Issue of the month

What are the main economic challenges that Romania will have to face in 2007?

Florin Pogonaru,
president of the Romanian Businessmen’s Association
Next year’s biggest challenge will be the powerful crisis in the labour market. Others relate to the rhythm at which infrastructure develops and there will be challenges in public administration, which still lacks quality.

Stere Farmache,
general manager, Bucharest Stock Exchange
The main challenge will be to maintain a high rhythm of economic growth, that reaches at least the average of the last years. At the same time, the speed of economic growth needs to be controlled so that an exaggerated rise in the current account deficit is avoided, which could create pressures on financial stability. There are signals that show that we have the institutional capacity to accomplish this. Maybe the most important thing is that in 2006, the central bank (BNR) showed that it has the instruments to reach the inflation target it has set for this year [five per cent for 2006 and four per cent for 2007].

Mihai Tanasescu,
VP, Social Democratic Party (PSD) and former Minister of Finance
The first important challenge will be aligning internal rules and regulations to those of the European Union. Romania has aligned its legislation to that of the EU, but this now has to be implemented. Then, competition will increase and the way in which Romanian companies chose to think their strategies through is important. If we think of short term profit-making strategies, we’re heading for a collapse. Long term strategies are the key to strong development. Another challenge will be Romanian companies developing their human resources, such as investing in the social welfare of employees, training and re-training them to better prepare them professionally.

Radu Craciun,
senior analyst, ABN Amro Bank Romania
One concern is related to rising inflationary pressures, which might lead to a trend reversal given the much lower than expected inflation in 2006. Most countries which joined the EU in 2004 were confronted with such pressures due to food price and excise adjustments. Romania should not be an exception. The next is the rising current account deficit which needs to be addressed before it will lead to a hard lending of the economy, leading to a major correction of the Euro-RON [exchange rate]. However, we don’t foresee such a situation in 2007, but it has to be addressed well in advance. Finally, there is the ability of Romania to absorb the EU financial assistance, which, if not appropriate, might turn Romania into a net donor to the EU given its contribution to the EU budget.

Florin Citu,
chief economist, financial markets, ING Bank Romania
Romania’s macroeconomic policy must balance a pressing need for investment in infrastructure with an ever growing current account deficit. The success of infrastructure development is highly dependent on a labour market - which is showing signs of restraint. Higher current account deficits, with expectations of lower interest rates, create a dangerous mix that could undermine the long term appreciation trend of the leu, especially towards the end of the year.