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Bucharest
October 20, 2020
POLITICS

IMF – Veni, Vidi, Vici

We must prevent Romania from turning into Greece, says Basescu. IMF mission to present final conclusions today, before leaving Bucharest. Government keeps silent. Opposition declines wage and pension cuts, accusing Boc Cabinet of incompetence. Unions threaten with street protests.

Awaiting the press conference announced for today, before the end of the IMF review mission to Romania, government, PNL and PSD opposition party and union leaders, as well as the senate speaker one by one met with officials of the international financial institution at their request over the weekend. A meeting is set to take place tomorrow from 11am between parties, employers’ organizations and unions to discuss budget expenditure cuts and the cutting of public sector salaries by 25 per cent and of pensions and unemployment benefits by 15 per cent, announced by President Traian Basescu.


The unprecedented technical measures the president announced last Thursday and justified by the attempt to avoid what had happened in Greece have caused numerous reactions from the political class. For a beginning, during the talks at Victoria Palace on Saturday, the IMF experts told the members of the government they had informed the IMF Board in Washington on the government proposal to reduce budget expenditures by cutting wages and pensions and not by hiking VAT and the flat tax, and the Board had agreed to the strategy, participating sources told Mediafax. The IMF wanted it to be made very clear that the president-announced technical measures had been strictly taken by the Romanian authorities.


‘The Fund however attached the condition that all savings from such expenditure cuts should be exclusively used for investment’, sources participating in the talks held at Victoria Palace said. The Government promised to adopt the normative acts needed for operating the expenditure cuts by the beginning of June. At the same time, PM Emil Boc reassured the IMF officials that public procurement legislation would be also amended towards cutting tendering procedure times by the same date.


At the talks with the Government, the IMF experts insisted on capping budget deficit growth to a maximum of 0.5 points. Yesterday Finance Minister Sebastian Vladescu announced the target for the budget deficit agreed with the IMF is 6.8 pc, instead of 5.9 per cent.


The decision on the matter was on Sunday’s talks agenda between Finance Minister Sebastian Vladescu and the IMF.


IMF on Saturday said during the talks with the Government that cutting salaries and pensions was a ‘courageous’ measure, but warned that the Board would not approve the stand-by agreement letter of intent before the Executive adopts the normative acts for the actual implementation of the expenditure cuts.


‘President Basescu announced an ambitious programme and Romania now needs ambitious measures’, IMF review mission head Jeffrey Franks said, adding that the date when the IMF board would disburse the following loan instalment would depend on how fast Romania delivers on specific commitments made. President Traian Basescu has recently stated that the following instalment should have been released in the second part of June, but that benchmarks would certainly be introduced for the Government to be able to demonstrate its commitment to the agreed measures, which would postpone the disbursement ‘until the month of July’.


Last evening, by 8.00 pm PM Emil Boc was expected to hold a press conference on the same issue.


Technical measures


President Traian Basescu on Thursday announced pensions would drop by 15 per cent, public sector salaries by 25 per cent, including the minimum wage, and ‘subsidies’ would be massively reduced, with the money saved in that way to be spent specifically ‘on those who need financial assistance’. Basescu mentioned unemployment benefits would also be cut by 15 per cent. At the same time, various sources say a decision has been reportedly made by the government to also decrease children allowances by 15 per cent.


Scrapping subsidies to make prices explode


Hot water and heat tariffs will massively go up if subsidies are scrapped as President Traian Basescu said. Prices may double or even triple in a number of cases. In Bucharest, for example, the population pays RON 119 per gigacalorie, while district heating company RADET supplies hot water and heat at almost RON 300/ gigacalorie, with the price difference being covered by the Bucharest Municipality and the Ministry of Administration and Interior. Bucharest Mayor Sorin Oprescu spoke about the measure in early March when he said he had considered renouncing paying hot water subsidies completely and cutting heat subsidies by 50 per cent. According to him, half of the Municipality budget pays for heat and public transport subsidies. Economy Minister in turn told Mediafax that subsidies would no longer finance losses and no-work, giving two examples: mining and agriculture.


Representatives of the League of Agricultural Producers’ Associations of Romania (LAPAR) are asking President Traian Basescu in an open letter to arrange a meeting in order for them to find solutions to the crisis in agriculture together, noting that Romanian farmers receive the lowest subsidies in the entire EU.


Fitch: Instability from unsustainable deficit level


Fiscal consolidation has better chances of success by focussing on expenditure cuts rather than hiking taxes, and the failure in bringing budget deficit down to a sustainable level would lead to instability in Romania, Ed Parker, Fitch head of emergent states in Europe, says. The international rating agency official notes that international experience suggests that large-scale fiscal consolidation programmes have better chances of success if they focus on cutting expenditures more than on increasing taxes.


In a different perspective, a survey conducted by audit and consulting company KPMG shows Romania is wasting the chance of attracting European funds, although economic recovery is slow in coming and recession has massively reduced foreign investment. Under the conditions, it is essential for Romania to make the most of the considerable sums made available by the European Union via non-repayable funds in the period from 2007 through to 2013. Romania still reports a low EU funding spending rate in the area of transport, energy and technical assistance.

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