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Romania’s Growing Econ Seen More Vulnerable On Loose Cur Acc Gap

Romania’s fast-growing economy will be seen more vulnerable until it proves its yawning current account deficit can be narrowed, the Romanian central bank governor Mugur Isarescu said Tuesday.
Romania’s Growing Econ Seen More Vulnerable On Loose Cur Acc Gap
20 mai 2008, 12:45, English

“Until we prove we can grow faster and narrow our external imbalances, I think the Romanian economy will be seen more vulnerable,” Isarescu said during a financial seminar. “If you accelerate in bad weather and don’t adjust the speed to outside factors, you are exposing yourself to high risks,” he added.

In recent years, Romania’s current account deficit has widened mainly due to a larger trade deficit. Imports skyrocketed starting with 2007, when Romania joined the European Union, and fueled an already growing trade deficit.

Last year, the country’s current account deficit widened 66.1% on the year to EUR16.87 billion from EUR10.15 billion in 2006, due to a larger trade deficit. It stood at nearly 14% of gross domestic product in 2007.

Also Tuesday, the Romanian Finance Minister Varujan Vosganian said during the same seminar that the country’s current account deficit is not alarming, as Romania has a huge growth potential for exports.

Exports grew by a robust 13% last year, Vosganian said, adding this year they will equal the value of Romania’s gross domestic product in 2000.

“Romania needs this current account deficit, as long as it doesn’t widen beyond 12%-14% of GDP,” Vosganian said. “This deficit will narrow to a single digit, once we enter the ERM-2 (Exchange Rate Mechanism),” he added.

Romania aims to enter the ERM-2 in 2012 and to participate in the ERM-2 for a period of two-years before adopting the single European currency in 2014, according to the country’s euro-zone entry timetable.