Confidence -  the major gain of a new IMF agreement

Confidence - the major gain of a new IMF agreement

I dare say that the most important thing a new agreement might bring is “confidence” but, on the other side, a quite uncomfortable question might emerge among Romanian citizens or foreigners (investors or not)

Q1. How badly do we need a new agreement with the IMF? And why?


 If such a question will emerge, then the next one might be “will a new agreement deliver the confidence that the IMF is always ready to assist an emerging country, the confidence that, if needed, a country may open and close an endless number of agreements or the confidence that this is the last necessary agreement in order to help the country to enter into a new phase of a single-handed development?” I consider that “living under an agreement” shouldn’t become a habit or a way of living for a country, as it brings no real benefits but just a boring status of a “confident borrower”. We should surpass this situation and prove to the others that we are not hanging around development, but we are developing the country. I am confident that we can, as long as we will work together.


Q2. Dreams of the euro-denominated Romanian economy. Are we ever going to be ready? Pros & Cons.

Adopting euro is the subject of a very sensitive discussion. What is sure is that it will happen, we shouldn’t enter into a race and we must prepare carefully both economy and population for that moment. Most likely the moment should be described as being “appropriate” and not “this or that year”. We should stabilize and consolidate the economy and fulfill the convergence criteria before dreaming about adopting euro. We can easily notice that the highest euro adoption support is delivered by Romanians while other nations sharing the same economic situation or even better than us are more - let’s say - not reckless, but cautious. I would dare say that we better set an agenda and a realistic period (for instance 2016-2018) than a certain year for achieving this objective and if we will be ready sooner we may do it. We should also meticulously prepare (better say fortify) the fiscal policy to be ready to take over and fulfill the task of balancing the economy, if needed, as long as after adopting euro a country lose its national monetary policy tools. I’m curious to see, for instance, if national exporters will ask ECB to depreciate euro in order to make their exports more competitive.



Q3. Inflation swings vs. currency swings. Which one should be seen as worse? And why?


The best situation is when both inflation and currency are stable. Stable prices engender financial stability making an economy predictable, stable and friendly for investors. Anyway, preserving prices stability is essential for an economic system and this task is the main objective of our central bank. For instance currency swings might generate pressure, associated with exchange rate risks, over those persons/companies with RON-denominated incomes and euro-denominated debts while those having RON -denominated incomes and debts will be less or whit affected. On the other hand inflation swings affect all players by deteriorating their assets, reducing their purchasing power and increasing their financing costs. When inflation swings surpass the reaction capacity of decision makers, quite likely that economy will enter into a spiraling inflation which might misbalance the entire economy. Finally, while inflation swings situation is worse than currency swings situation, having both prices and currency stable is better.