Long-Term Plan Long Needed for Romania

The 15 June vote was prompted by a motion filed by the opposition Social Democrats in a bid to bring down Prime Minister Emil Boc's government on the heels of the administration's unpopular austerity plan. Opponents stated that the tools deployed by the Boc administration to reduce the country's  budget deficit and stay within the targets set in an IMF agreement to qualify for the next installment of a €20 billion loan jeopardize any chances for success and will further polarize society.

The main issue is the administration's decision to enact an across-the-board cut in pensions and salaries for civil servants, accompanied by cuts in benefits to children, young families, the disabled, and cease subsidies to heating, health and education programs, and farmers, while leaving the rich and the executive government's political allies untouched.

Further criticism stems from the administration's appeal to solidarity and nationalism to sell its cost-cutting plan, which consisted of a 25 percent cut in salaries and a 15 percent cut in pensions, while retaining the roughly 400,000 people it had hired over the past three years and refusing to cut managerial salaries of state-owned companies, which are several times higher than the salaries of the president or prime minister.

The government's cost cutting plan prompted tens of thousands of Romanians to take to the streets in May in protest, gathering at Bucharest's Piata Victoriei to vent their anger and even pelting a top official with water and stones after a live televised debate. But on the day of the no confidence vote only some 5,000 people converged on the Parliament, casting thus doubt on the ability or willingness of the trade unions leaders to commit to long-term protests.

Initially the Boc administration stated that the measures were handed down from the International Monetary Fund (IMF), a claim that was dismissed by IMF director Dominique Strauss-Kahn, who actually criticized the plan as too hard on the general population. On the other hand, the IMF has stated that the government's measures were likely to keep the 2010 budget deficit on track for its agreed targets.

The short history of long-term planning

The government's planning woes stem from the inability to formulate a viable long-term economic plan, which is causing concern in the nation's economic circles.

According to Napoleon Pop of the Institute for Economic Research, one mistake was that the government took the euro convergence plan as a substitute for a genuine Romanian development vision.

"We should really stop and take stock of what we achieved so far while not being shy about going back to the economic basics, as laid out in school textbooks,” Pop, who is in charge of his institute's initiative to form a prospective long-term economic plan for the Romanian government, told ISN Security Watch. The plan will be submitted next month.

"We should really be frank about it: Do we want a true market economy, or do we want to call that way what in fact was a nationalization of losses and a privatization of profit?

"Did we not hand over public institutions and the leverages for reform to political cronies thus losing professionals and professionalism in these most crucial places? And while hailing publicly the middle class formation, were the laws passed not polarizing the society into the very rich and the very poor, with no middle class inbetween?” he continued.

According to Cornelia Scutaru, editor-in-chief of The Romanian Journal of Economic Forcasting, an economic prognosis developed by the Romanian Academy, an academic institute, predicts a mere but still positive 0.3 percent GDP growth, with unemployment at 8.7 percent, inflation at 5.3 percent, and public budget deficit at 6.7 percent. These numbers would keep the Romanian economy in line with the 2010 IMF targets.

But the scenarios needed to achieve these measures are many: Budgetary expenses would need to be cut and fiscal rules stabilized. Along with this, the administration would have to complete an EU structural fund-matching scheme and institute reforms.

Scutaru told ISN Security Watch that government must deliver on these points or else risk plunging the country into a downspiral of negative growth, rising unemployment and inflation rates.

"The problem lies, on the one hand, with a long-standing tradition in Romanian politics to have superb short and medium-term plans that are never brought to fruition," Central Bank spokesperson Mugur Stet told ISN Security Watch. "And, on the other hand, with a genuine lack of long-term vision as to where the country should be at in terms social development.”

However, when asked what could prevent the current plan from being yet another failed plan for development, Stet said: "If I knew the answer to that question, I would go running into the public square and scream it at the top of my lungs.”

Top dog vs underdog

After its efforts to bring down the government failed, the opposition made a final effort last week to stop the Boc plan from being implemented by asking Constitutional Court to assess if the cut in pensions and salaries complied with the Constitution.

The Court will decide on Thursday; the decision will be final. The opposition's prospects are dim, as a majority of its judges were appointed by President Traian Basescu, who also appointed Boc.

Meanwhile media reports abound on how far heating bills will rise this winter. The administration has promised to reinstate the subsidies only for the poor. However, neither the exact amount of the subsidy nor the income threshold has been announced.

What is clear though is that many industries enjoy gas and electricity at lower rates than the population does, which begs the question of how consistent the administration is in its policies and whether its goal is economic reform or to punish the population in a haphazard, irrational way.