Thursday, December 3, 2009

Romania leftists to resist IMF-prescribed job cuts

BUCHAREST, Dec 2 (Reuters) - The party of Romania's leftist presidential frontrunner Mircea Geoana will resist the huge state job cuts the IMF says are key to shoring up public finances if he wins Sunday's election, a senior party member said.

'We have argued, even in front of the IMF, that we do not support collective lay-offs,' Constantin Nita, the leftist Social Democrat Party's economic policy adviser and likely cabinet member in a potential Social Democrat-led government told Reuters. 'I am for gradual public sector reform.'

Nita made his comments in response to questions in a email received on Tuesday.

Analysts say if Bucharest fails to meet its pledge to the International Monetary Fund to trim the sprawling state sector, where employee numbers and pay spiralled higher this decade, it could hurt a 20 billion aid deal and stifle long-term growth.

The Washington-based lender put the deal on hold in November due to a political crisis and has said it will resume talks once parties agree on a new government and cost-cutting budget.

While it has not specified what steps Bucharest should take to lower its gaping deficit, the IMF has recommended it sack up to 150,000 of its 1.3 million public sector workers.

The proposal has fanned social unrest as the economy is seen shrinking by up to 8 percent this year and sparked a protest of 800,000 state workers in October.

Geoana took a strong lead this week in an opinion poll over incumbent President Traian Basescu. The winner will name the next prime minister and can influence his cabinet's policy.

When asked whether a Social-Democrat-led government would seek to re-negotiate conditions of the IMF deal as some of his party members have suggested, Nita said:

'Re-discussing the deal does not necessarily imply a relaxation of conditions Romania must meet. We will seek to redirect macroeconomic policies to raise economic competitiveness while meeting deficit and inflation targets.'

Romania's public sector employs about a third of total workers, and roughly 162,000 more, or more than 10 percent, were added from 2005 to 2008. By comparison, Hungary's big state sector accounts for some 18 percent of jobs.

NOT GOOD ENOUGH

Instead of cuts, Nita said a Social Democrat-led government could continue phasing out jobs left open by retiring workers and enforcing performance criteria for staff at state companies and local administrations, among other measures.

He also said the government could save funds by reducing tax evasion and hiking fees for exploiting natural resources.

'The 2010 budget must be credible,' Nita said. 'International bodies and the private sector must be convinced by a realistic budget that satisfies both nominal and real convergence needs.'

But analysts said such moves would not be enough, and avoiding mass lay-offs would likely prevent Romania from lowering its budget gap to 5.9 percent of gross domestic product next year, from a 7.3 percent target now.

It would threaten the IMF-led aid deal and block Bucharest from cutting the public sector wage bill to about 7 percent of GDP by 2015, as it has agreed with the IMF. The bill is now at 9 percent, very high for a developing state.

'A country like this should be in a 4 or 5 percent range,' saidBarclays ( BCS - news - people ) Capital economist Daniel Hewitt. 'They will obviously have to do something with the overall wage bill, either cutting wages, cutting workers, or both.'

In contrast to leftist plans to shield jobs, incumbent Basescu and his allies in the outgoing centrist government have pledged to meet the IMF's demands.

Basescu is seen as more committed to reforms, but his combative style has also alienated supporters. Meanwhile, Geoana has sealed a deal with the centrist Liberal party and analysts say he can meet his goal of forming a government by Christmas if he wins as expected.

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