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December 8, 2022

Theory and practice

‘The job cuts in the private sector have to be compensated through an impulse the state can give by hiking investments and creating jobs, because otherwise we would enter a vicious circle,’ Finance Minister Sebastian Vladescu recently said in an interview for the national radio station. What the Minister stated is obviously a Government goal. But the same Emil Boc Government has positioned itself, through the policies it has promoted until now, outside that goal. During the 2008 Parliamentary election campaign and then during the Presidential elections last year the Democrat-Liberals talked about hiking public investments as a way of fighting recession and attaining economic recovery. Unfortunately not only did the said public investments fail to rise, but the idea of earmarking 10 per cent of GDP for them has become a ‘forgotten legend.’

On the other hand, we are witnessing the worsening of phenomena generated by recession, a crisis whose effects are growing in 2010 following last year’s economic drop of more than 7 per cent.

IMF director Dominique Strauss-Kahn himself warned in the speech he gave last week in Parliament that unemployment will grow this year, something that Romanian officials deny every time they have the opportunity to do so. The outlook is far from rosy. ‘Uncertainty’ – this is the word of the day at citizen’s level, despite the fact that at macro level the outlook might be more optimistic. The trade unions have protested and will protest again, being increasingly determined to solve dissatisfactions caused by people’s incomes. The teachers threaten to freeze the school year, in the health system family doctors have resorted to a dishonoring type of protest, namely that of no longer issuing compensation prescriptions– in this way they make regular citizens suffer and do not ‘punish’ the Government they accuse of abusive stipulations. The recent subway strike was won by protesters, with the Government caving in to pressure. Then drivers of the Bucharest public transport system refused to work, blocking the capital for one day. Other social categories are in stand-by, with railway workers, public servants and others being dissatisfied too.

In this context, the state finds itself forced, in line with its agreement with the IMF, to cut expenditures although the revenues registered in the first months were far below expectations. That is why Minister Vladescu is talking about adjusting pensions and salaries. ‘The state’s expenditures on pensions and salaries are excessive and unsustainable,’ he claimed. According to the 2010 estimates, the public sector salaries surpass 9 per cent of GDP. The Minister points out that salaries and pensions have to fall within economically sustainable limits. That is correct! But one does not have to be a reputed economist to reach that conclusion. The important thing is finding solutions. Solutions that are yet to be found, with the Finance Minister explaining that expenditures on social securities and personnel should be cut but a solution that would not affect political and social stability should be found. ‘Restructuring will take place but the economy won’t work with 100,000 people laid off. It’s one thing for people to leave in groups of 10, 50 or 100 and other for 40,000 public sector employees to be sacked tomorrow.’ At the same time he pointed out that the Ministry of Finances should rely on a mix of policies that would hike government expenditures used for backing of the business environment simultaneously with cutting social expenditures. ‘Job cuts in the private sector have to be compensated through an impulse that the state can give by hiking investments and by creating jobs, because otherwise we would enter a vicious circle,’ Vladescu explained.

It’s just that theory does not go hand in hand with practice. Romanians are certainly born theoreticians but practice is what kills theory. Government policies have recently ignored the need to hike public investments, with the lack of funds being an excuse. Quite the opposite, private initiative is choked by new taxes and fees, by the inappropriate application of the lump tax, by long delays in the return of VAT and the examples could continue. In the absence of coherent measures, an absence also noticed by an EBRD official that pointed out that Romania did not use efficiently the IMF, World Bank and European Commission loans (an EBRD official criticized at the time by Economy Minister Adriean Videanu who argued the former does not know local realities), the Romanian Government’s almost obsessive preoccupation for ‘social stability’ is understandable.

In his interview Mr. Vladescu returns to this problem numerous times but only offers theoretical solutions: ‘A solution that would not affect political and social stability should be found.’ OK, but who is supposed to find these solutions? Doesn’t this responsibility fall on the Government’s shoulders? Isn’t the Government the one that should take the decisions, be they painful or not, provided they are efficient? Like the IMF director showed, the Fund confirms the indicators that should be attained, with the methods used to attain those goals being decided by the Government of each country. For now however the Boc Government seems incapable of generating efficient measures and works on the basis of the idea that we can still postpone decisions in order to avoid inflaming social tensions. Unfortunately however the social tensions themselves seem to hasten the need to adopt measures that would lessen the effects of the crisis. As usual, things seem simple in theory. Let us see how we fare in practice. The negotiations with trade unions have an entirely different character than political negotiations.

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