Friday, May 21, 2010

Romanian Premier to Seek Confidence After IMF Letter

By Irina Savu

May 20 (Bloomberg) -- Romania’s government will seek a confidence vote in parliament after it signs a letter to the International Monetary Fund on May 26 outlining austerity measures it plans to take, Prime Minister Emil Boc said.

Boc’s coalition administration, which holds 258 votes in the 473-seat parliament, plans to cut wages by 25 percent and pensions and unemployment benefits by 15 percent from June to unlock payments from an international bailout led by the IMF.

“The decisions are very difficult and the alternatives very few,” Boc told reporters in Bucharest today. “We either raise taxes or cut spending. Unfortunately the economic crisis deepened in 2010 and forced us to take harsh measures to cut pensions and wages.”

The European Union’s second-poorest member is relying on a 20 billion-euro ($25 billion) IMF and EU loan to resurrect its economy, mired in the worst recession since it abandoned communism. The economy shrank 2.6 percent in the first quarter and may contract as much as 0.5 percent this year, the IMF forecasts.

The government must pass the austerity package by June 15 to unlock around 2 billion euros in payments and meet its budget deficit goal of 6.8 percent of gross domestic product, as agreed under the bailout, President Traian Basescu said on May 13.

Labor unions and the opposition say the measures will spark a social and political crisis and want further negotiations with the IMF. The unions failed to reach an agreement with the government during talks today and said they will call a general strike on May 31 if the austerity measures are approved. Both sides pledged to hold further discussions in the next week.

Finance Minister Sebastian Vladescu, who attended the press conference today with Boc, said changes to the contents of the letter outlining the government’s cost-savings steps would be an error.

“The alternative is to pay lower wages and pensions, or stop paying them at all from December,” Boc said.

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