Negrescu: The situation is so bad financially that it's no time to cut with a scalpel

Romania is facing the most serious budgetary crisis over the last fifteen years, and in order to avoid disaster the Bolojan government proposes these austerity measures which are not meant to solve the problem of budgetary deficit but to rebuild the trust of rating agencies in Romania, says the economic consultant Adrian Negrescu.He said that Fitch rating agency experts, who recently visited Bucharest, 'put their hands on their heads when they saw Romania's budget situation', calling for 'tough measures to bring public spending back on track'.   'These are measures designed to maintain Romania's rating and I believe that this is the main current focus of the current government, to keep the rating in the recommended investment category, because a downgrade to junk would unfortunately mean catastrophic effects for Romania: a euro rate that could go above 6 lei, after a doubling of interest rates on loans, inflation of over 20% and a financial inability of the state to pay its loans,' explained the economic consultant.   According to him, Romania has to pass, over the next period ‘three extremely important financial hurdles’.'A first payment of 12 billion lei this month, another payment of 10 billion lei in October and another payment of 16 billion lei in November, on account of the public debt, money that the state does not have at the moment. These are desperate measures, but measures that must be seen as a kind of intensive therapy that we must go through if we do not want to end up, unfortunately, singing our own eternal song. In other words, to end up with the economy in a recession that will last for several years,' Negrescu emphasised.   The consultant drew the attention that the situation is so serious from the financial point of view but there is no time ‘to cut with the scalpel’ with the hope to save what is left from the perspective of Romania’s rating.As regards the VAT increase, Negrescu said that this is considered by the authorities ‘the only tax which brings money immediately to the state budget’ as the ‘financing needs cannot be covered through loans anymore’.According to the analyst, during the second part of July the first budgetary rectification that will also cut party spending.'On the other hand, I expect the Bolojan Government to come to Parliament in an extraordinary session with a package of measures aimed at stopping the tens of thousands of euros in public companies, the absolutely aberrant payments to the budgetary aristocracy through specialised legislation. If it would be done through an emergency ordinance, many of these decisions could be challenged in court and that is why we need a law to abolish the aberrant management contracts signed in recent years by pseudo-managers of state-owned companies and to eliminate most of the privileges, especially those who are on the boards of directors of public companies', said Adrian Negrescu.   Last but not least, the economic consultant said that there is a risk of a 'typhoon of economic measures' that could be put into practice from October, not by the Government in Bucharest, but by the IMF, in a stand-by arrangement where, together with experts from the World Bank and the European Commission, they decide what measures need to be taken, so as to put the state budget back on the waterline.   He also predicts that the impact of austerity will significantly affect consumption, the main driver of the economy, which could lead to a fall in budget revenues and the need for new measures in the autumn, including 'an increase in VAT to 24%'.   In Mr Negrescu's view, both Romanian citizens and companies will be seriously affected by all these austerity measures.