IMF and Romanian social partners hold talks

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On a visit to Romania in February-March 2004, International Monetary Fund (IMF) officials held informal consultations with nationally representative trade unions’ confederations and employers’ organisations. The social partners all expressed their support for a reduction in labour taxation, while trade unions also called for an increase in the public deficit. Although the government seems to be in favour of such demands, at present it faces difficulties in accommodating a number of contrasting pressures.

Over 19 February-5 March 2004, a group of experts from the International Monetary Fund, IMF) visited Bucharest with the aim a preparing a 'precautionary stand-by' agreement with Romania, which should come into force in May 2004. According to the IMF office in Bucharest, a letter of intent on the agreement was to be signed after the IMF board meeting in 29 March 2004. The agreement should apply for a period of 24 months, over 2004-6. This kind of agreement does not provide for loans from the IMF, except for emergency situations, but is considered of high importance for the country’s credibility in attracting additional external funding. The Romanian social partners have taken a considerable interest in the agreement.

Government’s proposals

In its draft letter of intent over the IMF agreement, the Romanian government established the following main objectives:

  • an annual 5% economic growth rate;
  • controlling inflation and consolidating its reduction (9% in 2004, 6% in 2005 and 5% in 2006);
  • keeping the current account deficit below 5.5% of gross domestic product (GDP) in the next three years;
  • ensuring a foreign currency reserve at the central bank which covers at least 3.5 months of imports;
  • keeping the state budget deficit below 3% of GDP;
  • a 9% maximum increase in wages in the public sector in 2004 (except for railway workers, for whom a 12% pay raise has already been agreed - RO0403101N);
  • the privatisation of the national petroleum company, Petrom SA, continuing the privatisation process in the natural gas and electricity distribution sectors, and finalising by September 2004 the privatisation process for 19 commercial companies with more than 1,000 employees each; and
  • making 25,000 workers redundant - 6,000 in the railway sector, 7,000 in mining and approximately 11,000 in the state-owned companies which are to be restructured.

Since the letter of intent has not been signed yet, in April 2004 a group of IMF technical experts is to come to Romania to settle details about the taxation of profits and dividends. The final decision on this matter is envisaged for the middle of 2004 and the Fiscal Code (RO0310102F) will be modified from January 2005. Negotiations are still be to held over whether or not to include public-private partnerships for infrastructure modernisation in the state budget, and over the issue of state-owned companies’ accumulated debts. The latter issue will be analysed in May by a joint team of technical experts from the IMF and the World Bank.

Consultations between IMF experts and social partners

Representatives of trade union confederations have often expressed dissatisfaction about the contents of the programmes that the government has negotiated with the IMF. Taking into consideration the major influence the new 'stand-by' agreement will have on industrial relations, the IMF experts organised a consultative meeting with leaders of the nationally representative union confederations (RO0307101F) and employers’ organisations (RO0310103F). Although the meeting took place at the headquarters of the Ministry of Public Finances (Ministerul Finantelor Publice, MFP), no government representative was invited to participate.

IMF experts have met Romanian trade union representatives on previous occasions, but had never before organised simultaneous informal consultations with both trade unions and employers’ organisations.

During the meeting, all Romanian social partner organisations expressed their widespread support for a reduction in labour taxation. The arguments invoked were the reduction of illegal work and the positive effects on employment levels. According to the social partners’ statements after the meeting, IMF was not in favour of any tax cuts, since it might increase the budget deficit by reducing budgetary receipts.

The social partners complained about the undesirable effects for both employers and employees resulting from wage taxation as well as from the recently introduced Labour Code. As the Council of Foreign Investors in Romania (Consiliul Investitorilor Străini, CIS) stated earlier, the implementation of the Labour Code generates many difficulties for employers (RO0308102N) and, along with the high labour taxation rate, impedes the creation of new jobs, thus lowering unemployed people's chances of finding a job.

Trade unions also expressed their disagreement with the current state budget deficit quota, which they believe might be raised by at least two percentage points. In their view, a 3% public deficit cannot act in favour of a steady economic development rate. They referred to past and even current European economic development policy practice, as well as the great need for major infrastructure projects in Romania, now that the date of European Union accession (planned for 2007) is approaching.

Government’s latest positions

The government has announced its intention to lower labour taxation to 44% by 2006, from 49.5% at present. On 11 March 2004, Adrian Năstase, the Prime Minister, referring to the downturn in labour taxation in recent years (from approximately 60% to 49.5%), declared: 'I believe that in the next years social contributions should reach no more than 40%-42%.' In another statement, he underlined that 'we cannot live forever with wages of around USD 100 [a month]; the mobilisation of the workforce can not be achieved with such wages'. Though surprising, this statement is relevant to trade unions’ long-standing claims for increases in the minimum wage, which recently stood in the way of an agreement on a tripartite 'social stability pact' for 2004 (RO0401104F).

Both trade union confederations and employers' organisations are continuing consultations with the government over sectoral economic policies aimed at stimulating economic development, investments and domestic production and ensuring higher budgetary receipts while tackling the forthcoming fiscal relaxation.

Commentary

Considering the latest statements from government officials, the political environment and the elections which are due to take place in 2004, it is likely that the policy measures proposed by the IMF will be postponed and become the responsibility of the government which will result after the elections. There is no doubt that the government now stands at the intersection of different and asymmetric pressures: on the one side, the relatively different perspectives of the IMF and the EU; and, on the other, the interests of employers and employees which are difficult to harmonise.

The recent events have illustrated a clear tendency for the five nationally representative trade union confederations to cooperate and support one another's positions. It seems that they have reached the conclusion that uniting their forces and supporting unconditionally the demands of other confederations may be to the benefit of all of them. This tendency might further stimulate concentration and mergers among employers’ organisations, which are numerous and thus have difficulties in imposing their own opinions separately. (Luminiţa Chivu, Institute of National Economy)

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