Wednesday, June 30, 2010

Romania to cut wages, not pensions

By ALINA WOLFE MURRAY

BUCHAREST, ROMANIA

Romania's Parliament Tuesday formally ruled that pensions cannot be included in sweeping spending cuts but said public sector wages can be reduced by one-fourth as the government struggles to keep a multibillion dollar loan from the International Monetary Fund on track.

The Constitutional Court ruled last week that planned pension cuts are unconstitutional -- a ruling that prompted the government to announce it would raise sales taxes from 19 to 24 percent to increase revenue.

Finance Minister Sebastian Vladescu said Tuesday the government was forced to hike the sales tax after pension cuts fell through. The government pledged to keep the budget deficit at 6.8 percent of gross domestic product.

Vladescu said the IMF board will meet on July 2 to discuss the disbursement of about euro850 million (US$1037 million) to Romania and then send a mission to the country on July 20.

The uncertainty caused Romania's currency, the leu, to continue to lose ground against the euro. On Tuesday, the euro was trading at 4.3523 lei, a new record low for the leu.

Vladescu said he expected the economy to contract more than estimated in 2010. The IMF's forecast for the country's economic growth this year was between zero and minus 0.5 percent.

Romania negotiated the euro20 billion ($24.67 billion) loan from the IMF, the European Union and the World Bank last year. The loan helped pay state wages when Romania's economy shrank by 7.1 percent.

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