Romania gets new finance minister

BUCHAREST (Reuters) – Romania’s centrist Prime Minister Calin Tariceanu yesterday replaced Finance Minister Ionut Popescu with economist Sebastian Vladescu in a cabinet reshuffle that saw four others sacked. Following are the key challenges the new minister faces: – Romania aims to press on with unpopular, politically risky plans to raise value-added tax by three percentage points to 22 percent in 2006, to offset revenues lost to sweeping cuts in other taxes and to curb booming domestic demand. – The centrists promised the International Monetary Fund, Romania’s main economic mentor, to boost budget revenues after introducing a flat 16 percent income and profit tax – from an 18-40 percent scale and 25 percent respectively – after coming to power in January. Analysts said maintaining a tight fiscal stance was crucial to rein in a bulging current account deficit and keep an already booming economy from overheating. – Romania had planned to slash the budget deficit to an ambitious 0.5 percent of gross domestic product in 2006 from an IMF-agreed 0.74 percent of GDP this year. But extensive damage from the worst floods in 50 years forced the government to push this year’s gap ceiling to one percent of GDP. – Inflation has fallen to 9.3 percent at present from 40.7 percent in 2000 but Romania must maintain tight fiscal and wage policies in order not to fuel pressures that might hamper its disinflation efforts. The central bank set this year’s central inflation target at 7.5 percent with a one percent band either side. Next year’s inflation target was set at 5 percent provided that the government did not raise the VAT tax rate. – Efforts will be complicated by the need to spend EU-related funds to improve the ex-communist country’s ailing infrastructure and bring living standards closer to the EU average as the country joins the wealthy bloc, as soon as 2007.

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