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A Critical Report on the Crisis in Romania

segunda-feira 13 de julho de 2009, por Petre Damo,

A CRITICAL REPORT ON THE CRISIS IN ROMANIA

Petre Damo

1. An Introduction: Crisis over Crises

It would not be far from truth stating that in Romania the Crisis overlapped an already embedded multi-layer crisis.

‘What is happening today to Romanians in the Romanian State and society - a high percentage of poverty, increased discrepancies between the poor and the rich, generalized corruption, economic backwardness and political humiliation, inferior international status - has its origin in the way the communist regime was removed and in the manner the Romanian State has been reconfigured in the period of the début of the political and economical transition, 1990-1991.’
[Stoenescu, Alex Mihai, ‘From the backstage of the battle for Power 1989-1990. The first Government Petre Roman’, page 1, RAO International Publishing Company, Bucharest, 2006]

In terms of politics, the ongoing crisis has been used as a pretext by the entire political class to justify the difficult social-economic situation and make people forget that before the arrival of the crisis life had been the same for other reasons. During time most people have gradually lost their trust in the political class which is regarded as corrupt, illegitimate, and as one of the main causes of their troubles.
A peculiarity of Romanian politics stands in the fact that populism, as well as extreme nationalism and chauvinism are employed not only by neoliberal parties and the far right but also by left, particularly by radical left, as means to promote themselves. Such political stand mirrors a frozen orthodox ideology and the lack of new and concrete political solutions.

This rough sketch of the Romanian political stage has been fully confirmed by the European Parliamentary elections of 7th of June when only 27.67% of the electorate voted, which was far below the European average 43% of participation. This represents only 5 million people out of 22 million inhabitants. The percentage of voters was even lower in urban areas, particularly in the capital city where merely a stunning 15% voted. According to the declaration of the President of the Senate made on 9th of May, it appears that 20% out of the voters practiced the so-called ‘electoral tourism’ which is voting on separate lists in other locations than their residence and which is one of the main causes of electoral fraud.
All this makes the self-entitled winners of the Euro parliamentary elections who claim 30% out of the 5 million voters be rather illegitimate before the other 20.5 million who did not go to the ballot but are nevertheless Romanian citizens and tax-payers.

A door to a new rise of populism and extremism seem to have been opened by this situation. The examples pointed out by analysts and the Media are the Grand Romania Party (PRM) that succeeded in gaining 8.4% of the votes obtaining thus at least two mandates, and the half-illiterate daughter of the President who managed to gain 4.2% after having used foul play and having been backed up by the Democrat Liberal Party (PDL), well-known as the Presidential party.

In terms of social life and social justice, the long-hailed emergence of the middle-class as a sign of a fairer wealth distribution in the society has not solved the discrepancies between the poor and the rich for it has proved to be a political hoax - the newly rich joined the club of the already rich, the already rich became richer, the average income people in the best case remained so or became impoverished, and the poor became poorer.

In terms of economy, in spite of the official boastings with an unprecedented economic growth during 2008, the reality surfaced when the crisis hit a weak economy and companies began shutting down one after the other.

In terms of environment protection, although Romania has adopted a well-devised European-compatible legislation, its practical application is far from matching the European standards and the fact that the environmentalist parties have such feeble popular support that they have not been able to access the Parliament for many legislatures shows certain mentality backwardness in this respect.

In terms of culture, arts, and education, the continual decay of moral standards, the replacement of former systems of values with non-values, or, worse, with anti-values particularly in case of the younger generations, and the increasing appeal exercised by populism are but signs of a generalized moral and cultural crisis of the society.

2. Before the Crisis

Albeit the first signs of the incoming crisis have been obvious ever since late summer-early autumn 2008, the political class and the authorities either avoided the issue or simply denied that the crisis could possibly affect Romania. Not even after the crash of the first American financial institutions, not even after the dramatic devaluation of the national currency followed by the public warning of the Governor of the National Bank Mugur Isãrescu about a financial attack on the Leu, did they admit that the tidal wave of the crisis was about to hit Romania.

