Romania Economy At A Crossroads – Central Bank Governor

„We must choose a model, because the one we have now isn’t a model … I am concerned about the quality of the public debate, because we insist on a social model with low revenue,” Isarescu told a news conference.

„Such a state doesn’t exist anywhere in the world … This is a non-model,” he added.

Isarescu said Romanian public expenditure reaches 40% of the gross domestic product, while the revenues are at around 30%-31% of GDP. The figures point to a budget deficit of around 9% of GDP, but the imbalance may vary, he noted, adding that cutting spending is the best solution to lower the deficit.

Romania aims to a budget deficit of 5.9% of GDP this year, from a gap of 7.4% of GDP in 2009.

„Reaching the budget deficit target while maintaining a high level of government arrears is the worst (solution),” Isarescu said. „Reducing the level of investments is equally bad.”

Romania and the International Monetary Fund are discussing several modalities to increase budget revenues, including possible tax hikes, Finance Minister Sebastian Vladescu said early this week.

According to participants in the talks between Romanian and IMF officials, the international institution could allow the country run a higher budget deficit in 2010, provided the authorities agree to increase the tax levels.