Monday, February 23, 2009

Romania budget adopted

BUCHAREST, Feb 20 (Reuters) - The Romanian parliament approved on Friday the government's 2009budget, a key tool in its efforts to regain market trust and stop the country from plunging into a financing crisis.

Putting in place a near freeze in state salaries and a sharp cut in the fiscal deficit target, the budget also earmarks more than 10 billion euros ($12.60 billion) to lessen the pain of sharp economic slowdown.

Prime Minister Emil Boc has called the budget "relatively austere" and the International Monetary Fund has endorsed it, welcoming planned spending cutbacks and a deficit target of 2 percent of gross domestic product.

But economists say fiscal responsibility, after several years of unrestrained wage growth, may not be enough to correct Romania's external imbalances and ensure it has access to enough cash to plug its vast current account deficit.

Many say Bucharest will still have to seek loans from the European Union and the IMF to counter the outflow of foreign cash as investment and credit lines dry up due to global economic turmoil.

At the same time, there is little money left to stimulate the economy enough to prevent job losses and insulate the EU member from the economic fire engulfing eastern Europe.
Leader of the Social Democrat Party that forms the ruling coalition with Boc's Democrat Liberals, Mircea Geoana, underlined these dilemmas after the vote:

"We would have liked a more generous budget ... It is the beginning of our response ... to the crisis," Geoana said.

Nearly 80 percent of parliamentarians voted for the bill, showing strong support for the economic programme of Boc's centre-left coalition.

In the next few days Boc's government is expected to decide whether to seek help from the IMF to replenish its dwindling finances. It has has already held preliminary talks with the European Commission on a possible multi-billion euro loan.

Seen now by many economists as one of Europe's most vulnerable economies, Romania went from the EU's fastest growing state last year to the only member with "junk" debt status.

This was driven largely by fast growth in private sector loans to finance rampant consumption in recent years and an expansive fiscal policy that rating agencies said gave insufficient protection to the overheated economy. (Writing by Justyna Pawlak; editing by David Stamp)

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