Financiarul

The conditions under the stand-by arrangement between Romania and the International Monetary Fund (IMF) are burdensome to Romanians, Executive Director of the Group for Applied Economics (GEA) told on Friday in an statement.

‘If we read carefully, we will see that all pay bonuses, incentives and benefits will have to be limited off to 30 percent of the base pay.

Probably that should have been natural, but for that to happen the base pay should have had to be higher.

Given that these extra amounts were a way of increasing a small paycheck, we are witnessing a painful requirement.

In the public sector, there will be quite high pay cuts. Virtually, there will be a 25 percent diminution of the pay funds in the following three years.

That means either freezing pay and cut the public staff by 25 percent, or cutting the pay by 25 percent, or both, to smaller extents.

There has been no talk of pay and pension indexation to account for inflation.

In the case of pensions, their rise commensurate to the inflation rate virtually means, compared with the previous years, a slowdown, because pay rises outgrew inflation.

Inflation-based indexation leads to a stagnation in Government’s pension spending in real terms. Yet, I cannot abstain myself from underscoring that if the public pensions are adjusted for inflation, it will be all the more logical that private pensions should be adjusted for inflation as well.

On the other hand, there has been talk of investments, which value was put at 10 billion euros for 2009. Under the IMF arrangement, capital spending is limited to 3.5 percent of the Gross Domestic Product (GDP) in 2009, which means less than half of what we knew investment to be this year, including infrastructure investment.

It is there, in black and white, in the annexes to the arrangement that investments in 2008 stood at 4.6 percent of the GDP, while in 2009 they have to be cut down to 3.5 percent of the GDP.

A careful reading of the arrangement, as I was saying, particularly of the annexes thereof, allows us to deduce the estimated value of the single European currency against Romania’s national currency, the leu (RON), as the GDP value is presented both in RON and euro values. Hence, the projections of the exchange rate of the RON against the euro in 2009 should be RON 4.43 to the euro.

A parameter that Romania can possibly meet is inflation, because a decline in consumption will lead to falling inflationary pressures.

On the other hand, I believe Romania will be hard pressed reaching the projected level of Government deficit, because even with all the assumed spending cuts, the revenues will be hard to obtain.

In the projections included in the annexes to the arrangement, revenues are predicted to stagnate, which does not mean a rise in real time, as long as the GDP is forecast to decline.

So, either Romania will overshoot the Government deficit targets, or it will further cut spending in order to reach them. There are not enough fiscal guarantees to help narrow the deficit,’ said Voinea.