Romania’s rating downgrade by international agencies Standard&Poor’s and Fitch should be interpreted by the political class as an alarm signal for reconsidering the current mix of economic policies, inadequate in the international context, Ionut Dumitru, Chief economist of Raiffeisen Bank is quoted as saying by Saptamana financiara.
“I think that both Standard&Poor’s, the same as Fitch’s decisions were at least rushed, undeserved, even not well founded ones”, Raiffeisen Bank Chief economist emphasized in the start of his interview.
He also said that, even though the major reason provided by both rating agencies was correct, namely that, in case of a supposed halt in foreign financing, the impact upon economy would trigger a sudden slowdown of the economic growth, their final verdict is questionable.
He also said that, even though the major reason provided by both rating agencies was correct, namely that, in case of a supposed halt in foreign financing, the impact upon economy would trigger a sudden slowdown of the economic growth, their final verdict is questionable.
According to the Romanian specialist, a country rating should reflect the payment capacity of a sovereign authority (the state) and not eventual risks for the real economy. Romania’s public debt is very small, of 12% of the GDP, even lower than last year’s and ways lower than of the other states, even developed countries, underlined Dumitru.
Nevertheless, he added that what cannot be contested in the rating agencies’ arguments is the “lack of coherence in Romania’s economic policies mix”.
To this end, the downgrading decision “must represent a very loud alarm signal for the political class, to reconsider the economic policies mix, which is currently inadequate, especially given the extremely difficult international context”, continued Dumitru.
To this end, the downgrading decision “must represent a very loud alarm signal for the political class, to reconsider the economic policies mix, which is currently inadequate, especially given the extremely difficult international context”, continued Dumitru.
Asked about Fitch’s motivation of reducing Romania’s rating by two notches, which “reflect agency’s concern over the framework of local macro-economic policies and state’s capacity to avoid a severe financial and economic crisis”, Raiffeisen Bank Chief economist pointed out:
“As I said on several occasions, the rating agencies’ reputation and credibility are no longer the same as in the past. Lately they project a not too good image in the context in which their implication in the international financial crisis was an absolutely ill-fated one, many of the ratings given to various subprime loan portfolios in the United States proven to be wrong!”.
Further referring to the Standard&Poor’s decision, which two years in a row downgraded Romania’s rating, Raiffeisen Bank Chief economist says that the rating agencies’ arguments emphasize the “lack of coherence in the economic policies mix – the economy being confronted with significant economic unbalances, especially the current account deficit”.
“We must not blame just the rating agencies, without being aware that we also made mistakes”, said Dumitru.
“We must not blame just the rating agencies, without being aware that we also made mistakes”, said Dumitru.
He appreciated that, under conditions in which the Government evaluated the financing needs for the last part of this year to approximately 7 billion lei (some 2 billion euros), “RON liquidity on the monetary market can prove insufficient to cover a so big financing need, and financing the spending will prove to be difficult in the context in which the foreign market does no longer represent an alternative, given the extremely high costs”.
At the end of his interview published by Bucharest magazine, Ionut Dumitru appreciated that, at the moment, Romania does not need financial aid either from IMF, or from some other part.
“I think that the situation is still manageable and with adequate economic policies we can face difficulties in the future. World economy is confronted with huge problems and unavoidably effects will be also felt in Romania. Uncertainty is high and vulnerability the same. But I think that, if in need, we have to consider all available options, including IMF”, concluded Raiffeisen Bank Chief economist.
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