mugur isarescu : 10 years since the launch of ziarul financiar speech by mr mugur isarescu, governor of the national bank of romania, on the occasion of 10 years since the launch of ziarul financiar, bucarest, 16 december 2008. * * * it is a great pleasure for me to be present at this special anniversary of ziarul financiar. the one - decade long presence of this prestigious economic daily newspaper overlapped a turbulent period in the history of romania. allow me to dwell for a while upon a series of events that occurred shortly after the release of the first issue of ziarul financiar. in the wake of the crises in russia and southeast asia, romania ’ s need for external financing was much more difficult to cover, while the then level of foreign currency reserves left the authorities with little room for manoeuvre. back then, the same as today, the rating agencies were extremely cautious in assessing romania ’ s country risk, and according to the headlines disseminated obsessively by international agencies for over a year, romania would have faced an imminent payment default. at that moment, the situation became even more complex due to the fact that the international monetary fund resorted to a new approach to indebted countries, called p. s. i. ( private sector involvement ) or “ burden sharing ”. this approach, which was tested in four countries including romania, proved to be a failure, and the imf later abandoned it. however, romania had to choose between adjusting its external deficit by its own means or take foreign borrowings under unacceptable conditions. romania adopted the former solution and subsequently signed an agreement with the imf. nevertheless, standard & poor ’ s, which had promptly downgraded romania ’ s rating to one notch above a level which would have indicated external debt payment default – which had not occurred in the case of romania – maintained this low rating for a long time, even after the crisis had been overcome band the country ’ s reserves had resumed growth. i reminisced this event that occurred ten years ago as i have been experiencing a particularly strong deja - vu feeling during recent months. first came the bleak assessments of some foreign analysts, followed by the failed speculative attack against the ron. the next stage of the game was the downgrading of the sovereign rating to below investment grade, romania being the only eu

society. i would even dare say that economic journalists and analysts are generally more connected to reality than most decision - makers. i must be very clear about one thing : romania has no alternative to adjusting domestic demand in order to visibly cut down external deficit. i know how painful this is and i am well aware of the difficulties that every government encounters in putting this measure into practice. i was head of government during the critical period of 1999 - 2000 and i know exactly how difficult it is to adjust domestic consumption, even by two percentage points of gdp only. this time, the difficulty posed by the adjustment will be perceived as rather big, because it must be accomplished after several years of significant increases in consumption. the trend seemed to go on forever, which led to the decoupling between aspirations and real possibilities to fulfil them. therefore, it is adequate to adjust domestic demand sooner rather than later, as long as we still enjoy a marked economic growth, given that at this point adjustment implies only resizing and not amputation. an essential issue that the romanian society must solve without delay refers to what should be adjusted first : consumption or investment. i realise that we must ponder on this matter. the question is whether we should opt for buying an increasing number of cars or set aside resources in order to build the adequate road infrastructure. in a few years, the former choice could lead us to a total traffic jam, and the only additional consumption left for us could be that of carbon monoxide released by the exhaust pipes. this example is not only metaphorical. we can see everywhere that the imbalance between domestic consumption and saving, as an investment financing resource, is already posing serious problems, both to the economy as a whole and to citizens – whose true living standard is paradoxically amputated precisely as a result of the imbalance between consumption and investment. the current state - of - affairs is undoubtedly a critical one and therefore the adjustment of domestic demand cannot be delayed. it is not my intention to dramatise or to give any unjustified warning. but, as i have pointed out on other occasions as well, either we will proceed to a soft landing via wise domestic policies or we will face an adjustment triggered from outside, by the external capital market, and in this case the adjustment will be neither smooth nor reasonably sized. i have only one thing to add to my previous statements on this topic : the international context no longer leaves too much time for hesitations. i would like to