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| The Week in Review 18-24/10/2010 |
| (2010-10-22) |
| Last updated: 2010-10-25 13:39 EET |
An IMF mission these days is in Bucharest to assess how Romania met its commitments included in the agreements it concluded with the international financial institutions. These commitments took into account a budget deficit which this year stands at 6.8%, as well the indicators along which next year’s budget was constructed.
The government vowed to provide 1.5 % economic growth in 2011, as well as a budget deficit standing at 4.4 % of the GDP. According to the chief of the IMF mission to Bucharest Jeffrey Franks, the estimates on Romania’s economy could be revised, but not substantially. The IMF has the new single payment scheme and pension laws under close scrutiny.
On the other hand, the IMF did not favour the social measures Romania took, as the international organization delegates hinted. Specifically, the IMF delegation targeted the suggestions Prime Minister Emil Boc made with respect to raising the minimum salary and the reduction of the flat tax rate. According to the Fund officials, such suggestions need to be weighed extremely carefully to see if they do a lot more harm than good.
Also, the prospective social protection measures can lead up to a budget deficit that is much too high. Negotiations are underway with a view to signing up a new agreement. The new loan agreement Romania intends to sign with the IMF will most likely stand at a lower value that the present loan, which accounts for around 13 billion Euros, and has prospective status.
The IMF delegation’s visit to Bucharest, scheduled to draw to a close on November 1st, has taken place against a political and social backdrop which can only be described as troubled, with protests by public sector workers, angry at having their incomes severely cut as a result of tough austerity measures.
Two social measures, long expected by the population, have been adopted this week by the Parliament in Bucharest – reducing the VAT rate for basic foodstuffs to 5 % and exempting from taxes state pensions smaller than 2,000 lei (that is roughly 470 euros). Welcomed by people with low incomes and by the opposition, the measures were passed by mistake according to the representatives of the parties in the ruling coalition.
They say that the implementation of these measures, which will significantly reduce budget resources, is not possible, and they have already initiated moves to redress the situation. Concurrently, the parties in the opposition try to topple the Boc government, which they blame for the current situation in the country.
The Social Democratic Party, National Liberal Party and Conservative Party filed a motion of censure, and they said that, after removing the present government from power, they would renegotiate the framework agreements Romania concluded under the stand by accord with the IMF, the World Bank and the EU, would revise the economic and social policies which the Boc government would like to implement starting January 1st 2011, and would reconsider the measure of cutting the salaries of employees in the public sector by 25 %.
The signatories also support tax exemptions for pensions smaller than 1,000 lei and preventing the political clientele from exploiting public funds. Also on the agenda is giving high priority to directing loans towards investments and increasing absorption of structural funds by simplifying access procedures.
The motion of censure will be debated in a plenary session of the Romanian Parliament on October 27th, a day when the employees from the public sector are getting ready to take to the streets for a big protest.
Hungary, at present one of the border countries of the Schenghen area, and which takes over the rotating EU presidency, can help Romania in many respects, said in Bucharest Hungarian president Pal Schmitt. The Hungarian president gave assurances that his country will support Romania in its bid to join the Schenghen area according to schedule, and estimated that from the very moment when this materializes, the elimination of the western border will be to the benefit of the Romanians and Hungarians alike.
According to Pal Schmitt, as far as the issue of regional autonomy goes, Romanian president Traian Basescu and other Romanian politicians agree with the application of the principle of subsidiarity. The Hungarian president tackled that subject during all the meetings he had with the Romanian officials and, according to Schmitt, the politicians in Romania share the idea that the decisions should be taken from the lowest level onwards.
Spain also supports Romania‘s joining the Schenghen area, because it appreciates the technical progress made to that effect by the authorities in Bucharest – said Spanish Foreign Minister, Miguel Angel Moratinos at the end of a meeting he had this week in Madrid with his Romanian counterpart Theodor Baconschi. In another development, they signed a cooperation accord related to the functioning of the Romanian Cultural Institute in Madrid and the Cervantes Institute in Bucharest. They also laid the foundations for a strategic partnership between Spain and Romania to be signed early next year.
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