By Irina Savu
Dec. 22 (Bloomberg) -- Romania’s parliament approved a 21- member Cabinet headed by Prime Minister Emil Boc after the coalition government pledged to address the effects of the global economic crisis with spending cuts and increased investments.
The coalition holds 329 seats in Romania’s 471-seat Parliament, after a close vote in Nov. 30 parliamentary elections forced the two rival parties to seek allies.
“This vote places a heavy burden on our shoulders, but I trust my team; it’s the team that will ensure the country’s stability,” Boc said after the vote.
His government pledged to cut spending in all ministries next year to trim a deficit that will stand at 4 percent of gross domestic product, exceeding the European Union limit of 3 percent.
The new government plans to narrow the deficit by cutting public-sector spending on goods and services by 20 percent, placing a ban on public procurement for a year and keeping the value-added tax unchanged at 19 percent and the flat tax at 16 percent, Boc said in a speech in Parliament before the vote.
“Their plan to narrow the budget deficit seems unrealistic,” said Nicolaie Alexandru-Chidesciuc, senior economist for ING Bank Romania, in an e-mailed note today. “The expected economic slowdown won’t leave room for a budget deficit below 3 percent next year.”
After years of growing prosperity that lured fresh investments from companies including Carrefour SA, Ikea, Starbucks Corp., Nokia Oyj, and Ford Motor Co., the outgoing government predicts economic growth will slow next year by as much as half, as the global crisis is hammering Europe’s emerging markets.
In the past two months, companies including carmaker Dacia SA, food processor Kraft Romania SA and steel manufacturer Arcelor Mittal Romania announced cutbacks or dismissals totaling 4,000 in October alone, meaning unemployment will keep rising from the current 4 percent.
Romania’s leu has weakened more than 12 percent against the euro and more than 16 percent against the dollar in the past year as international investors withdraw money from countries seen as carrying a higher investment risk. The benchmark BET stock market index has declined about 71 percent at the same time.
Standard & Poor’s and Fitch Ratings have downgraded Romania’s debt rating to junk in the past two months, citing in part increased government spending. Fitch lowered Romania two notches to BB+ from BBB while S&P cut its rating on the country to BB+ from BBB-.
The program doesn’t say anything about the fate of a 10 billion-euro ($14 billion) economic stimulus proposed last month by the outgoing government. The new government can change or scrap the stimulus plan, which was meant to take effect in January.
The outgoing Prime Minister Calin Tariceanu urged the coalition to endorse his stimulus plan and renounce the program, which he said “doesn’t bring real solutions to stimulate growth.”
“It’s a train ticket to an economic disaster,” Tariceanu, who heads the largest opposition party, said in Parliament today.