By Thomas Escritt in London
Published: October 29 2008 03:49 | Last updated: October 29 2008 03:49
Politicians who think Romania is immune to the global financial crisis are like passengers on the Titanic yet to realise it is sinking, the prime minister warned on Tuesday.
“Imagine that the global economy is like the Titanic, which hit the iceberg,” Calin Popescu Tariceanu told the TV station Antena 3. “At the lower levels, people are in water up to their necks, while on the upper floors the music still plays and people don’t know that the ship hit an iceberg and still listen to music. Those people are here, in Romania. That’s a lot like our situation.”
He made the blunt assessment after Traian Basescu, the president, signed into law a 50 per cent pay rise for teachers.
So far Romania has seemed to weather the economic storm that has levelled neighbours such as Hungary. Foreign investors have been less concerned about the country’s ability to finance its public debt – which stands at 13 per cent of gross domestic product – than they have about neighbouring economies.
But on Monday Standard & Poor’s downgraded Romania’s sovereign debt to “junk” status, a move that sent the Romanian leu down 2 per cent on the day. On Tuesday afternoon in London it stood at 3.72 to the euro.
Juan Fernandez-Ansola, the International Monetary Fund’s representative in Bucharest, said: “Capital inflows have been the driving force for growth in this economy, [and] the reassessment from the rest of the world ... will have an effect on net flows into Romania.”
While public debt financing remained “manageable”, he warned that investors would worry if the government appeared not to be responding to the new situation. “Hiking wages sends the opposite message ... especially because it’s not about reform and restructuring, but just 50 per cent up without any considerations.”
Consensus growth forecasts for next year stand at 4-5 per cent, compared with 8 per cent for this year.
Bulgaria’s government cut its growth forecast to 4.7 per cent on Tuesday, down from 6.5 per cent, as the World Bank urged the country to prepare an emergency plan.
Mr Tariceanu’s National Liberal party heads a minority government that enjoys ad hoc support from the opposition Social Democratic party. Two weeks ago the Social Democrats joined forces with the Democratic Liberal party to pass the pay measure, widely seen as a sop to voters before elections on November 30. Mr Tariceanu wishes to block the pay increase.