Wednesday, July 2, 2008

Romanian government wary of social protection plans

BUCHAREST, July 1 (Reuters) - Romania's ruling centrists dismissed opposition proposals to cushion the impact of soaring food and energy costs on those hardest hit, saying on Tuesday such moves would just hurt the economy more.

Like other countries in eastern Europe, Romania is struggling to ease poverty while combating pressures stemming from global price rises and rampant consumer spending that have taken Romanian inflation as high as 8.6 percent this year.

Earlier on Tuesday, the main political parties met to discuss a policy response and the leftist Social Democrat Party (PSD) proposed a cut in value added tax on staple foods and in taxes on fuel for farmers.

The Democrat-Liberal Party (PD-L) of President Traian Basescu asked the government to speed up pension hikes and subsidise household energy bills. Both parties demanded a rise in minimum wages.

But Finance and Economy Minister Varujan Vosganian said some of the plans could hurt efforts to protect economic stability.

"I hope political parties will reassess their proposals, taking into account inflationary risks," he told reporters.

He reiterated the government's plans to keep a budget deficit target of 2.3 percent of gross domestic product this year and to focus spending on long-term investment in infrastructure.
Many economists have said the budget plan is already too large and that domestic demand has bloated Romania's current account deficit and foreign debt, leaving the economy acutely vulnerable to swings in global investor sentiment.

But with a parliamentary election due late in the year, the government is likely to come under increased pressure to raise welfare spending.

"We do not want social inequality to deepen," Emil Boc, head of the PD-L, said after the Tuesday meeting, held by president Basescu.

The ruling PNL is struggling in opinion polls as many Romanians turn to the economic security promised by the left with a rising sense that the poor have been left behind by market reforms.
The leftists and the centrist PD-L opposition are also under pressure to boost popularity ratings as they are likely to vie for a top spot in the national vote.

The pro-business PNL has a track record of bowing to pressure for higher spending. Last year, it sided with the leftists to double state pensions over two years, even as rating agencies warned against the move.

So far, Prime Minister Calin Tariceanu has been reluctant to go through with hikes in minimum wages, which the government had proposed should be introduced in the middle of this year provided the economy was on track.

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