Romanian policy makers miss the big picture, again

I have been moaning this morning that I do not have important enough news about Romania to comment. I still don’t. Here is the best I can do.

Yesterday Romanian President Basescu came out (of the blue) and downgraded the GDP forecast for Romania in 2012. From 3.5% to a figure between 2% and 2.5%. He goes on an advises the government to use this figure for the next year’s budget estimates. Well, I like that he is concerned and I agree with the trend but I do have a problem. What if the government takes him seriously? They take this number and they run with it. And then next year GDP is growing by 4%. Or is falling by 3%. Is the President going to do something about? There is nothing he can do actually.

The point I am trying to make, was made long time ago by Adam Smith: division of labor. We should stick to what we do best and to our job description. Things will be much simpler this way and more profitable for everyone.

However, sometimes even this does not work. Reality is more complex and that is why I favor non-linear models and chaos theory. In an interesting dynamic the head of government forecasting unit, Mr. Ghizdeanu, threw some very interesting news at us. He upgraded the Romanian growth for 2011 from 1.5% to 1.7%. What is the point of this? The year is almost over and the 0.2% would not make a difference. The number cannot be used for anything unless you want to increase expenditures at the end of the year and keep the deficit estimate the same. This could be a very good reason but the difference is quite small to bother. One other thing, it came out the day after the President reduced the forecast for 2012. Go figure. One man, the President, against an institution in a game of: who gets the GDP forecast right.

Anyway I can bet you (any takers?) that none of the two numbers will end up as the final number for 2011.

Everyone is missing the big picture. All the numbers 1.5%, 1.7%, 2% or 2.5% are two small to matter for Romania. Romania needs polices to induce growth and create jobs. And when you borrow from IMF at 3% and from the markets at 6% in EURO you need to grow much faster than 2% to pay back your debts. So, please let’s use the energy you have left as policy makers and come up with plans to rejuvenate the economy and create jobs. Leave the forecasting to “independent” analysts in commercial banks. They need a job too.


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