Joseph Stiglitz: The worst is yet to come

The erstwhile Chairman of the Council of Economic Advisers of former U.S. President Bill Clinton is considering an even sharper drop in Romania’s gross domestic product (GDP) in 2009 than the 4.1 percent forecast by the International Monetary Fund (IMF).

“There is a possibility that in the coming quarters Romania will register an equally steep reduction. However, the global economic decline level has slowed. This could be a positive sign for the evolution of Romania’s GDP,” said Stiglitz, who added that the Romanian economy will depend on the evolution of global financial markets. “The Romanian government will only be able to control to a small extent the evolution of this year’s economy and that in the coming years, because this is highly dependant on the behavior of global markets,” Stiglitz added.

According to the Nobel Prize winner, we are at but the end of the first stage of the crisis, but the global level drop rate slowed recently. If this trend of improvement is maintained, then IMF’s targets could be met.

Joseph E. Stiglitz said that the relaunch of lending does not depend on keeping the profits of lenders in Romania. “Even if the money is not repatriated to the countries of origin of the financial institution, this does not necessarily mean that banks will resume lending. They might rather invest in state bonds, for example. So, regarding the bank’s portfolio, this will not be affected by the fact that the profit was not sent abroad,” said Stiglitz.

In an interview for The Money Channel, Stiglitz said that the worst is yet to come, considering the rise in the number of unemployed and the effect this will have on the financial system, because an increasing number of people will be unable to repay their loans.

The Chief Economist of the Banca Comerciala Romana (BCR) lender, said that the role of the state in times of crisis is becoming increasingly important. “The state cannot counter the evolution of the global crisis, but can soften the impact in the country it administers through anti-crisis measures, especially through allocating significant amounts for investments.

The President of the Association of Romanian Businesspeople Association (AOAR), Florin Pogonaru, said that the need for capital, for foreign financing, is Romania’s weak spot, especially considering its dependence on international markets and the effects of the crisis. “I believe that the present key to strengthening this weakness is accessing and absorbing European funds,” Pogonaru added.