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Prof. Gheorghe ZAMAN, PhDCorresponding member of Romanian

AcademyInstitute of National Economy

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Part I

Causes and Remedies

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CausesTraditional causes:

the “boom” of credits beyond the normal limits and guarantees (colaterals);

strong increase of assets prices, especially in the field of real estates;

uncontrolled loans to economic agents less reliable (credits subprime).

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CausesNontraditional causes:The extent and depth of subprime crises related

to the sui generis origin-and- distribute model;Highly exaggerated “appetite” for profits

conducive to the increase in the demand for very risky assets;

Ex-ante ignorance and ex-post uncertainty; regarding the risks associated to shares; mortgage, derivatives and credit-default swaps;

Lack of adequate corporate governance;High unjustified earnings wage and bonuses for

manager of financial institutions;Rating agencies were not able to preview the

crises of Lehman Brothers and others.

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Challenges1. The present day international financial crisis of the

capitalist economic model is a crisis of the system (financial, capitalist) or just a “normal” manifestation of “business cycle”?

2. Could be avoid the crisis or not?3. How long does it last the crisis?4. Which are the most affected economic and social

domain?5. Bad (toxic) credits are result or a cause of

shortcoming in the functioning mechanisms of the free market economy. The “principle polluters pays” is or is not applicable in the case of “toxic credits” producers?

6. The impact of globalization.7. The impact of sustainable development

requirements.8. The problems of business ethics and social

responsibility of enterprises.9. A new paradigm of capitalism oriented to a better

compatibility between economic efficiency and social justice, cohesion and inclusion.

6

Efects on short termDecline of output (GDP) demand and

foreign tradeIncrease of unemployment (in

manufacturing industries, vehicles, metal industrie, etc.)

Bankruptices in the financial and banking sector, turbulences on capital markets;

Reductions of credits volume and strengthening of prudential measures in borowing

FDI is decreasingWithdrawl of foreign capital

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Effects on medium and long termsRethinking of international and national

financial mechanism from the viewpoint of public-private partnership

A new restructuring and transformation of national economies taking into consideration the increasing role of knowledge production and diffusion

Improving the transparency, communication, information and monitoring and supervision of rating agencies and auditing institutions

Reorentation of foreign trade relations especially in the case of medium and small size countries.

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Remedies anticrisis measuresShort term in measures

Bank capitalisation with the assistance of the state and international financial institutions

Diminishing interest ratesSpecial facilities for SMEs Sustaining labour force employment

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Remedies anticrisis measuresLong term in measures

G-8 and G-20 measures

Formulation and implementation of solutions both globally and locally are concerned on a different track policy packages:

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A. Fiscal and monetary policies to keep credit flowing and provide fiscal stimulus to the economy (nature of fiscal stimulus)Robert Zoellick – World Bank President: “Pumping money into the economy through fiscal stimulus is not enough, governments need to fix the financial system”.

B. Restoring health to the financial system wich involves dealing with the bad loans and toxic assets, recapitalizing them, reshaping the financial sector regulation, avoiding financial nationalism.

Dominique Strauss-Kahn, Managing Director of IMF: “If the financial system is not restructured all the

money from the stimulus would go into a black hole”.

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C. Labour market and social reponses to mitigate the blow on labour market and people.

strenghthening income maintanaince measures; expanding social protection measures and protecting

pensions; strenghten active labour market policies (temporary

payroll tax holidays, wage subsidies, expanding training programs);

support to enterprises, particularly SMEs, to overcome cash-flow and access to credit problems;

encourage public investment in infrastructure; targeted support to vulnerable groups and sectors; restructuring of enterprises and sectors in a socially

responsable way; strengthening of employment services in order to facilities

the adjustment ofindividuals to changing labour market conditions;incentives and investment in energy efficient technologies

and green jobs.

