A tight budget and a credit squeeze will make 2012 a tough year
Dec 10th 2011 | BUCHAREST | from the print edition
AFTER two years of recession and austerity, Romanians could do with good news. So this week’s announcement that the economy grew by 4.4% year-on-year in the third quarter of 2011 was greeted warmly. But the cheer is unlikely to last, thanks to knock-on effects from the euro-zone crisis, a banking squeeze and loan repayments to the IMF due next year. Gheorghe Ialomitianu, the finance minister, describes as “prudent” a 2012 budget that is working its way through parliament. Its measures include a freeze on public-sector wages and pensions, a levy on health care and privatisation of some state assets.
Such moves, the government hopes, will trim its budget deficit to just 1.9% of GDP next year, from 4.4% this year. But this depends on some rosy assumptions, including growth of around 2% and more cash from the EU. The European Bank for Reconstruction and Development recently cut its growth forecast for Romania in 2012 from 3.8% to 1.1%. Yet the banks may present the greatest difficulties. Some 16% of Romania’s banking sector is in the hands of Greek institutions. Most of the rest, including some of the largest banks, are owned by Austrian banks, which have been advised by regulators in Vienna to limit lending to their subsidiaries in order to meet EU capital requirements.
This has not gone down well in Bucharest. Traian Basescu, the president, thundered against banks that had made “huge profits” in Romania getting cold feet during a crisis. Austrian banks have since given reassurances that their Romanian operations are solid and will not be affected. But, just in case, Romania’s central bank is preparing a “bridge bank” that would take over any big local institution threatened by insolvency.
The health-care system is another headache. Overworked and underpaid doctors have threatened to emulate their counterparts in Slovakia, who resigned en masse earlier this month. The Romanian government’s proposed levy, which will oblige patients to pay for a portion of their treatment, has been welcomed by financiers. Part of a drive to privatise the strained post-Communist health-care system, the fee aims to bring in 378m lei ($116m), money that hospitals can then spend on better equipment or salaries. But medical professionals don’t like it. “This fee will hit the most vulnerable and increase inequalities,” says Vasile Astarastoae, head of the country’s medical council.
To add to the squeeze “social contributions” will continue to be levied on all revenues, including pensions and rents, and an increase in value-added tax passed last year will stay despite calls from foreign investors to lower it again. Red tape and corruption are still a plague, and court procedures are lengthy and inconsistent. One of the country’s most senior judges, Gabriela Birsan, is under investigation for allegedly accepting bribes in exchange for issuing favourable verdicts.
Almost half of Romanians tell pollsters they believe the economic crisis will last for more than three years. Two-thirds say they have been affected by redundancies or wage cuts. Only 7% approve of the government’s handling of the crisis. Bracing for stormy times ahead seems sensible.
from the print edition | Europe