President: IMF letter stays the same, no salary and pensions cut would mean new loan in 2011
Romanian president Traian Basescu said the letter of intent which will be sent to the IMF will remain unchanged, as it addresses the budget deficit issues and rejects the International Monetary Fund's initial proposal of flat tax and VAT increase, which didn't solve the main issue. The president also said in a speech after meeting political parties late yesterday evening that the flat tax and VAT increases were included in the documents the IMF brought along to Romania and that these documents are available to show to the head of IMF, Dominic Strauss Khan, if he is in doubt.
Increasing the VAT from 19 to 24 percent, as proposed by the IMF, would have triggered a double digit inflation, at least 10 percent on the current plan of 4 to 4.5 percent.
If the budget salaries and social payments – pensions – were not cut this year, Romania would need a new agreement with the International Monetary Fund in 2011, around EUR 30 billion, said Traian Basescu.
Public salaries make 27 percent of the state budget, while social spending plus pensions, another 36 percent of the budget. Without the spending cut, this year's budget deficit would have reached 9.1 percent of the GDP. The announced 25 percent budget salary and 15 percent pensions cut would keep the budget deficit at 6.8 percent of the GDP.
Basescu also pointed out to the corruption in the public administration, as a response to the accusations of corruption directed to politicians. Clerks are responsible with dealing with funds, not the ministers, Basescu also said. He also asked for transparency and restructuring in ministries.
“If the social pressure is too high, of course no one can become the enemy of their own people, so we won't do what we said we'll do, cutting the budget spending and we could try to get financing from the free market,” said Traian Basescu. But he is convinced Romania will not manage to make these loans because of the situation on the EU financial markets.