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Romania: Bank Charts Course Amid Hesitant Reforms

Bucharest, 29 September 1997 (RFE/RL) -- The National Bank of Romania has outlined some details of its plans for encouraging momentum in the Romanian economy while maintaining the stability necessary for the reform process.

In an interview with RFE/RL, senior bank official Adrian Vasilescu said the central bank's target is to hold inflation at the lowest possible level, while stimulating investment and injecting money into the economy.

Vasilescu said that up to the present, the main instrument for keeping a grip on inflation was a strict monetary policy which held down the amount of lei currency on the market. He said that in particular the bank reduced the number of lei sharply at the beginning of the year, in order to strengthen the currency.

Now, in order to stimulate the economy, the National Bank will increase the money supply, and the main instrument for curbing inflation will instead become the exchange rate. Vasilescu said that as such, the bank will introduce a "currency corridor" with upper and lower limits for fluctuation of the lei.

He also said that the bank is moving towards raising Romania's foreign currency reserves up to $3 billion this fall, and to $4 billion next spring. A strong currency reserve is necessary to sustain the central bank's intentions to boost confidence in the national currency by meeting by next month the International Monetary Fund's requirements on currency convertibility -- a key move intended to attract more foreign investment.

But while the central bank is moving forward, economic analysts and Bucharest media commentators say the rhythm of reforms introduced by the government is not sufficient. Last month's decision to move towards closure of loss-making state enterprises came six months later than scheduled, and various pieces of economic legislation still have not reached parliament for approval.

A senior World Bank Official who visited Bucharest last week praised the government's economic reforms, but at the same time stressed that the pace of privatisation in the state banking sector and agriculture remains low. Kenneth Lay, director of the Southeast Europe department of the World Bank, said that the privatisation of the state agricultural companies was being delayed by the lack of legislation covering the sector. He also noted that corruption remains a key problem in Romania. He said the World Bank measures the degree of safety of the local business climate through the corruption index.

Popular support for the painful reform proces remains high in Romania, with polls showing more than 50 percent of the population in favour of it, despite the rapid drop in living standards this year. The average wage has now dropped below $100 per month, and compared with 1989, the standard of livng has dropped by 50 percent.

For this year, a negative growth in Gross Domestic Product of up to 2 percent is forecast by Romanian and foreign economists, the annual inflation has passed the 100 percent barrier, and even optimistic forecasts for the fiscal deficit are using a figure of 4.5 percent, and the trade balance deficit is expected to be over $1 billion.

For these reasons, more and more Romanian analysts are saying that the next six months will be critical. They say that without continuing intensive reform efforts within this period, the Romanian economy might not be able to continue and could be in danger of collapse, with all the consequences that entails for the present government.