From International Lenders to European Funds

Bucharests plan to reduce social security contributions was not accepted by the international lenders.

Bogdan Matei, 16.06.2014, 13:16

After consultations with government and opposition leaders, with bankers and with businessmen, the IMF, EC and World Bank assessment mission ended without a new letter of intent being signed. The international experts and the government failed to reach an agreement on the 5% reduction of social security contributions, which the Ponta Cabinet intends to implement as of October the 1st.

PM Ponta says the budget has enough resources for this and the measure will not require new tax increases or the widening of the budget deficit. The PM insisted that the current stand-by loan agreement remains valid, but will not be renewed, as Romania does not intend to access these funds anyway. Economic analyst Aurelian Dochia is rather cautious:

Aurelian Dochia: “Without further agreements with the IMF, we may wonder about the economic policies that the government will implement, in the absence of the constraints usually imposed by the Fund. Our experience so far suggests there are certain risks in this respect. On the other hand, I think eventually we must move on from this stage and be able to stand on our own feet.”

Political analysts are even more suspicious of such populist measures being taken in an election year. But the Cabinet is quick to retort, and says Romania will have plenty of resources, because its agreement with the EC on the allotment of new EU funds will be signed by the end of the year. According to Minister Eugen Teodorovici, by end-2015 as much as 80% of the budget earmarked to Romania for 2007-2014 will have been spent.