Loading ...President Traian Basescu told a televised show on Wednesday evening that when he met officials of banks operating in Romania, 95 percent of the credit lines extended by the parent banks had been renewed.
'I discussed interest cuts with bankers, and here is good news: as I was speaking with the bankers, 95 percent of the credit lines extended to them by the parent banks had been renewed. So we can safely expect that the commercial banks will have all such credit lines fully renewed,' the President said.
'I discussed interest cuts with bankers, and here is good news: as I was speaking with the bankers, 95 percent of the credit lines extended to them by the parent banks had been renewed. So we can safely expect that the commercial banks will have all such credit lines fully renewed,' the President said.
He added that this does not solve the issue of cutting interest rates, and that is why the right solution for Romania is to take out a loan. He explained that such loan will go to the reserves of the National Bank of Romania (BNR), while on the other hand some billions of euros should be made available to the Finance Ministry so that the ministry may no longer be compelled to resort to the inter-bank market to raise the money it needs. Basescu also pointed out that the first two months of 2009 witnessed a halt in lending, and that the banks, although not so much strapped of cash, are worried to grant loans.
'Why is a loan needed? For many reasons. First, January and February witnessed a halt in lending because the banks did not feel like lending, neither to the economy, nor to individuals and the lack of readiness to lend was visible in the form of very high interest rates that made loan unattractive,' the President explained. He added that a second reason why the Romanian banking system is relatively comfortable about not lending to companies or to individuals is because the Finance Ministry has mopped up the funds offered by the banks.
'The second explanation for the bank being comfortable is because the Finance Ministry has pretty much mopped up all that the banks offered in January and February. On the one hand, the ministry needed to pay out its outstanding debt to business operators, the now famous 2 billion euros, and then it needed to offset the almost 7 percent deficit in the revenue projected and revenue collected,' said Basescu.
He added that it is necessary for enough liquidity to be generated on the market. Basescu gave four reasons why the loan is needed, pointing out that he reached this conclusion after discussing the matter with specialists. He said the loan will be a safety net against future developments that could be worse than now anticipated, as Romania is facing a drop in its exports to many countries, including Germany, France and the UK, and that curtails the Government revenues.
The second reason is a massive reduction in direct foreign investment in the Romanian economy as a result of the global crisis and also of two credit rating agencies having downgraded Romania's country rating in 2008. The third reason he mentioned regards the reduction in the foreign remittances of Romanians working abroad, and the fourth concerns a hypothetical failure of the public investment projects being carried out.
Basescu pointed out that foreign investment in Romania in 2008 exceeded 8 billion euros, but in 2009 there should not be more than 3-6 billion. At the same time, he said that in 2008 Romanians from abroad remitted 6 billion euros to Romania, but it is not known whether the amounts will be comparable this year.
'And here we have these sources that would offset Romania's current -account deficit disappearing or plummeting. And that is why we have to come up with money to supplement the funds,' said Basescu, adding that the current-account deficit ultimately brings about a depreciation of the local currency.
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