ECONOMY

Romanian PM defends plan to double pensions

BUCHAREST – Romania’s Prime Minister Calin Tariceanu defended plans to nearly double state pensions in two years yesterday, saying he did not expect the measure to put pressure on the new European Union member’s robust economy. Economists have warned that the increase, which will cost 14.3 billion lei (-4.6 billion), may reignite inflationary pressures and give a new boost to the double-digit current account deficit. «I will not renounce this project under any circumstances,» Tariceanu told a news briefing. «From the point of view of budgetary support, there is no risk the measures to raise pensions will generate problems in 2008 or 2009.» Tariceanu’s comments came after President Traian Basescu said in a television interview on Tuesday he would ask the government to explain its strategy to fund the hike before signing it into law. The president also said the government might have to choose between hiking pensions and spending cash on education and infrastructure. Both are key problems in Romania, which along with Bulgaria is the EU’s newest and poorest member. «I will ask the government to state… the funding sources but also the law’s viability, whether it can be applied long-term or we risk a collapse of the state pension fund toward the end of 2008,» Basescu reiterated in a speech yesterday. Tariceanu and Basescu have been at loggerheads over policies and jobs for months, and many observers blame political feuding in Romania for slowing down crucial reforms. Bickering among the centrists has left the government with only 20 percent of seats in parliament. Struggling government The centrists are also under pressure to boost their popularity ratings which have dwindled this year, and have faced demonstrations by pensioners last month. Monthly pensions average 400 lei (-130). Poverty is widespread and many villages lack basic services. However, economists warn Romania needs to focus spending on modernizing its shabby infrastructure and tighten fiscal policies to ensure its fast economic growth is sustainable. The hike follows a deal between Tariceanu’s government and the large opposition Social Democrat Party (PSD), which threatened to topple the cabinet if pensions were not raised. Analysts have also warned earlier this year that Tariceanu’s reliance on the leftist PSD in parliament may lead to higher state spending. But the prime minister said fast economic growth in Romania meant it could afford to hike pensions: «What would you have a liberal government do, not raise pensions for four years so that it won’t be accused of taking leftist steps? That’s the stupidest thing I ever heard.» Finance and Economy Minister Varujan Vosganian reiterated his pledges to keep the deficit under control, saying it would meet the EU’s rules this year and next. Vosganian has said this year’s deficit plan will be lowered later in 2007 from the current ceiling of 2.8 percent of gross domestic product. The EU says that according to its calculations, this deficit cap amounts to 3.2 percent of GDP. Vosganian also said that while most of the cash used to finance the hike will come from the pension system, the remainder will come from indirect taxes such as value-added tax.