Monday, September 27, 2010

Romanian Civil Servants Strike, Testing Cabinet's Will to Meet IMF Goals

By Irina Savu and Andra Timu - Sep 26, 2010


Romanian government office workers go on strike today to overturn pay cuts amid a wave of protests that are testing Prime Minister Emil Boc’s will to continue austerity measures in the face of efforts to topple his Cabinet.

About 34,000 clerical employees plan to remain idle at their desks until the government reverses a 25 percent cut in wages designed to narrow the budget deficit and comply with terms of an International Monetary Fund-led bailout.

The opposition Social Democrats and Liberals say they will try to oust Boc in the second half of October as the IMF forecasts the economy will shrink 1.9 percent this year, extending Romania’s worst recession since the end of communism. Boc’s coalition, with 258 seats in the 471-member parliament, survived a June no-confidence vote by eight votes.

“If the unions manage to get many people out into the streets, this may create pressure on government lawmakers,” said Cristian Parvulescu, a political analyst at Asociatia Pro Democratia, a Bucharest-based non-profit that promotes democracy. Boc’s party includes “former union leaders who may feel extra pressure to vote against the government.”

Romania, which joined the European Union in 2007, is relying on 20 billion euros ($26 billion) of loans from the IMF, European Union and others to fuel an economic recovery.

To qualify for the loans, Boc’s government has cut state wages, increased the value-added tax by 5 points to 24 percent and boosted the retirement age for men and women to 65. The Cabinet has also announced plans to eliminate 74,000 jobs.

Opposition Support

As many as 8,000 police demonstrated outside the prime minister’s office in Bucharest on Sept. 24, demanding Boc’s resignation and a reversal of the austerity measures. Two days earlier, almost 10,000 public employees staged a protest in front of the Labor Ministry.

Anger over the government’s program has boosted support for the opposition.

The Social Democrats were supported by 37.1 percent of voters, compared with 14.6 percent for Boc’s Liberal Democrats in a survey of 1,093 people conducted Sept. 9-13 by GSS 2000. The poll, commissioned by the opposition Liberals, had a margin of error of 3 percent.

Raffaella Tenconi, an economist at Bank of America/Merrill Lynch in Bucharest, said she expects Boc’s government will survive the confidence vote, though further fiscal consolidation will be “very challenging” given the depth of the recession.

“We are not surprised to see growing popular discontent given the recently announced austerity measures,” she said. “We expect this trend to continue in coming months, accentuating the low popular support for the ruling party PDL.”

European Discontent

Workers across eastern Europe are taking to the streets to protest budget cuts after the global financial crisis slashed tax revenues and investment flows. The EU is demanding that all of its members bring their budget deficits in line with the bloc’s limit of 3 percent of GDP after Greece’s ballooning debt undermined confidence in the euro.

Tens of thousands Czech firemen, policemen and other state workers rallied Sept. 21 in Prague to protest planned wage cuts, while Slovak unions plan demonstrations against proposed tax increases. Serbian union leaders plan protests before the end of the month against a proposed overhaul of pensions that would include benefit cuts and raise the retirement age.

“It’s an experience from all over Europe that austerity measures, which very often include budget cuts, are leading to similar demonstrations,” Czech Prime Minister Petr Necas said at the rally against his government’s plans. The moves “are quite naturally unpopular.”

‘Delicate Situation’

The decline of Romania’s economy, which contracted a 7.1 percent last year, slowed in the second quarter as demand for goods such as cars, chemicals, steel and textiles increased in western Europe. GDP shrank 0.5 percent from a year earlier, after a 2.6 percent decline in the previous three months, according to the National Statistics Institute in Bucharest.

Parliament approved Boc’s government in December, ending a stalemate that had left Romania without leadership for more than two months and delayed payments from international lenders. Boc replaced six members of his Cabinet, including the finance and economy ministers, on Sept. 2 in an effort to shore up support for his program in the face of increasing protests.

Romania’s political squabbles have helped weaken the country’s currency. The leu has dropped 1 percent against the euro during the past 12 months, the second-worst performance among 25 emerging-market currencies tracked by Bloomberg.

“Boc’s Cabinet is already facing an extremely delicate situation, and it will lead a hard life if it survives the planned confidence motion,” said Alexandru Cumpanasu, political analyst and deputy head of the Association for Implementing Democracy, in a phone interview. “If we see more protests on a bigger scale in October, then the pressure on lawmakers to vote for the motion will be huge.”

To contact the reporters on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez in Prague at jagomez@bloomberg.net

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