Probably the most notorious proof in this respect was occasioned by the Parliamentary elections of November 2008. During the electoral campaign all political parties (except the Liberals then in the Government), as well as the President and the would-be Prime Minister made pledges concerning huge salary raises in the public sector, particularly in the field of education, health care, and public administration.

It is not that such salary raises were not rightful and necessary. The problem is that they were used as an electoral lie, which was only to be continued in the aftermath of the crisis when the same political class serenely posed as blameless whilst turning the crisis into scape-goat. Thus, even though the Parliament passed the Law stipulating the raise of the teachers’ salaries by 50%, the Government hindered the law from coming into force invoking the effects of the financial crisis and the constraints imposed by the IMF. Regardless of the financial reasons and political explanations given, this puts Romania as EU member state, into the delicate position of not observing the Constitution and the democratic principles.

The moral reasoning is straightforward and goes along the words of Tudor Vladimirescu, a Romanian revolutionary who stated in a letter of 1821 referring to the boyars ruling the country that the state is the people, not the gang of the plunderers. That is to say if the Government and the political class did not know, as they claim, about the coming of the crisis, they should not be entitled to rule the country on grounds of incompetence; on the other hand, if they did know about the coming of the crisis but they yet made their promises about raising salaries in the public service sector only to win the elections and grab the Power, then they should not be entitled to rule the country on grounds of lacking morality.

3. When the Crisis came

It appears that applying for a loan from the IMF under the supervision of the European Commission has been perceived by some Eastern European countries as the pillar of the plan of overcoming the crisis. The optimistic estimations for the recession period vary between 2 and 5 years.

In Romania the official Recovery Plan from the Crisis consisted basically of five elements as follows: accessing a huge loan from the IMF and the EC, a drastic reduction of public expenses from the state budget, the completion of the Unique Law regulating the wages of the public workers, the enforcement of lump sum taxation, and the Call for social and national solidarity.

In spite of adopting and implementing the Recovery Plan, on 13th May 2009 Romania was sanctioned by the EC for an excessive budgetary deficit of 5.4% of the GDP compared to 3% of the GDP in 2008.

Paradoxically, ever since early January 2009 there have been two domains which mounted up their advertising campaigns - car makers and banks. If the first have not managed to do so well yet, banks appear to have increased their profits in spite of adopting austerity measures including freezing loan policies toward the population and small companies. Thus, according to a report in ‘Romania Libera’ daily of 2nd June 2009, the first ten banks in Romania, excepting Bankpost, ended the first three months making profit, their cumulated profit amounting up to 244 million Euros. Volksbank and ING made record-breaking profits. Some analysts explain the paradox as the result of not having correctly configured their provisions for non-efficient credits.

The Governor of the National Bank optimistically declared on 22nd May that he still believes the recession in Romania would have the shape of a ‘V’ letter and that the lowest point has already been passed by, but others are more cautious saying that the worst is yet to come in the next six months. Reality, as far as it looks until now, does not seem to backup such tranquillizing assertions.

3.1. The Loan

The loan proper from the IMF and the EC - a sum amounting up to roughly 20 billion Euros - is to be delivered in several trenches and is to be paid back in minimum seven years under unknown conditions. Eventually, the exact amount of the loan has turned out to be composed of 13 billion Euros from the IMF and 5 billion Euros from the EC.
The official explanations about the application for such loan, many given by the Minister of Labour on 24th March 2009 during a talk on Antena3 TV channel, could be summarized as follows: in the first place, since two thirds of the total amount of the loan would be directed to the currency reserve of the National Bank, it was about the necessity to avoid the crash of the national currency, the Leu, and avoid thus a financial catastrophe; secondly, they claimed that we need to regain the foreign investors which, if accomplished, would make the International Rating Agencies raise Romania’s rating; thirdly, it was stated that the loan is needed to support the entire social system (that is paying pensions, paying salaries in the public sector, sustaining fields such as Education, Health-Care, Culture, and others).

