Friday, January 16, 2009

Romania C/A gap at 8-9 pct/GDP sustainable-cbanker

BUCHAREST, Jan 15 (Reuters) - A current account deficit of 8-9 percent of gross domestic product would be sustainable for Romania to finance without hurting inflation or the exchange rate, a senior central bank official said on Thursday.

Romania's double-digit external shortfall makes it one of emerging Europe's most vulnerable economies as the escalating global cash squeeze limits access to funding.

The deficit is forecast to have fallen to 13 percent of GDP in 2008, from roughly 14 percent of GDP a year before.

Central bank chief economist Valentin Lazea told online publication Hot News (www.hotnews.ro) that Romania's current deficit can no longer be financed.

"This is precisely why in addition to the adjustment effort of the private sector which has already begun in 2008, an adjustment effort in the government sector is also necessary so that the external deficit does not go over 8-9 percent of GDP."

"Only under these conditions can there be a sustainable financing that does not generate inflation or additional depreciation."

Lazea said the "massive" current account gap is the European Union member's main challenge, rather than economic growth or inflation.

He also said that inflation, which the bank targets at 2.5-4.5 percent this year, will continue to fall despite the local leu currency's depreciation to historic lows.

"Despite the current depreciation, it looks like reduced demand's disinflationary impact will predominate so that we will have a drop in inflation even with a more depreciated exchange rate," Lazea said. (Reporting by Luiza Ilie; Editing by Diane Craft)

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