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Part II

Impact of crisis -ROMANIA

13

Industrial production indices of Romania ( %)

March 2009 as compared with:

1st Trim 2009/200

8Febr 2009 March 2008

Industry – total 109,4 91,5 87,0

- by sector:

Mining 115,2 95,5 98,2

Manufacturing 110,7 90,4 84,8

-by group of industries :

Intermediary goods 110,2 82,8 81,3

Capital goods 115,7 99,6 85,6

Durable goods 107,3 86,7 81,7

Current consumption goods 106,0 90,3 91,1

Energy 102,8 96,5 95,0

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The unadjusted series of indices during 1.I.-31.III.2009 as compared to the same period of the previous year, points out that industrial production was by 13.0% lower because of decreases registered for manufacturing (-15.2%), for electricity, gas, steam and air conditioning production and supply (-2.5%) and for mining and quarrying (-1.8%).

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The highest decreases were registered in the branches: manufacture of basic metals (-52.1%), manufacture of other non-metallic products (-34.4%), manufacture of wearing apparel (-26.4%), manufacture of textiles (-24.7%), manufacture of motor vehicles, trailers and semitrailers (-24.2%), manufacture of chemicals and chemical products (-24.1%), manufacture of leather and related products (-23.7%), manufacture of rubber and plastic products (-19.7%), manufacture of coke and refined petroleum products (-16.4%), manufacture of furniture (-16.2%).

Increases were registered in the branches:printing and reproduction of recorded media

(+9.7%), manufacture of tobacco products (+4.3%), manufacture of other transport equipment (+3.9%) and manufacture of beverages (+2.3%).

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By broad industrial groups decreases were registered in intermediate goods industry (-18.7%), in durable goods industry (-18.3%), in capital goods industry (-14.4%), in current goods industry (-8.9%) and in energy industry (-5.0%).

During 1.I.-31.III.2009 the turnover per total industry, in nominal terms, was lower by 16.2% as against the corresponding period of 2008 due to the decreases registered in energy industry (-32.9%), in intermediate goods industry (-26.6%), in durable goods industry (-23.6%) and in current goods industry (-6.1%).

The labour productivity in industry decrease by 1.5% during 1.I.-31.III.2009 as against the same period of the previous year due to the diminished labour productivity in manufacturing (-3.0%).

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Resources of primary energyDuring 1.I.-31.III.2009, the main resources of primary

energy amounted to 8434.1 thousand tonnes equivalent2) oil (of which 6059.2 thousand tonnes equivalent oil from domestic production), decreasing by 18.9% as against 1.I.-31.III.2008, as a result of import diminution by 41.1% and of production by 5.0%.

During 1.I.-31.III.2009, the production of electric energy amounted to 16019.1 million kWh, decreasing by 10.1% as against the corresponding period of 2008. Most of production is still obtained in classical thermo-power stations (56.0%), followed by hydro-power stations (24.9%).

The final consumption of electric energy was 12884.5 million kWh during 1.I.-31.III.2009, by 7.4% lower than during 1.I.-31.III.2008; population consumption increased by 9.6% and public lighting increased by 8.8%.

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Comparison with the same month of the previous year

-the turnover volume of enterprises having as main activity retail except trade of motor vehicles and motorcycles experienced a decrease of 5.4% as against March 2008. Products sold via mail, order houses or via internet registered a growth by 235.3%. Turnover volume index for retail of automotive fuel decreased by 16.7%.

-the turnover volume of enterprises having as main activity wholesale and retail, maintenance and repair of motor vehicles and motorcycles, registered a fall of 40.0% as against March 2008.

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-the activity of market services rendered to the population registered a turnover by 6.3% lower than in March 2008. Decreases were registered for activities of travel agencies and tour-operators (-41.9%), for washing and (dry) cleaning of textile and fur products (-28.8%), for hotels and restaurants (-12.2%) and for hairdressing and other beautifying activities (-11.3%).

-turnover in wholesale, in nominal terms, fell by 16.8% compared with March 2008.

The services mainly rendered to the enterprises registered a turnover, in nominal terms, lower by 4.9%.

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Comparison with the 1.I.-31.III.2008 periodThe turnover volume of enterprises having as main activity

retail excepting motor vehicles and motorcycles registered a fall of 5.2%.

Trade of products by order houses or Internet, the system preferred by the population segment with higher income and few time available, registered a growth of 228.2%.

The turnover volume index for retail of automotive fuel decreased by 16.1%.

