Monday, May 10, 2010

Romanian unions threaten strikes over IMF cuts

Fri, May 7 2010

By Luiza Ilie

BUCHAREST (Reuters) - Romanian unions on Friday threatened a wave of strikes which could cripple hospitals, schools and public transport in protest against draconian wage and pension cuts.

President Traian Basescu announced the cuts on Thursday, saying they were needed to ensure continuation of a 20 billion euro aid package led by the International Monetary Fund and would prevent higher taxes and a run on the currency.

Romania's powerful unions will meet Basescu on Sunday, before an IMF review mission leaves Romania and leaders said protests similar to those seen in Greece could be launched if they do reach an accord.

"The likelihood that we will strike is big as long as these draconian measures are not abandoned," said Marius Petcu, head of CNSLR Fratia union, which represents about 800,000 people.

"I think in two weeks we will know whether we will strike. We are talking about hundreds of thousands of people that need to be consulted."

Romania has so far largely avoided the protests which have rattled governments in other east European states such as Bulgaria, Latvia and Lithuania in recent years, but it now faces a wave of action.

Economists say the government cannot afford to be swayed by protests and strikes and will have to enforce austerity measures regardless to shore up shaky finances in the European Union's second-poorest member state.

Uncertainty over domestic fiscal policies and concerns over spillover effects from the Greek debt crisis have already knocked Romanian asset prices this week, hitting the leu currency and shares and raising the risk premium on debt.

BLOATED STATE SECTOR

Romania has pledged to reform its highly unionized public sector, which accounts for a third of all jobs, under its deal with the IMF.

The state payroll swallows 9 percent of gross domestic product, a figure experts say is twice as high as it should be. Overall, state wages, pensions and social benefits account for 62 percent of the budget.

"Strikes are likely to happen and intensify, but at the end of the day I don't think they will seriously derail the change because...there isn't a real other viable option," said Raffaella Tenconi, chief economist at Wood&Co in Prague.

"The fiscal situation in Romania needs to be addressed and we're in the middle of a major financial crisis."

Basescu said public sector wage bill will be cut 25 percent from June and pensions and jobless benefits would fall 15 percent, but details on how the cuts will be enforced are expected at the end of an IMF mission visit next week.

Even with those proposed cuts, Romania will still run a larger deficit than initially envisioned -- it said on Friday it would be under 7 percent of gross domestic product in 2010, effectively admitting it would miss an IMF target of 5.9 percent -- as the economy has continued to struggle.

(Editing by Angus MacSwan)

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