Friday, September 3, 2010

Romanian PM shakes up cabinet

BUCHAREST, Romania (AP) -- Romania's unpopular government plunged temporarily into turmoil Thursday after the prime minister fired five Cabinet ministers and named new ones, with the economy minister also saying he will quit.

Romania is mired in recession and the government has slashed public sector wages by a quarter and hiked sales tax from 19 to 24 percent on July 1 to reduce the budget deficit -- measures derided by Romanians but requested by the International Monetary Fund.

The cutbacks are aimed at meeting conditions for a euro20 billion ($26 billion) loan from the IMF, the European Union and the World Bank to bail the country out of serious financial difficulty it encountered last year, when its economy contracted by 7.1 percent. Some of the money was used to pay pensions and wages.

Prime Minister Emil Boc fired the finance minister, labor minister, agriculture minister, transportation and communications minister, saying it was necessary to continued economic reforms. Economy Minister Adriean Videanu has told Boc he wants to quit the government to return to party business.

Boc said he chose the new Cabinet based on professional merits, but critics accused him of firing the ministers to strengthen his own hand.

Boc named six replacements, relieving some of the immediate political instability. But there were concerns that the new economy and finance ministers are little known names in Romania. Boc did not fire any of the ethnic Hungarian ministers, likely because he counts on the support of their party in Parliament.

Finance Minister Sebastian Vladescu criticized his firing saying it was politically motivated. Earlier this summer, he was chastened by Boc for saying that Romania would scrap the flat personal income tax in favor of a progressive tax system that taxes top earners at a higher rate. Vladescu had played a key role in IMF negotiations.

David Oxley, an emerging market economist for Capital Economics in London said: "The question is whether there is the political will to make the cutbacks. Will (the firings) affect the political will?" he told the Associated Press.

Several key members of the governing Democratic Liberal Party called for Boc to resign. The government's popularity has plummeted in recent months because of spending cuts, but also due to a growing dissatisfaction with President Traian Basescu, who is seen as playing a key though informal role in government affairs.

The leu, Romania's currency, dipped by 0.3 per cent following the news.

The IMF has predicted that Romania's economy will shrink by 1.9 percent this year, in 2009, before returning to growth in 2011.

The opposition Social Democrats have said they will file a motion of no-confidence, but it is not clear whether it can succeed because Boc's Democratic Liberal Party has the support of minority ethnic Hungarians whose party is also in government.

Political instability has plagued Romania in the last year before presidential elections that Basescu won. Boc's previous government collapsed last year which led to the temporary suspension of Romania's IMF agreement

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