Most of the criticism regarding the decision for applying for this loan focused on two aspects: there is no record of any state that has borrowed money from the IMF to have recovered financially or economically, but on the contrary; and, it is notorious that the IMF imposes certain financial, economic, and even political conditions when granting a loan. Consequently, serious minded analysts and Media expressed their concerns and feeling of insecurity caused by the veil of secrecy around the agreement between the Romanian Government and the IMF.
Moreover, there is no one in position to supervise the way the loan would be managed thereafter. All this lack of trust was caused by the lack of transparency and democracy surrounding the opening of the loan. Many added that the biggest loan ever applied for by Romania did not exceed 400 million USD in the early 2000s. Economist Ilie ªerbãnescu, financial analyst and former Minister of Finance, expressed his worries about the fact that accessing the loan poses the risk of having it fed into the foreign banks branches in Romania. In other words, the loan might merely be used to cover the loss of foreign banks and transnational companies. The aforementioned speculative hypothesis was remembered when the Ministry of Finance issued Eurobonds in May 2009 after Romania had signed the agreement with the IMF.

On the other hand, there is a manifold criticism both from experts, analysts, and a significant part of the Media regarding the manner the political decision to open the loan was taken.
The idea of applying for a loan with the IMF emerged from one single person in early January 2009, namely from the President, who had discussed it with Jose Manuel Durao Baroso. Later on, the Prime Minister took up the idea and so did the Government. Only at a later stage the Parliament gave its formal agreement to begin the negotiations with the IMF, but there was no public debate on this issue whatsoever. Having in view that it is neither the National Bank, nor the President, nor the Government who would pay back the loan, but the Romanian people who would have to work hard and make sacrifices to pay for this loan during many-a-year from now on, it would have been only natural to be consulted in the matter. This points out not only a democratic deficit but also the ignoring of the principle according to which in a democracy it is neither possible nor acceptable that a single man, be it the President, has expertise in all fields of life.
In support of questioning the loan application-decision one may well put on the table the argument of the dualism and ambiguity of the political discourses at top level at the close of 2008, respectively at the beginning of 2009. Initially the President and the Government declared that Romania had enough backup financial reserve to cope with the crisis without a loan. Soon the discourse changed radically, both the President and the Government stating that Romania did need urgently a loan from the IMF in order to avoid a financial disaster.

Tony Lybek, the head of the IMF in Romania and Bulgaria, underlined in an interview to ‘Gândul’ daily on 20th May that the conditions of the agreement are less severe than in the past, but warned that Romania should not take advantage of the more ‘humane’ conditions and use them as an excuse for postponing the economic reforms.

3.2. The drastic reduction of public expenses

The recourse to drastic measures of reduction of public expenses from the State Budget hits mostly the low and average income part of the population generating negative social responses. This has four main components: reduction of expenses with the public salaries, freezing public salaries and pensions, cutting off fringe benefits, forbidding the holding of a plurality of offices, and over taxation of the so-called luxury pensions and salaries of public servants.

Taken in accordance with the IMF directives, the reduction of the public salaries expenses is to be enforced from 8.4% of the GDP in 2008 to 7.9% of the GDP in 2009.
Freezing salaries and pensions during the worst year of the crisis remains one of the most unpopular measures taken by the Government. This measure affects in the first place the majority of the public workers who have low salaries, not the luxury public servants. There is also a tendency to shift from Public Fund of Pensions to Private Fund of Pensions. One argument is that in other EU countries, like France for instance, 2% up to 3% of the contributions are directed to Private Funds of Pensions, and therefore this percentage should be a target figure in Romania as well.

Once again, the cutting off of fringe benefits affects most negatively categories of public workers that have already been disadvantaged such as teachers and doctors. For such disadvantaged categories of public workers with an average monthly salary of about 200-300 Euros, fringe benefits such as doing overtime, stress conditions, night shifts, or payment for on duty shifts are the breath of air needed to survive.
At antipodes there have been documented cases of luxury public servants whose actual income was enormous not so much due to the salary proper, but due to the fringe benefits which, in some cases, exceeded the salary proper two or three times. This has led to abnormalities like those where the President and Ministers received lower wages than their underlings.

