Saturday, December 27, 2008

Romania's new centre-left govt slashes state wages

BUCHAREST, Dec 23 (Reuters) - Romania's new centre-left government approved a series of pay cuts in public administration on Tuesday, its first day in office, aiming to save some 1 billion euros from next year's budget.

Prime Minister Emil Boc's cabinet faces the tough task of slashing state spending to keep the budget deficit in check next year when the economy is expected to slow sharply, and reassure jittery markets.

Without fiscal discipline, Romania risks a financing crisis because of its heavy reliance on foreign cash to fund a vast trade deficit, economists warn.

But political commentators say with divisions running deep between Boc's coalition of the centrist Democrat-Liberals (PD-L) and leftist Social Democrats (PSD), austerity measures may be hard to implement.

Boc said that starting next year, wages of heads of agencies and state-owned companies will be capped at the level of deputy ministers, or pre-tax 4,800 lei ($1,700).

"In these difficult times, dignitaries must be the first ones to send a signal of austerity," Boc told reporters.

"(There is) a problem of 'luxury' public employees, with salaries of ... 30,000-40,000 euros a month."

The government has also frozen hiring in 2009 for 145,000 vacant jobs in the public system, he said.

Boc said Romania could save at least 1 billion euros, or roughly 1 percent of next year's estimated gross domestic product, but it was unclear whether he referred to all measures approved on Tuesday or just the salary cut.

This year's budget deficit is already expected to top plans and reach some 4 percent of GDP, largely due to lower tax receipts and poor fiscal planning by the former centrist government.
Boc's government has announced plans to cut it to 1.7 percent in 2009 but analysts say this is unrealistic.

In Romania, unsustainable double-digit wage growth, particularly in the public sector, is seen as a key threat to long-term economic stability, as the country has seen breathless consumption that has bloated its external cash deficit.

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