Romania braces for IMF-linked austerity cuts

(BUCHAREST) - Romania braced Friday for a wave of protests after the president unveiled austerity cuts in public sector wages and pensions to meet a deficit target set by the IMF and avoid a Greek emergency scenario.

"This programme to cut public expenses was inevitable," President Traian Basescu said during a press conference on Thursday after a meeting with IMF and European Union representatives in Bucharest.

Wages in the public sector are to be cut by 25 percent, Basescu said, adding that "all salaries, including the minimum one, will be affected."

Pensions will be slashed by 15 percent, just like unemployment benefits.

These cuts should help Romania "avoid an extremely difficult situation, generated not so much by what is going on in its own economy, as by developments in the region," he said, in a reference to the Greek crisis.

Romania last year pledged to trim the bloated civil service and freeze public wages and pensions in exchange of a 20-billion-euro aid package from the IMF, the European Union and the World Bank.

But with reforms slower than expected, the deficit threatened to balloon beyond the 5.9 percent target set by international lenders.

Moreover, the IMF has reduced Romania's growth forecast for 2010 from 1.3 percent to 0.8 percent. In 2009, its economy contracted by 7.1 percent.

Basescu's announcement came as the IMF prepared to give its verdict on whether or not to give Romania a fifth instalment of the loan package.

Basescu said the government had chosen the "bitter pill" of slashing public spending instead of raising taxes.

The cuts will be effective from June.

"Hoping economic growth will return, wages can be restored to their present level in 2011," he added.

The measures are likely to trigger massive protests from civil servants, who have threatened to go on strike is their wages are slashed. The average wage in Romania is around 350 euros (445 dollars).

"The social protests will be tougher than in Greece, because the cuts will mainly affect the low-income civil servants," Bogdan Hossu of the Cartel Alfa trade union told Mediafax news agency.

But Basescu said the "fat state" could not keep on growing at the expense of a "slim" private sector.

"More than 60 percent of the public revenues go to public wages, pensions and other benefits. Then where can we find money for schools, hospitals and the military?" he asked.

Central bank governor Mugur Isarescu said: "Since 2007, public expenditure per year has been around 40 percent of the gross domestic product while revenues barely stood at 30 to 31 percent. Things cannot go on like this."

While the private sector has borne the brunt of the crisis, with tens of thousands of jobs axed, "all decisions on adjusting the public sector have been postponed," he stressed, warning Romania was "at a crossroads."

The Balkan country hopes to join the eurozone in January 2015.

"But if we take steps in the wrong direction we'll be moving farther from this target," Isarescu said.