Forbidding the possibility of holding a plurality of offices has been a rather controversial measure from the very beginning. On one hand it is a just step since many of the top luxury public servants used to abuse their position and acquire one, two or even more jobs in addition. It is strikingly notorious the case of a retired commercial pilot, who was the head of the Civil Aeronautic Authority, and who hired himself as Deputy-head of the very same public institution, consequently receiving an astronomic income from the State.
But on the other hand, there are retired actors, doctors or teachers who have a humiliating monthly pension of 150-200 Euros and who really need a second job to make a living. Eventually a compromise has been reached according to which people are still allowed to have a second job but if the income exceeds a certain amount it would be over taxed.

Certainly the only rightful measure devised by the Government is the over taxation of the luxury pensions and salaries in the public sector. Unfortunately this measure would not extend beyond the year of 2009. According to it, salaries and pensions of public servants that exceed the income of the President are to be taxed by 90%. A simple arithmetic calculus reveals that from such taxation of no more than 1,460 luxury public sector pensions and salaries the State Budget will collect a stunning 50-60 million Euros during this year. According to a top of luxury pensioners made public by Antena3 TV Channel on 24th March 2009 some former magistrates and pilots cash pensions mounting up to 3,500 Euros monthly. Such figures may give a glimpse of just how enormous could have been the wages of these people.
Ironically the Ministry of Labour declined any responsibility for having initiated laws that allow such pensions and salaries in the public sector, but, paradoxically, he stated that these pensions and salaries are lawful. He also remarked cynically that ‘this situation mirrors an entire society that is represented in the Parliament and passed such laws’.

Paradoxically, the crisis has had a number of positive effects in Romania.
First it unveiled that amongst the common workers in the public sector there are also a number of most-privileged categories nick-named luxury public servants. It is important to understand that we do not refer particularly to leading positions, but to average employees. Thus, these luxury public servants belong to the numerous State Agencies and Authorities created as a precondition of accession to the European Union, to various Ministries and State Departments such as the Ministry of Justice, the Ministry of Internal Affairs, and so on and so forth. There have been astonishing cases revealed in the Media about State Agency secretaries cashing salaries of over 1,000 Euros monthly and of State Agency head officers cashing tens of thousands of Euros monthly to the detriment of the vast majority of the regular tax-payers. Obviously, getting such a job does not require first of all, as it should, competence, skill and professionalism, but political links and support as well as nepotism.
Secondly, the Government, put under the pressure of the mounting crisis, of the IMF requirements, of the Media disclosures, and of the enraged public opinion, was forced to act and cut these obscene public incomes, which was, besides an anti-crises practical measure, also a just one.
Thirdly, all this accelerated the discussions for conceiving and passing the Law of the Public Workers Wages, which leads us to the next element of the Recovery Plan.

3.3. The Unique Law of the Public Workers Wages

Low wages are a symptom of a systemic and endemic crisis. Low wages generate migration and social problems not only in the host country but also abroad. Presently the authorities officially admit that there are more than 2 million Romanian immigrants across Europe, most of them in Italy, Spain, and Ireland. Unconfirmed estimations spell about anything between 3 and 4 million Romanian immigrants scattered across the continent and beyond. The truth of the matter is that most of these people left their homeland because of lacking a decent job or because of extremely low salaries.

In Romania there has been no unique law concerning the regulation of the wages of the workers in the public sector for 19 years now. The logic behind may be found in the lack of political will to have a sound society in which wealth is distributed harmoniously and in the deliberate intention to deepen existing discrepancies so as to increase frustrations that would turn into tensions and would eventually divide the society and would set one social class on another. This kind of politics has been known from time immemorial as ‘divide et imperam’.

