BUCHAREST, Feb 10 (Reuters) - Romania's centrist government approved a plan to reform the country's outdated communist-era pension system on Wednesday, key to keeping a multi-billion euro International Monetary Fund-led rescue deal on track. Analysts say scrapping thousands of "privileged" pensions of magistrates, army and policemen and raising the retirement age will be a litmus test for the fragile cabinet's ability to enforce painful reforms aimed at safeguarding the recession-hit economy.
Under the IMF-led deal, the two-month-old government of Prime Minister Emil Boc committed to approve the pension bill in February and help it clear parliament, where it controls only a slim majority, by the end of June.
Commentators expect the pension reforms to face strong opposition from the powerful leftists who have advocated a 12 percent hike against a nationwide, IMF-endorsed pay freeze this year.
Meanwhile, some trade unions have threatened to stage nationwide protests this month and next against plans to sack 100,000 state employees while others have demanded compensation equivalent to 12 months' pay for those whose jobs are axed.
"Romania and Romanians need this law. We need a new pension law that ... must ensure sustainability of the system on medium and long term," Boc told reporters.
"The lowest pension in Romania is 350 lei ($117.2) and the biggest is 37,000 lei ... 100 folds (difference) is too much."
The plan, backed by an already enforced nationwide pay freeze throughout 2010, aims to review state pensions from 730 euros to as much as 9,000 euros per month, and cut those pensions calculated in a "discriminatory way," Boc said.
He said the reassessment of state pensions would bring state coffers 500 to 800 million euros worth of savings.
The Washington-based lender had successfully completed a review of the 20 billion euro ($28 billion) aid package last month, recommending its board unlock tranches halted last year due to political turmoil sometime in mid-February.
The decision, driven mostly by Romania's approval of an austerity 2010 budget, will also free up European Union aid, raising the combined amount of loans to 3.3 billion euros for February/March release.