The turnover volume of enterprises having as main activity wholesale and retail, maintenance and repair of motor vehicles and motorcycles registered a decrease of 37.3%

The market services rendered to the population registered a fall of 5.4% during

The turnover in wholesale, in nominal terms, decreased by 13.5% .

The services mainly rendered to the enterprises registered a turnover, in nominal terms, by 0.1% lower

21

Exports (FOB) and imports (CIF) of Romania 1st trimestre 2008 and 2009 (mil.euro)

Exports FOB Imports CIF Balance FOB/CIF

2008 2009 2009/2008- % -

2008 2009 2009/2008- % -

2008 2009

TradeIntra EU 27

5788,6 4918,3 85,0 9376,7 6302,1 67,2 -3588,1 -1383,8

TradeExtra UE 27

2354,4 1642,7 69,8 3864,0 2254,6 58,3 - 1509,6 -611,9

TOTAL 8143,0 6561,0 80,6 13240,7 8556,7 64,6 -5097,7 -1995,7

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International trade in goods during 1.I-28.II.2009as against same period of 2008FOB exports amounted to lei 16967.8 million (€

3991.8 million), their value being with 14.3% lower than the same period of 2008, calculated based on the values expressed in lei, respectively 26.0% calculated based on the values expressed in euro.

In the structure of exports, three of the 10 sections of goods comprised in the Standard International Trade Classification (SITC Rev. 4) account for 78.6% of total exports as follows: machinery and transport equipment (38.2%), miscellaneous manufactured articles (22.5%) and manufactured products mainly classified by raw material (17.9%).

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CIF imports amounted to lei 22785.7 million (€ 5365.9 million), their value being lower than the same period of 2008 with 26.2% based on the values expressed in lei, respectively 36.2% based on the values expressed in euro.

In the structure of imports, four of the 10 sections of goods comprised in the Standard International Trade Classification (SITC Rev. 4) account for 79.3% of total imports, as follows: machinery and transport equipment (32.9%), manufactured products, mainly classified by raw material (21.8%), chemicals and similar products not-elsewere specified (14.1%) and miscellaneous manufactured articles (10.5%).

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During 1.I-28.II.2009, the trade deficit was lei 5817.9 million (€ 1374.1 million) in FOB/CIF prices.

The value of intra-community exchanges of goods was lei 13030.0 million (€ 3059.4 million) for deliveries and lei 16718.4 million (€ 3924.8 million) for inputs, representing 76.8% of total exports and 73.4% of total imports.

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The main structural modifications (1.I-28.II 2009 as against 1.I-29.II 2008)

increasing weight for sections: “Machinery and mechanical appliances; electrical equipment; sound and image recorders and reproducers” – with 3.4 percentage points, “Vegetable products” – with 2.2 percentage points, “Textiles and textiles articles” – with 1.1 percentage points;

decreasing weight for sections: “Base metals and articles of base metals” – with 4.1 percentage points,“Mineral products” – with 3.3 percentage points, “Chemical products” - with 1.1 percentage points .

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Exports of machinery and mechanical appliances; electrical equipment; sound and image recorders and reproducers = 26.8%, hold the first place and registered a decrease of 1.5% at values expressed in lei (15.0% at values expressed in euro) "Electric machinery, appliances and equipment and parts thereof”

holds the main weight (63.5% in total section and 17.0% in total exports).

Exports of textiles and textiles articles, hold the second place and registered a decrease with 5.8% at values expressed in lei (18.7% at values expressed in euro). exports of clothing articles and accessories, other than knitted or

crocheted represented 59.0% of total section and 7.7% of total exports. Also, exports of clothing and accessories knitted or crocheted had a weight of 20.1% in total section and 2.6% in total exports.

The third place =”Vehicles and associated transport equipment” with 11.6% in total exports “Vehicles, tractors and other ground vehicles” represent 79.6% of total

section and 9.2% of total exports.

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Exports of base metals and articles of base metals =the fourth place , a decrease of 37.2% at values expressed in lei (45.5% at values in euro) “Pig-iron, iron and steel”, representing 37.0% of total section and

4.2% of total exports and “Pig-iron, iron and steel products”, representing 32.9% of total section and 3.7% of total exports.

