Too late, too painful

The interim labour minister, Gheorghe Pogea, declared at the beginning of the week, after the meeting with the Alliance of the Civil Servants from the Labour Ministry, that the public sector must see the serious problems from the private sector, which suffers the most because of the economic crisis from Romania. Gheorghe Pogea stressed that the private sector is also that which assures the economic growth. “I asked to consider during the debates also the dimension of the state sector. The people from the private sector are those who suffered the most and, therefore, I am asking those from the public sector to have in mind these things,” the finance minister said.

The above piece of news came on the press agencies. Finally, the public finance minister Gheorghe Pogea is saying an essential truth that everybody knows. Unfortunately, he has ignored it so far. The government measures this year have overlooked precisely this essential truth, wherefrom also the inefficient decisions, contrary to the economic stimulation. About how efficient were the anti-crisis measures promoted by Boc Cabinet speaks also the rating recently given to it by Munich University: 1.3 points on a scale going up to 9, which means that almost nothing has been done to combat the financial crisis and to stimulate the economy.

And if nothing positive, in a purely economic sense, has been done in the nine months in which the ruling coalition had an overwhelming majority in Parliament, we don’t see a serious reason for something else to happen after the dismantling of the ruling coalition through the resignation of the Social-Democrat ministers. All the decisions are connected with the electoral campaign for the presidential elections and must be regarded with the necessary “leniency.” Those who took to streets are not the employees from the private sector, but those from the state sector. On Monday there was a “quasi-general” strike, while on Wednesday thousands of persons demonstrated in front of the government building from Victoria Square. Too little were the state employees interested in the message of the finance minister.

Boc Cabinet 2 or 3, or whatever it is called, will remain in office, most probably, until the elections, even if it is a government dismissed through censure motion or will fall when it assumes responsibility over the pension law. A law which actually falls under the “electoral measures,” Emil Boc preferring to fall together with his Government from the posture of “progressive” persons opposed to the “retrogrades” who are against the reform, than through a no-confidence vote.

But the major problems come from the economy, where the absence of the anti-crisis measures or the reckless decisions worsens the situation. The chances for the Government to fulfil the conditions assumed through the IMF agreement, especially those connected with the budgetary deficit, accepted at the level of 7.3 per cent for 2009, are ever smaller. It has already reached 5 per cent in September. The international rating agencies have warned, immediately after the dismantling of the ruling coalition, about the bigger risks with which the Romanian economy is confronted. Standard & Poor’s (S&P) has assigned a new rating to Romania, a “recovery” rating of “3” out of six, which reflects a degree of recovery of the receivables by creditors of 50-70 per cent, if the issuer goes into default of payment. As for Moody’s – the only agency which places Romania in the investment grade category – it maintains the “stable” outlook, but warns over the dangers deriving from the evolution of the budgetary deficit and fiscal policy.

If Boc Government survives all the political vicissitudes, it will meet an insurmountable obstacle, with serious effects in the economic sector. We mean the passing of 2010 budget draft in Parliament, project that should be presented at the soonest. Since PDL – the only party which backs the Executive – has in the legislative authority only a little bit over 30 per cent of MPs, we presume that the opposition will fully boycott the approval of the budget. Budget which at this moment is shrouded in mist. In order to reduce the budgetary deficit, the Government must increase the receipts and reduce the expenditures. Since the perspective of reducing the expenditures is doubtful, considering the social pressure, the variant of the receipts is the only one which remains. In this case we also have several variants, to increase the taxes, the flat tax or the VAT. None of these variants is acceptable for the Government, since they are not at all popular. The past few days witnessed the rumour that the VAT will be increased from 19 to 22 per cent in 2010, measure backed by President Traian Basescu and the finance minister Gheorghe Pogea, even if it was vehemently denied by Premier Emil Boc in interviews given to the rational radio and TV companies. Moreover, one of the central dailies reads that the measure to increase the VAT to 22 per cent has already been taken months ago, and the convergence programme of the European Commission has purposely omitted to publish the report about Romania in order to prevent the Romanians from learning about the rise of the VAT to 22 per cent. The same publication writes that the flat tax could also grow by 2-3 per cent.

As the timing of the presidential elections is drawing near, the economy and the political speech are increasingly shifting into parallel worlds. One thing are the political dispute and the electoral propaganda, and something else the immediate and prospective economic reality. After January 1, 2010, the local taxes and dues grow by 14-22 per cent. Since the excises of fuel, electricity, alcohol and cigarettes are calculated subject to the exchange rate registered on October 1 the previous year, this means that they will grow as much as 14.24 per cent (from RON 3.7364/EUR to RON 4.2495/EUR), which will conduct also to the growth of all the prices. If the VAT increase is also applied, the unions will quite possibly have real reasons to rebel.

These being the prospects, the political discourse turns around some propagandistic themes. After the elections, the economic reality will exceed the limits of the parliamentary disputes. In the middle of the winter, the consequences of the measures taken too late or even not at all will be more than obvious, and the internal and external risks will grow proportionally. Not least, the huge loans engaged from IMF and the European Commission will have to be justified economically – spending the money to pay the pensions and the salaries is a solution only for the immediate present.

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