
"Romania still needs to privatise a lot, more than 10-20 billion euros worth of stuff," he said.

1 comment:

Anonymous said...

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