Isarescu: Debt discharge law hits Romania’s economic growth

Newsroom 10/05/2016 | 16:19

Applying the debt discharge law will lead to discouraging loaning in Romania and, as a consequence, economic growth, its effects also being taken into account by the National Bank of Romania (BNR) regarding its inflation prognosis, said Mugur Isarescu, BNR governor, according to Agerpres.

Speaking of the downward revision of the output gap, Isarescu said that it came as a result of several factors, “but especially following the probable effects of the approval and coming into practice of the debt discharge law.” The output gap trajectory within the bank’s new report on inflation shows that the excess demand is continued its growth but significantly below previous predictions, explained the head of BNR.

BNR’s position regarding the law hasn’t changed, said Isarescu, but the publishing of the law in the Monitorul Oficial intervened as a new factor. “There is nothing more to discuss here and we have to evaluate the impact given the new conditions. We haven’t changed our opinion, but we are starting to calculate the impact. And regarding it, incertitude is dominant. What did we base it on? On opinions expressed on the market by legal experts, bankers, on the fact that we don’t see exactly what the reaction of various debtors will be and on several hard to clarify interpretations of the law’s text. That’s what incertitude means,” he added.

Moreover, in terms of why then speak about the effects of the law if there is incertitude, “for two reasons,” said Isarescu, explaining that “incertitude means discouraging loans, that nobody is going to give more loans if they have an unclear, foggy, vision on the legal framework. So here we go almost to high probabilities: loaning in Romania will be discouraged. As a result of that, so will economic growth.”

Additionally, another sign pointing towards a slowing down of borrowing comes from the banks’ reactions. “They’ve announced they’ll challenge [the debt discharge law], they’ve changed their loan conditions. It all goes to a much attenuated growth of loans in Romania. We can’t, in our inflation prognosis, not take these things into account,” further underlined Isarescu, as cited by Agerpres.

Other factors that contributed to the downward revision of the output gap trajectory against the potential GDP were also the fiscal policy conduct, widespread monetary conditions, “adequate to ensuring the stability of prices on the medium term, contributing thus to sustainable economic growth,” while the effect of external demand was considered neutral, as cited by Agerpres.

Andreea Tint

BR Magazine | Latest Issue

Download PDF or read online: November 2022 Issue | Business Review Magazine

The November 2022 issue of Business Review Magazine is now available in digital format, featuring the main cover story titled “Samsung Remains Top Consumer Tech Provider on Romanian Market.” Read
Newsroom | 29/11/2022 | 10:17

    You will receive a download link for the latest issue of Business Review Magazine in PDF format, based on the completion of the form below.

    I agree with the Privacy policy of
    I agree with the storage and handling of my data by
    Advertisement Advertisement
    Close ×

    We use cookies for keeping our website reliable and secure, personalising content and ads, providing social media features and to analyse how our website is used.

    Accept & continue