On a visit to Bucharest last week, Chakrabarti said there is no magic bullet, and in fact several conditions need to be met, starting from strong leadership and a long-term vision, able to transcend election cycles.
“I have no doubt as to Romania’s growth potential, the country has is a sizeable middle class, there is ability for export. There is also a need for the ingredient called direct foreign investment,” Chakrabarti told ZF in an interview.
He says there is a major problem with foreign direct investment for the entire region and that the EBRD is looking to understand why flows are going down and what it can do to stimulate them.
“Every example of success in attracting investments needs to be analyzed and I think firstly more human resources need to be allocated in order to market Romania outside.”
Chakrabarti believes that one major issue must be considered when putting together a policy to stimulate economic growth: “One needs a type of growth that can create jobs for the young.”
“Official unemployment is not that high in Romania [around 7.5%], but part of the phenomenon is hidden and the most concerning fact is that it affects young people. This is a problem which has a long-term social impact. Romania needs growth, but not just any kind: it needs growth that creates jobs for the young and that targets rural areas as much as possible.”
The problem of Romanians who go abroad to find better-paid jobs should also be solved through economic growth policies.
“The key is stimulating the economy for growth. Romanians who work abroad already send significant amounts to Romania, but the question is how this money is managed towards stimulating the economy.”
Chakrabarti believes it would be useful for Romania to continue its collaboration with the IMF, turning this into a competitive advantage over other countries it competes against for investments.
“As far as I am concerned, the advantage would be that Romania could continue to show that it pursues the right macroeconomic policies that attract investors.
Romania is in competition with other countries and direct foreign investment is low. Any type of advantage must be used in order to stand out.”
Coming up with solutions for the problem of non-performing loans is crucial for restarting lending and the EBRD is ready to get involved in this effort, says Chakrabarti.
He added that the high ratio of non-performing loans in the entire South-Eastern Europe region is becoming an even greater problem than deleveraging. In Romania almost one fifth of loans are more than three months past due.
“The combination between a certain level of deleveraging and a high non-performance ratio makes banks be more conservative and reduce lending. Here we can intervene with financing lines for instance for client categories such as SMEs, which tend to be disadvantaged in terms of access to financing.” Romanian bank BCR received EUR80 million from the EBRD last week to lend to SMEs, with some of the financing being in lei.
The EBRD is one of the multilateral structures that have expressed the biggest concern over the danger of massive and chaotic withdrawal of bank financing from Central and Eastern Europe, and was even involved in coordinating the Vienna Initiative 1 and 2 projects.
“A year ago I was more concerned about the deleveraging process, but now I am less concerned because banks have proven responsible, including Greek ones. I don’t see as much of a risk in terms of cutting exposure. But there are bigger problems with non-performing loans.” Between March 2012 and March 2013 foreign banks cut their financing lines to Romania by over EUR3 billion, but a brutal and disorderly process was avoided.
The head of the EBRD says at this moment a strategy needs to be drawn up as to how the banking system can deal with the high volumes of non-performing loans, with the topic also featuring on the agenda of his meeting with the governor of the Romanian central bank BNR Mugur Isarescu last week.
“It is crucial to find solutions to restart lending. I want us to also do more to stimulate lending in lei, including issuing bonds in order to develop the local market.”
As for the rumors concerning the risk that Greece’s international lenders might force Greek banks to sell their subsidiaries abroad, he says these rumors have been going on for quite some time and their impact cannot be “erased”, but what must be noted is that Greek banks have so far acted appropriately and the fact that their subsidiaries have up to now acted as viable banks. “We can help build solutions for banks in the region.”
The EBRD last year sold to National Bank of Greece an almost 10% stake in Banca Romaneasca for EUR26 million.
The EBRD is the main shareholder of Banca Transilvania, the third largest bank on the Romanian market, with an around 14.6% stake. One of the minority shareholders of Banca Transilvania is Bank of Cyprus, which ended up suspending the operations of its Romanian branch for a month earlier this year amid the dramatic restructuring of the Greek banking system.
“We have not been approached in regard to the stake held by Bank of Cyprus, but we are open to talks, if they come to us. Anyway, we don’t have a reason to rush and exit BT.”
(English version by Daniela Stoican)