What the newspapers say: May 5. 2010

The Romanian Government chooses the easiest way out: the increase in taxes. Elsewhere in the news, Jeffrey Franks, the IMF mission chief, is to announce the financial measures package within seven days. Last but not least, it is possible to have the Romanian Cabinet reshuffled soon.

The Romanian Government chooses the easiest way out: the increase in taxes, Adevarul reads. The foreign funds-lenders do not impose specified measures on Romania, but the Executive’s incapacity to reduce spending led the IMF representatives to propose the increase in the unique tax by 4% and in VAT by at least 5%. Companies and tax payers will be forced to pay up the government’s inefficiency. Investors will think ten times before coming to Romania, the paper goes on.

The Government lost the lenders’ trust one year after they signed the agreement. The IMF resorted to the proposal to increase the taxes to reduce the budget deficit during the negotiations for the fifth loan instalment, sources present at discussions say. The VAT might initially increase to 22%. Sources say the measures might be enforced starting with July 1st.

The Government demonstrated it was incapable of dismissing sufficient state employees and to manage the state benefits. The discussions continue. PM’s advisers told Adevarul that every aspect is being negotiated. The Government needs to convince the IMF that it can limit the budget spending. But the state’s invoice increased by 2.6% in Q1 against the same time last year.

Staff cuts helped, but services and goods swallow pretty much the same amount of funds. Investments were cut to save more. Transport minister Radu Berceanu declared one year ago that IMF was flexible and that Romania was required „soft” solutions. On Monday, he was complaining that investments would involve an increase in the budget deficit and that resuming the economy has to wait.

Government reps admit, one by one, that the Executive’s measures did not have the desired result. 36,000 jobs cut, reforming the agencies and the unique income scheme were not enough. Business people and the Central Bank (BNR) believe an increase in VAT will lead to inflation. Buyers are the first to be hit and investors will be discouraged.

According to Romania Libera quoting sources, Jeffrey Franks, the IMF mission chief, will announce the financial measures package within seven days. The newspaper quotes NewsIn saying the IMF was inflexible in its negotiations with the Government and asked to increase the unique tax from 16% to 20% and the VAT – from 19 to 25%. The Romanian Finance minister denied the rumour on VAT.

Economic analyst Ilie Serbanescu is quoted to say the results will not be significant because Romania is going through an economic downturn anyway. He would go for the increase in the VAT, saying the main „illness” in Romania’s economy is over-consumption, if correlated with production. But economy professor Daniel Daianu says that on short term this might turn out to be a disadvantage if we look at countries like Greece, Portugal and Hungary, where these measures have put a halt on growth, accentuating the recession.

„This is an extreme solution and discussions are difficult. These measures are pro-cyclic; they won’t help, even if they try to restore a budget balance. On short term, they will keep the economy in recession, we will not record growth. In fact, such measures create a transfer from households and economic organisations to the public budget”, he said.

The Unions ask for a low VAT for food. Cartel Alfa president Bogdan Hossu said union members warned the IMF that today’s tax policy is not accurate and that they preferred a differentiated tax. According to him, the current tax policy creates loss and makes consumption impossible, especially for the low-paid. „It is not normal to pay the same VAT for food as we do for luxury products”.

It is possible to have the Romanian Cabinet reshuffled soon, Romanian Regional Development Tourism minister Elena Udrea says, Evenimentul Zilei informs. The Liberal-Democratic Party (PDL) is preparing image changes: some ministers might lose their minister, presidential advisor Sebastian Lazaroiu announces, through ministers such as Udrea.

One week ago, the news read that no wind of change was blowing. Featured by the alleged black list, which has not been made official so far, are said to be Finance minister Sebastian Vladescu, Labour minister Mihai Seitan, Education minister Daniel Funeriu, Mihail Dumitru (Agriculture), Adrian Videanu (Economy) and Radu Berceanu (Transport).

PM Emil Boc has kept quiet until now. But he had promised a reshuffle when the fourth Boc Cabinet was reinstated. Nevertheless, no head is going to fall while the IMF is still in Romania. There is also the theory that an image plus in the eyes of the IMF might be obtained by sacking a few ministers.