Friday, March 27, 2009

Romania braces for IMF-linked spending cuts

BUCHAREST (AFP) — Romania now has a buffer against the global crisis with a 20-billion-euro international loan agreed this week but the reforms that come with it could impose a heavy burden, analysts said.

"This agreement is important but it comes at a price -- an austerity programme," Doru Lionachescu, an analyst at Romanian investment bank Capital Partners, told AFP, saying the deal would "without a doubt lead to cuts."

The people who will be most affected by the spending cuts are believed to be civil servants and pensioners -- the same people who were promised more money ahead of parliamentary elections last November while Romania was still booming.

Romania's gross domestic product grew by 7.1 percent last year, making the former communist country one of the fastest-growing European Union economies.

In 2009, experts forecast the economy could shrink by up to 4.0 percent.

And, following a collapse in revenues due to the global downturn, Romania's government has said it will freeze civil service salaries and drastically reduce the bonuses that sometimes doubled or even tripled wages.

On Wednesday, Romania was given a loan totalling 20 billion euros (27 billion dollars) by the International Monetary Fund (IMF), the European Union, the World Bank and the European Bank for Reconstruction and Development (EBRD).

Trade unions warn there could be protests if the loan leads to major cuts.

"We are the ones who will have to pay the price for this loan, that's why we want to know what to prepare ourselves for," Marius Petcu, leader of the trade union federation CNSRL, said at a recent meeting with President Traian Basescu.

Dumitru Costin, head of the National Trade Union Bloc BNS, said: "Our fear is over the policies that the government will propose to respond to the demands of the IMF," adding there could be "job cuts" instead of public sector reforms.

But most analysts believe the risk of social unrest or political instability in Romania is lower than in Hungary or Latvia, two other ex-communist states that are now members of the European Union and have received IMF loans.

"Judging by economic indicators, Romania is in a better position than Latvia or Hungary," said economics analyst Aurelian Dochia.

"Its trade deficit has already started going down, while the government is taking measures to reduce the public deficit," he added.

But Dochia said Romania was still distrusted by international ratings agencies, which gave Hungary a better image despite its higher deficits.

Lionachescu added that Romania would however get better treatment by the IMF than other debtors since it had advantages such as "a healthy banking sector."

"The agreement with the IMF is the price we have to pay for the past few years in which we have spent in an irresponsible way, showing that we're not capable of managing the economy on our own," he concluded.

No comments: