While the relatively high level of these countries’ foreign liabilities makes an excessive depreciation undesirable, considering the threat this would pose to financial stability, in other economies the authorities welcome the depreciation given its favourable impact on external competitiveness. In 2009, the latter countries have been facing capital inflows generating appreciation pressures and many of them have chosen to intervene in order to counter these pressures. In this respect, it is worth mentioning the massive interventions of the Swiss National Bank and the devaluation of the Singapore dollar in the spring of 2009, the frequent interventions of the Bank of Israel and the joint interventions of the central banks in Thailand, South Korea, Singapore and the Philippines. BIS Review 5/2010  13  As for Romania’s economy, some adjustments would have been very painful for want of external financial support. For instance, if the risk of a financing gap had materialised at the highest level expected for 2009, then the depreciation pressures on the leu would most likely have generated a currency crisis with a negative impact on inflation and, implicitly, on leudenominated financial assets of households. Other adjustments, such as the cut in public spending, wage cuts included, given that government expenditures had reached unsustainable levels during the massive capital inflow cycle, would have borne the hallmark of lesser credibility. In such an environment, the arrangement concluded with the IMF and the EU brought about two major advantages to Romania’s economy: coverage of the external financing deficit and credibility.
loans to households foreign-currency-denominated loans lei-denominated loans 26.8  40 35 30  19.6  22.7  20.7  20  16.6  15.4  12.7  13.3 11.3  15  5  35.9  18.6 19.5  25  10  39.3  11.8 10.2  4.8  6.3  7.4  9.4  11.4  14.1  17.3 16.4  2006  2007  19.7  16.6  0 2004  2005  2008  Source: National Bank of Romania, National Institute of Statistics  Government credit hovered around relatively low levels during the period under review (Chart 5). 8  BIS Review 5/2010  Chart 5 Government credit percent of GDP  4.0 3.4  3.5 3.0 2.3  2.5 2.0 1.5  1.2  1.1  1.0  2004  2005  2006  1.0 0.5 0.0 2007  2008  Source: National Bank of Romania, National Institute of Statistics  Banks came to rely heavily on external financing, while the mismatch between foreign currency-denominated assets and forex liabilities of both companies and households widened. In 2004, the difference between forex-denominated deposits and loans in the corporate sector stood at around lei –5 billion, increasing sevenfold by March 2009, i.e. lei –34 billion. As for households, the differences stood at lei +5 billion and lei –28 billion respectively (Chart 6).