Vladescu Warns Political Turmoil Risks Damaging Romania's Image

Vladescu Warns Political Turmoil Risks Damaging Romania's Image

It would be a crime for Romania to miss out on the current economic window of opportunity, "for reasons of political rebellion" as foreign investors are difficult to attract after initially being frightened away, especially in an unfavourable external climate, says Finance Minister Sebastian Vladescu.

"I hope we'll be smart enough to avoid such a situation. Windows of opportunity close that are beyond our control and it really doesn't matter what we tell investors once they've been frightened away. Nobody on the foreign markets will be paying any attention to the soothing speeches of Romanian politicians, regardless of how intelligent they are," Vladescu told ZF. 

Sebastian Vladescu is the first high-ranking official to directly speak out on the damaging risk to Romania's image on international markets, a result of prolonged political turmoil.

"The international rating agencies are keeping quiet about Romania. This may be a good thing, but could also be bad considering the macroeconomic performance of 2006," states Vladescu. Standard & Poor's has maintained a positive rating outlook for Romania for six months, although it has not upgraded this rating. Moody's is not considering a re-evaluation any time soon, while Fitch maintains a rating outlook that is stable.

Mugur Isarescu, head of the central bank, has so far avoided commenting on the possible negative influences caused by political instability. At the beginning of February, he stated he had not noticed any significant impact on the financial markets.

The international capital markets continue to experience a long period of corrections, which have affected the Stock Exchange in Bucharest.

Direct foreign investment fell to about 400 million euros in January, 44% less than in January 2006, while the foreign deficit increased by 83% to 766 million euros, with coverage therefore falling to 51%.

Despite these factors, the RON continued to appreciate. "Let's get rid of this illusion that the NBR reserve is large enough to offset any potential crisis. Of course it is able to hold steady for a while, but if the exchange rate seriously slumps, we may see that it (the reserve i.e.) will not last for a long time," Vladescu says.

He adds that it was not the IMF that found Romania's vulnerability because of the rising foreign deficit, with such dangers being first taken into account by the NBR and the Finance Ministry.

"The IMF agrees that there isn't much risk in the short term, but we are all aware that we could have a serious problem in the medium term. The commercial imbalance is a necessary situation for a limited amount of time because the population earns more money and demands more goods and services. I think five years are needed for the domestic production to be able to meet the demands of consumer goods," Vladescu says.

The Finance Minister adds he does not have a miracle cure that would make the fiscal policy 100% consistent with the macroeconomic stability requirements. "This would mean higher taxes and a potential budget surplus. On the other hand, we still have an underpaid population, lots of retired people with small pensions and an infrastructure that has been neglected for 30 years. Romania has the biggest infrastructure investment projects in the entire Europe at the moment," the minister added.

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