Risks Associated With Romanian Capital Account Liberalization

Abstract

The compulsory full liberalization of the capital account of Romania has been undertaken with EU Accession Treaty and put into practice since September 2006. This allowed free entry of capital in the Romanian economy, the financial sector being the main beneficiary. Moreover, the central bank decided to stop using the lever prudential and administrative measures employed to mitigate the growth of private sector credit (reserve level policy). The effect of these measures was the excessive growth of the private sector credit volume in Romania. The objective of this paper is to present the consequences of these actions, the ultimate goal being to identify induced risks to the stability of the financial system.

Keywords

• capital account liberalization
• risks
• capital inflows