By Radu Marinas and Luiza Ilie
BUCHAREST, Dec 16 (Reuters) - Romania's newly re-elected president pledged to modernise the EU member's bloated public sector on Wednesday as officials agreed with the IMF on steps to cut next year's deficit and unlock frozen aid.
Following a knife-edge runoff victory on Dec. 6, Traian Basescu began talks with parties on forming a new government and ending a political crisis that has stalled a 20 billion euro ($29.07 billion) rescue loan package.
He said his main task would be to overhaul the sprawling, inefficient public sector, which analysts say is a drain on state finances and harmful to private-sector growth.
"My top goal at this moment is modernising the Romanian state," Basescu said after the Constitutional Court confirmed his victory for a second five-year term.
"The costs of the state are a heavy burden on the shoulders of Romanians. We must simplify the public sector so that its resources are available for Romania's development."
With 1.3 million workers, the state sector accounts for a third of jobs and its payroll swallows 9 percent of gross domestic product, which analysts say is about twice as expensive as it should be.
It also has a murky bonus system that awards income far exceeding comparable private sector jobs to a select few and is a breeding ground for the endemic graft that has led Romania to be ranked the most corrupt country in the European Union.
Economists say trimming the state sector is key to meeting International Monetary Fund demands to cut the 2010 budget gap to 5.9 percent of GDP from an estimated 7.3 percent this year.
BUDGET, GOVERNMENT, CUTS
Basescu narrowly defeated opposition Social Democrat leader Mircea Geoana in a ballot that the leftist contested in court and has continued to cast doubt on, saying the former ship captain incumbent won through "massive fraud".
Long criticised for confrontations with political rivals, particularly over pursuing politicians for corruption, Basescu called for solidarity to help the country of 22 million emerge from an economic contraction seen at up to 8 percent this year.
Owing to the turmoil, the IMF delayed a 1.5 billion euro aid tranche due this month, but its head of mission said Bucharest had agreed on technical steps to meet its budget gap demands.
"We have reached agreement at a technical level on the measures needed in the 2010 budget to deliver the 5.9 pct of GDP deficit required under the IMF programme," IMF mission chief Jeffrey Franks told Reuters. "It will still be necessary to achieve parliamentary approval of the budget in order to move to disbursement of the next loan tranche."
Sources close to the budget talks say the measures could include more than 100,000 public sector job cuts, an issue that could cause tension in the coalition talks.
To ease the negotiations, prime minister-designate Liviu Negoita stepped aside on Wednesday. Basescu had tapped him last month to lead a minority cabinet replacing centrist Emil Boc, ousted by opposition parties in a confidence vote in October.
Basescu has pledged to form a government quickly based on his centre-right Democrat-Liberal allies and the centrist Liberals or defectors from rival groups. Analysts say he could have a draft cabinet list ready by the end of the week.
Agreement with the IMF on a budget framework would mean little without a government in place, they said.
"I don't think we can talk about a budget without a government," said Nicolaie Alexandru-Chidesciuc, chief economist at ING Bank in Bucharest.
"Once a government is in place, there can be changes in the measures needed to reach certain revenue and spending levels."