Wednesday, December 29, 2010

Romanian Court Backs Cabinet, Upholds 2011 Budget, Wage Law

Romania’s Constitutional Court ruled the 2011 state budget and two wage laws are legal, backing the Cabinet in pushing forward with key conditions for the next disbursements under the country’s international bailout plan.

The nine judges of the court said the state budget, which seeks to reduce the deficit to 4.4 percent of gross domestic product from a goal of 6.8 percent this year, is constitutional, rejecting a challenge by the opposition, said Augustin Zegrean, president of the Bucharest-based court, in a phone interview. The Court also said wage bills, which raise public salaries 15 percent in 2011 and tie future increases to professional performance and experience, are legal.

Romania, going through the second-deepest recession in the European Union after Greece, has been trying to pass the 2011 budget and a package of wage bills to curb public spending, narrow the budget deficit and satisfy international lenders. The country stands to receive 2.4 billion euros ($3.2 billion) in payments through March from the 20 billion-euro bailout provided by theInternational Monetary Fund, the European Union and the World Bank if it passes the austerity measures.

The Liberal and the Social Democratic parties have been trying to topple Prime Minister Emil Boc’s cabinet since it cut public-sector wages 25 percent and increased a value-added tax to 24 percent. Boc survived four no-confidence votes since June, two of them last week over the wage bills. The opposition challenged the laws and the state budget to the Constitutional Court as a last resort to prevent them from being applied.

Romania’s economy will probably contract 2 percent this year after shrinking 7.1 percent in 2009 as government austerity measures damp demand, the IMF forecast on Nov. 1. The economy will probably return to growth in 2011 as the government seeks to invest 35 billion lei in infrastructure to stimulate the economy, the IMF said.

The 2011 budget envisages economic growth of 1.5 percent. It foresees state revenue of 179.2 billion lei, or 32.9 percent of GDP, and spending of 203.2 billion lei, or 37.3 percent.

The IMF’s board is scheduled to meet in early January to review Romania’s progress. A mission from the lenders is due to return to Bucharest at the end of January to start talks on extending Romania’s current bailout agreement, which expires in April. The new loan may be worth between 6 billion euros and 8 billion euros, Mediafax news service reported on Dec. 21.

To contact the reporter on this story: Andra Timu in Bucharest at atimu@bloomberg.net.

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

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