Monday, June 28, 2010

Romanian court: Some budget cuts unconstitutional


By ALISON MUTLER (AP)

BUCHAREST, Romania — A top Romanian court ruled Friday that some of the austerity measures proposed by the government were unconstitutional — a move that will likely delay a crucial multibillion loan from the International Monetary Fund.

The ruling by the Constitutional Court, whose decisions on constitutional matters cannot be appealed, came after dozens of Romanians tried unsuccessfully to storm the presidential palace to protest the measures and gain an audience with President Traian Basescu.

Riot police repelled those who tried to force their way past barricades into the 17th-century palace.

Prime Minister Emil Boc said he would present alternative measures to reduce spending and qualify for the loan from the International Monetary Fund. He declined to say what steps he would take until he had consulted with the fund and the World Bank. The government is thought likely to try to raise the sales and income taxes.

Jeffrey Franks, the IMF's mission chief for Romania, said in a statement the fund was assessing the court's ruling. A meeting previously scheduled for Monday in which the board was to decide whether to disburse the next installment of the loan was cancelled.

However, Boc said he hoped Romania could stay on track for the IMF loan.

The court did not publish its reasons for ruling. Romanian media and unions said the reason was that Romanian law forbids cutting pensions that are based on worker contributions. They said that salary cuts are not unconstitutional and the government may still go ahead with them.

The government had proposed cutting pensions by 15 percent and public sector wages by 25 percent.

Romania's currency, the leu, lost more than 1 percent of its value after news of the court decision, with a rate of 4.28 lei to the euro, and 3.49 lei to the dollar.

Romania negotiated the euro20 billion ($24.49 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.

National Bank of Romanian official Eugen Radulescu called the court ruling "disastrous" for Romania saying it sent a "very bad message." The country may have difficulty in borrowing from foreign markets, he said in an interview with The Money Channel television station.

Boc's government needs to keep the budget deficit at no more than 6.8 percent to secure the loan.

The World Bank declined comment. The IMF office in Romania also it had no immediate comment.

Deputy Prime Minister Bela Marko said one solution may be for the government to increase the nation's sales and income taxes. "In my opinion.... there is no other solution," he said on television.

Romania has about 5.5 million retirees and only about 4.3 million employees — from which about 1.36 million are public sector workers.

Associated Press Writer Alina Wolfe Murray in Bucharest contributed to this report

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