Thursday, February 19, 2009

Romania deputies to endorse anti-crisis 2009 budget

BUCHAREST, Feb 19 (Reuters) - The Romanian parliament was expected to approve on Thursday the centre-left government's 2009 budget plan, a key step in its efforts to regain market trust and stop Romania 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 sets aside more than 10 billion euros ($12.60 billion) to ease the pain of sharp economic slowdown.

The ruling coalition has a majority of around 70 percent and with little effective opposition to the measures, deputies are expected to pass the bill later in the day.

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 with IMF rescue.

At the same time, there is little money left to stimulate the economy enough to prevent job losses and insulate the new EU member from the economic fire engulfing eastern Europe.

Speaking to parliament at the start of budget debates, Boc underlined the dilemma faced by his government, in place since December.

'This is a budget to fight the crisis,' Boc said.

'But is fair with Romanians' future ... The crisis cannot be used as a pretext to forget those with small pensions and salaries.'


After the budget is passed, Boc's government is expected to decide whether to seek loan help from the IMF to replenish its dwindling finances, hit by a slowdown in foreign investment and demand and drying up credit lines from Romania's mostly foreign-owned banks.

Bucharest has already held preliminary talks with the European Commission on a possible multi-billion euro aid package.

'Our goal after the budget is approved, hopefully today, is to define the financing needs to cover the public and current account deficits,' Finance Minister Gheorghe Pogea told Reuters.

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.

Unemployment has risen to almost 5 percent from last year's decade-low of 3.7 percent, while industrial output has shrunk at a double-digit pace in recent months.

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