Gas price increase and bans on agricultural goods export led to inflation

The gas price increase and obstacles in exporting agricultural goods, especially wine, led to an external shock that, directly or indirectly, contributed to inflation, prime minister Vasile Tarlev announced on Thursday, July 27, at the plenary sitting of the Parliament, where he presented the report on implementing the program “Modernizing the Country – The Nation’s Welfare”. According to the Prime Minister, in the first 6 months of 2006, the prices increased by 7.4%, registering a growth of 1.6% compared with the same period of 2005. The exchange rate of the national currency in the same period registered depreciation against the dollar of 3.6%. The economy dependence on external factors deepened, during this period, because in January-May 2006 the exports decreased by 10.6 %, and the imports increased by 14.4%. Tarlev considers that stopping exports to the Russian Federation explains only partly the devolution of the real sector of the national economy, blaming businessmen and the authorities of not having learnt from the lesson of the financial crisis in 1998. The prime minister also reported that the volume of industrial production in the first semester registered a decrease of 6.4 % compared with the same period of 2005, due to the decline registered in the wine sector. Wine production decreased by 42.4 % in comparison with 2005, and in the first 5 months of 2006 producers’ loss as result of the Russian ban was of about USD 21 mln. Tarlev concluded that ceasing exports to traditional markets “show the real dimension of the risks that the whole sector deals with in the situation of limited number of markets”.