ARHIVELE OLTENIEI - Universitatea din Craiova

The liberalization capital account and its implications 353The liberalization of the exchange currency and of capital accountstimulated considerable capital entrance, as a result of both short terminvestments (hot money) and medium or long term investments.In that which concerns the short term capital entrance, representingspeculative fluxes, their evolution must be attentively followed because they arequite volatile and can create instability episodes on the currency market.Fig 1. – Capital entrance in Romania (mil. Euro).Source: RNBThese capital fluxes can generate currency crisis as those in SouthAmerica, South-East Asia. The graphic shows that the highest level of portfolioinvestments in Romania took place in 1996 and 1997, as a result of thefoundation of Bucharest Stock Exchange of Values and RASDAQ market. In thefollowing years the situation changed because of Romania’s problem with theexternal debt and due to the crisis confronted by Russia and as a consequence in1999 there were exits of capital from Romania, the balance account of foreignportfolio investments being negative.Special attention is given in Romania to the efficient management ofcapital fluxes especially those with impact over the Payment Balance. Thus,taking into consideration the negative effects the liberalization of capital accountmight generate, but also the international experience, the macro-economicalbody of decision must ensure a series of measures, considered by specialists, ofcrucial importance:-the lowering of internal interest rates to reduce the differential ofinterest compared to the international environment;- the raising of exchange currency flexibility;- the maintaining of some restrictions and the formulation of capitalaccount;- the sterilization by the central bank of the entrance of capital;- the strengthening of fiscal discipline.