figure alone would mean the economy is overheated. i usually present things in a more nuanced manner, just like they are in reality. what does overheating actually mean? a development that substantially exceeds the growth potential, leading to an overheating of output factors, especially to a chronic lack of labour force and a fast increase of wages and prices. for this year, i believe we need a sectoral approach. on the one hand, we have a significant rise in farming output due mainly to natural factors. and there is no overheating there. on the contrary, prices of most agricultural products are falling and production factors – especially land, but also labour force – are obviously underexploited. romania's great farming potential has yet to be turned to account. on the other hand, in construction, another major contributor to this year's growth, there are visible signs of overheating : scarce labour force, substantial increases of prices for building materials, higher wages, etc. of course, a wise policy should stimulate only the sectors where the potential is not fully exploited ( such as agriculture ) or where we have bottlenecks, as it is the case of road infrastructure in romania. however, there are numerous opinions according to which rating agencies could downgrade romania. which would be the main risk factors that could lead to a downgrade? so far, rating agencies have only changed the outlook, not the rating. to answer your question – although i do not believe that romania will be downgraded to below " investment grade " – the main risk factor remains the current account deficit. we have implemented tight monetary policies to tackle this issue. i believe that at the end of this year we will see a containment of this indicator to its 2007 figure of 14 percent of gdp as compared to some analysts'expectations of 15 - 16 percent. this is a positive thing for a start but we should not stop here. romania needs policies that would allow a gradual and predictable reduction of the current account deficit to levels almost entirely covered by direct capital investments to regain confidence of the rating agencies and ensure an improvement of external creditworthiness. we will be thus forced to implement a gradual correction of this deficit, even by a few percentage points in the next two to three years, and it is desirable that this happens in the context of sustainable economic growth, close to the potential, while consolidating disinflation which will resume this autumn after a few quarters of

mugur isarescu : hard landing unlikely for romania interview with dr mugur isarescu, governor of the national bank of romania, by mediafax news agency, bucharest, 8 september 2008. * * * mr. governor, foreign analysts have placed romania along with four other states – lithuania, latvia, estonia and bulgaria – in a group of countries heading to a hard landing. in fact the economies of estonia and latvia have contracted sharply, with growth plunging from levels of around 10 percent into negative territory ; inflation has reached two - digit levels and the external deficit exceeded 15 percent of gross domestic product. is it possible for romania to witness similar negative growth dynamics? is it fair to include romania in that group? reading what those foreign analysts said, i have hardly found a solid rationale that would justify romania's being placed within the hard - landing risk zone. on the contrary. turning now to comments, i will underline that there are some similarities among the countries in this group : gdp per capita is below the eu average, they all have registered high growth rates in the catching - up process. however, there are also fundamental differences, among which the most important in my view is the monetary policy mechanism. three of the four countries mentioned in the group have currency boards in place, and the fourth, i. e. latvia, has a mechanism close to a currency board. of course, currency board has its clear benefits. let us remember that, for example, in bulgaria the inflation rate had topped 1, 000 percent and the economy was in shambles. the introduction of the currency board was the solution which, at unavoidable social costs, brought the bulgarian economy afloat, with inflation falling steeply and staying close to eu levels for a good couple of years. but the currency board has its limits and constraints. the bnr has constantly opposed the adoption of such a system by romania given these limits and constraints. actually, a country adopting the currency board is deprived of monetary policy and thus the central bank becomes a sort of an institute for statistics. instead of a two - pedal vehicle – monetary and fiscal policies – the economy of currency board countries has only one pedal left, namely the fiscal policy. assuming the risk of an extended comment, let us look at what happened in the four countries and what happened in romania in the past few years in a rather unusual international context, with the euro appreciating simultaneously with the increases in farming products and energy prices.