Mugur Isărescu: Developments in the Romanian economy since 2008 Speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the “Romania Investors Days” conference, Bucharest, 16 June 2015. *  *  *  Ladies and gentlemen, I am happy to witness the growing interest the investors’ community is showing towards the Romanian economy. Since this is the first reverse roadshow focused on Romania, I hope it will prove fruitful for all parties involved and that it will be followed by other similar events. In my address today, I intend to briefly touch on the most relevant developments in the Romanian economy and I guess you will agree with me that we have come a long way since the beginning of the crisis. Probably the most synthetic assessment of the transformation is given by the fact that, at the onset of the crisis, Romania fell short of all four Maastricht criteria – inflation, long-term interest rates, public deficit and debt, exchange rate stability –, but now they are all fully met. Up to 2008, Romania was going through a period of fast economic growth (in excess of 7 percent per year, on average), fuelled by large capital inflows and the strongly pro-cyclical stance of the fiscal policy, especially in the last two years before the onset of the crisis.
As elsewhere in Central and Eastern Europe, in Romania too the vulnerabilities exposed by the crisis in the model of centralised fund management at the level of cross-border banking groups led to a new paradigm, which emphasises the local funding of credit activities. The cross-border deleveraging which accompanied this switch, while sizeable, has nevertheless unfolded in an orderly manner. The shift towards the domestic market in terms of financing sources was accompanied by an increase in the relative importance of local currency-denominated loans: after a long time, their share exceeded 45 percent and will possibly overtake foreign currency lending by the end of the year. This is, undoubtedly, a positive development for both debtors, who avoid currency risk exposure, and central banks, due to the increased effectiveness of monetary policy. Looking ahead, the constraints on both credit supply and demand are expected to continue to prevail, as the effects of a balance-sheet crisis, such as the one we have recently encountered, tend to be longer-lasting. In such an environment, the quality of credit allocation appears more important than the volume, although the latter is not at all irrelevant in our case given a still low financial intermediation at 31.7 percent of GDP (not even during the credit boom period did it exceed 40 percent). In order to put the economy onto a self-sustained growth path, I believe it is necessary for banks to channel credit to productive investment, avoiding the overburdening of good debtors with the costs of past misallocations.