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September 27, 2021

Economic crisis neglected by political crisis

A recent opinion poll published by Reuters shows that because of the political turbulences in Romania the investors are more optimistic in what concerns Bulgaria’s economic perspectives than when it comes to Romania’s economic perspectives. The Reuters/OeKB opinion poll concerns the business environment’s confidence for Q4. ‘In what concerns the economic expectations, the investors are likewise significantly more optimistic in what concerns Bulgaria than they are about Romania, an attitude that could be caused also by the political turbulences in this country,’ a communiqué that presents the conclusions of the opinion poll conducted in October by Thomson Reuters and Oesterreichische Kontrollbank (OeKB) among the Central and Eastern European investors reads. 400 regional companies took part in the opinion poll.

This would be an effect of the prolonged economic crisis that is affecting Romania, a country labeled as being the one that adopted the smallest amount of economic recovery measures. While the prognoses for the other Central and East European states are optimistic, the international analysts are cautious in what concerns the Romanian economy’s recovery, with their reasons for that having to do with the prolonged political crisis.

It’s interesting to note that, in the midst of the electoral campaign for the Presidential elections, we are hearing less and less about projects on economic re-launch. And when the candidates tackle this subject they do it without self-assurance and without consideration to the economic realities. To talk about lowering the flat tax in the midst of an economic downturn is either irresponsibility or a gesture that denotes the lack of necessary knowledge in this domain even though in theory that measure can lead to economic re-launch. But before the re-launch, who covers the budget deficits? Of course, one can talk about that in terms of an outlook during the term, but that idea – simply thrown on the market – is creating baseless expectations. The idea of offering bonuses worth hundreds of thousands of Euros to the Romanians that are returning home is not realistic either for a country that finds itself in significant financial difficulty. The ‘reformist’ approach to politics is not liable to calm the businessmen either. To talk about political reform in the sense of a pure uninominal vote now, at a time when there is the danger of having no money for the payment of pensions and public sector salaries at the end of the year, is simply demagoguery. Who is interested in this now at a time when one does not know what the situation will be several weeks down the road and whether the people will still have the salaries with which to cover their bank installments?

The statistical data already points to a significant hike in the back payments that individuals owe to the banks.

On the other hand, the state, itself mired in an increasingly precarious situation from a financial point of view (despite the loans from the IMF, WB and the European Commission), is also hampering the business environment. After the series of bankruptcies and shutdowns generated by the introduction of the lump tax, now the state takes advantage of private companies in a different manner. The time needed to reimburse the VAT has risen twofold, just like the time needed by other subsidy reimbursements. In other words, the company that pays its taxes on time and has no immediate financial problems might enter insolvency because the Romanian state is reimbursing its VAT after an increasingly lengthy period of time that went from 3 months to 6 months or even more.

On the other hand the social tensions are growing. Most of the employees that are members of the large trade unions are waiting for the end of elections and for the investiture of a stable government in order to forward their demands. Demands that won’t be few in number, with most of them concerning the wage issue but not only that. Since one of the IMF’s demands has to do with reducing the state’s expenditures on employees, it is expected that the first months of 2010 will see layoffs within the public sector. The figure mentioned by various sources surpasses 100,000 employees. From this point of view the new Government, whatever that might be, will face a chain reaction of social protests and complaints that have been kept ‘under the lid’ in recent months because there was no Government with which one could have seriously negotiated, the Emil Boc Government being basically toppled and acting only as a caretaker.

However that did not stop Metrorex, who has a strong trade union that handles a structure that is more than vital for Bucharest transportation, from going on general strike. It is a warning as serious as it can be for those in power and those that will come to power have to take it as seriously as possible. It’s true, the subway workers’ demands are completely unrealistic – 20 per cent salary hikes. Let us not forget that the subway receives state subsidies. Metrorex had a budget of RON 640 M in 2009, of which RON 328 M represents state subsidies and RON 285 M (more than 50 per cent of the budget) represents the wages – so that talking about productivity growth in this context is hilarious to say the least.

But all of this shows the chaos at all levels and the impulsive actions of both the officials and the trade unions. Watching the TV channels or reading the newspapers, one often has the sensation that the crisis is not felt in Romania. Political attacks, shocking revelations with political and judicial implications, the high-life, rows between stars etc. These are the subjects that dominate the public interest. It’s just that they won’t keep one fed when unemployment will rise and the payment of salaries and pensions will start to register delays. On the other hand, any step back taken by the officials in what concerns the salaries means the failure of the agreements with the IMF, WB and EC and a direct inflation stimulus.

In this sense the repeated warnings issued by Mugur Isarescu, the Governor of the Central Bank, were as serious as they could be. It remains to be seen whether someone heard them. Probably not since the economic crisis is a subject debated only at street corners, with the realistic solutions still being awaited. Such a warning came last week when the BNR Governor warned that a tax hike does not help. The draft of the 2010 budget is expected just now, a draft that allegedly provisions the VAT going from 19 per cent to 21 per cent. Gheorghe Pogea and Adriean Videanu, the Ministers of Finances and Economy, vehemently denied that possibility. For many people their denial sounded unconvincing… Meanwhile the BNR has decided to release money from the commercial banks’ compulsory reserves in order to cover the external financing deficit. The decision confirms the serious situation in which Romania finds itself. Things are obvious for whoever wants to understand.

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