Isarescu: Sharper devaluation of the leu wouldn�t be a solution

�Devaluation of the local currency is not a solution�

The sharper devaluation of the local currency is not a solution to the country’s wide budget gap, nor to the crisis affecting the entire economy, said yesterday the governor of the central bank, Mugur Isarescu.

“We still have verbal interventions, as we are very familiar to the currency markets, we read reports, and we want to calm traders. Sharper devaluation of the leu isn’t a solution to budget deficit, but would actually increase our problems”.

He added that a further decline of the leu against the single European currency to an exchange rate of 5-6lei/euro, as some analysts predict, would entail a sharp reduction of the budget deficit, “It would mean a surplus, which is impossible for an emerging country in need of foreign investments”.

Additionally, the “2-4% deviation of leu-dollar exchange rate was not significant from an economic perspective”, said Isarescu.

If I was offered to take the Prime Minister chair, I would never accept it

Asked whether he would accept the proposal to lead the Executive, the governor said he would decline the offer.

Romania is currently facing a major political crisis after PSD’s exit from the ruling coalition. Mugur Isarescu’s name came up as a potential leader of the government, right after politicians proposed a technocratic cabinet.

Isarescu has been Prime Minister of Romania during 1999-2000.

Reforms and European Funds, the key to meet IMF targets

The disbursement of the next tranches under the stand-by arrangement with IMF and EU is not the problem, but the way Romanian authorities use the money in attracting EU funds, said the governor of NBR, stressing that the external borrowing was inevitable in case of Romania.

“In order to calm the public opinion – it seems to be a major concern on how the country will find the resources to repay the loan - I can say that this is not the issue here, but the way local authorities will use the money to put in place reforms and to attract EU funds. We borrowed €20bln and we still have to take €30 billion from European Union,” said Isarescu.

The governor stressed that the two agreements with IMF and EU were “useful for Romania, in fact they were inevitable”, given the higher-than-expected external gap.

Current account deficit is expected to reach 5.5% of GDP this year, from 12.3% in 2008.

“We are talking about nearly €10 billion. What would Romania have done without the borrowed resources? The bet of the agreement was not credibility only, but the need to replace private capital with the public capital from these international financial institutions”.

Inflation rate, contained within NBR target range of 4%

The inflation rate in Romania will hover “near 4%”, thus meeting central bank’s target range of 3.5% (+/-1% tolerance band), said the governor of the central bank.

“According to the preliminary data on September inflation, consumer price index stayed below year-ago levels. Therefore, September inflation rate will be significantly below 5%. We expect a similar rate in October. Towards end-2009, inflation will hover near 4%”, said Isarescu.

In the latest report on inflation, NBR indicated a 4.3% inflation target for year-end.

He added that consistent and balanced policies can bring Romania closer to European Union’s median inflation rate on a medium term.