Thursday, November 13, 2008

Romania Liberal govt unveils plan to boost growth

BUCHAREST, Nov 12 (Reuters) - Romania's centrist Liberal government on Wednesday unveiled measures meant to prop up economic growth but further loosen the fiscal policy it would pursue if it wins a Nov. 30 parliamentary election.

The International Monetary Fund said the measures, which consist mainly of tax cuts and subsidies, would pressure the budget deficit at a time when policy makers need to cut spending or risk destabilising the economy.

"We will continue to cut taxes," Prime Minister Calin Tariceanu, whose party ranks third in opinion polls with 17-18 percent, told reporters after a cabinet meeting.

The plan includes slashing social insurance contributions by 10 percentage points over a four-year horizon.

It also envisages a 5 percent discount in income and profit tax for households and corporations that pay dues in time and a 1,000 euro payment for every jobless person a company hires.
State aid would be up to 50 million euros for any investment of over 100 million euros that creates 500 jobs. For a smaller investment, aid could be up to 28 million euros.

The plan includes subsidies for farming and social housing and envisages the creation of a state institution to monitor implementation of projects to absorb European Union funds.

Since the global credit crunch intensified in recent months, concern has grown that Romania is more vulnerable to an economic downturn than some of its peers because of a vast external shortfall, high rates of hard currency borrowing and inadequate fiscal and wage policies.
The upcoming election, which has prompted parties across the political spectrum to make wages and pensions a key campaign issue, has also worsened investors' jitters about holding Romanian assets.

Underlining such concerns, ratings agencies Standard & Poor's and Fitch have cut Romania's status to below investment grade, citing concerns over inadequate economic policies, particularly budget spending.

"Romania does not have the space to increase the budget deficit in the current economic situation," IMF senior regional representative for Romania and Bulgaria Juan Jose Fernandez-Ansola told television station The Money Channel.

He also said Romania's budget deficit this year could go over the EU's 3 percent of gross domestic product cap if current spending plans are maintained. (Reporting by Marius Zaharia and Luiza Ilie; Editing by James Dalgleish)

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