BUCHAREST - Romania, still recovering from a painful austerity drive, will have to walk a tightrope between cutting spending and spurring growth no matter who wins polls on December 9, analysts warn.

“Caution seems to be the key word” for both the ruling left-wing USL and the opposition centre-right ARD, said economist Cristian Grosu.

“There is hardly any money left fo ideologies to make a difference,” Grosu said. “With recession threatening the eurozone and the fiscal pact forcing member states to keep their budget deficit below 3.0 percent, Romania will have tremendous difficulties to finance itself,” he added.

Junior finance minister Liviu Voinea, of the USL Social-Liberal Union, said Romania will have no choice but to continue fiscal consolidation. If USL wins the general elections as opinion polls predict, “we will cut inefficient expenses, tighten financial discipline and step up the fight against tax evasion,” Voinea told AFP.

Pressed by the IMF to reduce the deficit, the centre-right government implemented in 2010 a drastic austerity package, which cut public sector wages by 25 percent and hiked value added tax by five points to 24pc.


The cuts were part of a bailout deal concluded in 2009 with the IMF and the European Union which provided the Balkan country with a 20 billion euro ($25.9 billion) lifeline and helped it emerge from a severe crisis.

“The abrupt fiscal consolidation program was necessary but the measures chosen were not appropriate”, Voinea says.

“It is very good that the deficit was reduced, we looked better on a macro-economic level but citizens and firms paid a very high price”, he adds.

The IMF has commended Romania on its newly gained stability but stressed that the focus should now be on steps to achieve sustainable growth.

“Romania has managed a rare performance, cutting its public deficit from 7.4 percent in 2009 to 2.2 percent this year,” Voinea said.

He said the deficit will continue to fall by 0.5 points every year until a balance between public spending and revenue is finally reached.

Since it came to power in May after a no-confidence vote toppled the right-wing government, Prime Minister Victor Ponta’s cabinet has taken steps to restore public wages to their pre-cut levels.

The compensation push should be complete in January. But inflation, which is expected to stand at around 5.0 percent at the end of 2012, has already gnawed at state employees purchasing power, analysts say.

The average monthly wage currently stands at 350 euros ($454).

Voinea stressed that Romania, the second-poorest European Union member, still had a long way to go to catch up with the more advanced countries.

“Of course wages should be raised but only in line with economic growth.”

After emerging from two years of recession, when gross domestic product shrank by nearly 8.5 percent, Romania’s economy has been seesawing.

The 2012 growth forecast has been recently revised down to 0.7 percent from 1.7 percent mostly due to a bad year for farming.

For 2013 the government and the IMF predict the economy will expand by 2.0 percent.

But analysts and investors are more cautious.

“Without political stability, structural reforms and business environment predictability, it is difficult to speak of engines of growth,” the president of the Foreign Investors’ Council (FIC) in Romania, Steven van Gronigen, told AFP.

The head of the French-Romanian Chamber of Commerce, Bruno Roche, said authorities should focus on the sectors likely to absorb the 20 billion euros of European aid set aside for Romania until 2014.

He cited large infrastructure projects, energy and agriculture.

Former right-wing economy minister Adriean Videanu said the key to spur growth was to lower the 16-percent flat tax on personal and corporate income to 12 percent.

“This would help us kill two birds with one stone: stimulate demand and attract foreign capital,” he told AFP.

“With the EU hit by recession we can no longer count on exports to drive the economy.”

Videanu said the public deficit should be under 3.0 percent so that investment in lagging infrastructures may be financed by raising debt more cheaply.

But he added that Romania should keep its target to enter the EU’s ERM 2 mechanism, seen as an anteroom for the eurozone, in 2013, as a guarantee that it will not stray from fiscal discipline.

“Experience has shown that things only go in the right direction when we have to comply with strict conditions,” he stressed.

Voinea, the junior minister, said that Romania could set 2017 as a target to join the eurozone.

“Such an objective would be a catalyst” for keeping the economy on track, he stressed.

In the same line, he added that a new deal with the IMF was “absolutely necessary.”

“External pressure often helps defeat resistance to reforms,” whether it means selling state-owned enterprises or fiscal consolidation, Voinea stressed.