IMF Publishes Romania’s Additional Letter Of Intent To EUR13B Loan

The letter, approved by the government on September 22, includes a series of fiscal and economic policies the country pledged to implement to meet the IMF financial aid terms.

Here are some of the highlights included in the document:

– In order to reduce wage costs, the Romanian government committed to cut all personnel spending in the public sector by 0.3% of the gross domestic product, including a 10-day unpaid vacation, in 2009; another 0.1% of the GDP will be saved by slashing overtime and bonuses, while cutting the number of employees and restructuring payment system are bound to trim public expenditure even further;

– Other current spending will be curtailed compared to the trend in the first half of the year (0.2% of GDP), comprising both discretionary cuts and automatic reductions in local government and decentralized entities’ spending due to lack of own resources;

– Savings from implementation of the pension reform law due to a higher contribution base, better control on fraudulent disability pension claims, and fewer earlier retirements should yield another 0.1% of GDP;

– A freeze on goods and services, pensions (excluding social pensions) and certain transfers, together with increased application of electronic procurement systems and some cuts in goods and services and other expenditures, are expected to yield another 0.9% of GDP;

– On the revenue side, revaluation of the tax base on property taxes and increased excises on tobacco and fuel (already legislated) will contribute 0.3% of GDP;

– To minimize the burden on public finances from state-owned companies, such companies will be will be required to submit draft budgets to the government within 15 working days after the government publishes the annual state budget, while collective bargaining negotiations will not be permitted until the company’s budget has been approved.