”Mineral products” with 6.9% of total exports, where exports of petroleum products (spirit, gas oil, oils) represent 97.3% of total section and 6.7% of total exports;

”Footwear, headgear, umbrellas and similar articles” with a weight of 4.9% of total exports.

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In the period 1.I-28.II 2009, in comparison with the corresponding period of 2008

Exports to the European Union countries (EU 26) decreased with 8.1% at values expressed in lei (20.7% at values expressed in euro), registering a weight of 76.8% in total exports.

Partner countries holding the first 10 places in the total amount of exports representing 69.0% of total exports were the following: Germany (17.9% of total exports), Italy (17.7%), France (8.8%), Turkey (4.3%), Hungary (4.2%), Netherlands (3.9%)United Kingdom of Great Britain and Northen

Ireland (3.3%), Bulgaria (3.2%), Spain (2.9%), Austria (2.8%).

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TourismComparison with first quarter 2008

Arrivals in the tourist reception establishments registered a fall of 15.9% in the first quarter of 2009 as against the first quarter of 2008.

In the first quarter of 2009 arrivals of Romanian tourists in tourist reception establishments represented 79.0% of total arrivals, while foreign tourists represented 21.0% of total arrivals.

In the first quarter of 2009, arrivals in hotels held a weight of 72.6% in total arrivals in tourist reception establishments with accomodation functions, decreasing by 17.1% as against the first quarter of 2008.

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Current Account in the 1st trimester 2008 and 2009 (mil. euro )

1st TRIMESTRE 2008 1st TRIMESTRE 2009

Credit Liabilities Net Credit Liabilities Net

Current account 12 627 16 582 -3 955 10 576 11 285 -709 A.Good and services a. Good b. Services

10 020 8 1431 877

13 953 12 2211 732

-3 933-4 078145

8 3506 561 1 789

9 6307 898 1 732

-1 280-1 337

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B. Revenues532 1 790 -1 258 305 924 -619

C. Current transfer 2 075 839 1 236 1 921 731 1 190

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Temporary decrease of current account pressure but long term vulnerability

Decrease of strong currency proceedings from :Remittances of labour force working abroad;Foreign direct investments in decline – 50% in

2009 as compared with 2008;Decrease of free currency from privatisation of

state owned assets ;Increase in a short term foreign debt.

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Forecasts of main macroeconomic indicators of Romania (changes -% of compared with previsions year 2008-2013)

2008 2009 2010 2011 2012 2013

GDP 7,1 -4,0 0,1 2,4 3,7 4,4

-Industry-Agriculture-Constructions-Services

1,3 21,4 26,15,1

-10,0 -2,9 2,6-2,2

-3,0 0,84,00,7

1,0 2,8

6,02,2

3,1 3,8

7,03,1

4,2 4,9

8,03,7

Final consumption - individual- public adm.

8,08,43,7

-5,4-4,9

-11,0

-0,5-0,60,1

1,81,91,0

3,03,12,0

3,3 3,52,0

Gross fixed capital formation

19,3 -6,5 -0,5 3,5 4,8 6,4

Exports (mil.euro) Imports CIF (mil.euro)

3362856337

2840042040

2995043230

3180045290

3440048290

3760051870

Balance of foreign trade(mil.euros) -22709 -13640 -13280 -13490 -13890 -14270Current account mil. euro% in GDP

-16897-12,3

-9393-7,5

-8750-6,5

-9300-6,3

-9830-6,1

-10220-5,7

Inflation rate(annual average) 7,85 5,8 3,5 3,2 2,8 2,5GDP, current prices(mil.euro) 136845 125012 135357 146763 161335 178157

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Evolution of Romania’s external debt on short, medium and long terms ( billion euro )

External debt 2003 2004 2005 2006 2007 2008

TOTAL 18,4 21,5 30,9 41,2 58,5 73,0

- short term 2,7 3,2 6,3 12,6 19,8 22,2

-medium and long terms 15,7 18,3 24,6 28,6 38,7 50,8