The discrepancies within the public sector may quite easily be labeled as discrimination. When on one hand a high school teacher receives 200-280 Euros per month, or a doctor 350-400 Euros per month, and on the other hand a magistrate cashes anything between 2,000 and 5,000 Euros per month or State Agency top employee even more then that, one may wonder who, why and based on what system of criteria decided such social injustice.
It becomes clearer now that in the aforementioned circumstances a raise of the teachers’ wages by 50% would have been but a slight step towards justice and harmonization.

It is regrettable that Trade Unions and NGOs did not have the strength to put this issue on the table of the political class, until the crisis and the IMF came and compelled them to do it.

The Law of the Public Workers Wage should be completed by end of June and be enforced beginning with 2010, but the actual stage of negotiations between the Ministry of Labour, Ministry of Finance, and the Trade Unions seem to make this a goal too far.
On 21st of April the FSLI Education Trade Union Federation announced that has been misinformed by the Ministry of Labour adding that the discussions were sterile and that new law is discriminative. Even the Minister of Labour admitted that ‘there are abnormalities of the system’.
On 26th of May the Education Trade Union leaders criticized again the slow pace at which the law develops as well as placing teachers on a rather low level in the wage grid. They added that the law is ‘a set up of the consultation with the Trade Unions’.

3.4. The enforcement of the Lump Sum Taxation

Lump Sum Taxation means taxation of companies by a fixed amount of money according to a profit making scale, whether they have activity or not. The most contested provision stipulates that companies should pay 500 Euros per year even if they have no activity or they make no profit.
The official reasoning for enforcing such an unpopular anti-crisis measure was the need to collect more finance to the State Budget and the determination to eliminate tax evaders.
Theoretically it should have been a right measure since there are so many moguls who have used schemes of avoiding paying taxes either by declaring that the company has no activity, or by shutting down one company and transferring its activity to a newly established one.
The problem is that in the attempt to do justice and catch the big tax evaders this regulation would negatively affect the small companies that may truly experience activity diminution due to the effects of the crisis.
Thus the negative effects of the regulation seem to outweigh its estimated positive effects. Many thousands of small firms and businesses would crash and at least 200,000 jobs would vanish only this year. This would lead to the raise of the costs of services. Moreover, in order to avoid unjust taxation, underground economy may begin flourishing anew.
One simple question is to be asked: who pays for the crisis? The answer the reality compels us to see is that the majority, the small ones, and the impoverished are to pay for it.

3.5. The Call for Social and National Solidarity

Both the Government and the President launched a Call for Social and National Solidarity in order to overcome the crisis. The key words are ‘social’, ‘national’, and ‘solidarity’. Soon the term ‘responsibility’ was added. The Call was addressed in the first place to the Trade Unions to make them give up planned protests and start cooperating with the company bosses and with the state authorities, which they did.

Incredibly during late spring the workers from Dacia-Renault were called back to work after a first period of facing half-time work and even job loss. They are presently working overtime even during weekends and are quite happy with that. The miracle came from Germany and other W estern European countries that launched programs for scraping obsolete cars and enticed their citizens to purchase new cheaper ones. This is an example of how European neoliberal governments and transnational companies managed to cooperate and cope with the crisis for the time being.

In spite of that it has been estimated that the number of unemployed in Romania would mount up to 800,000 during this year, not to mention the more than 2 million immigrants in Italy and Spain who, if return home due to the crisis, would add up to the figure estimated.

Albeit the Call for National Solidarity and Responsibility is theoretically right, it is not morally right that it has been launched by the rich who are in Power and do not pay for the crisis.

4. The End of the Matter

The solutions for a Better Life, in a Better Country, in a Better World seem to become ever farther if waiting them from political parties only. At least this is the case in Romania. We believe that the solutions should come first from the people, from the actors of the civil society such as social movements, networks, NGOs, and Trade Unions. This needs not only the healing of the society of past wounds, fears, myths, as well as of historical, social, political, economical marks, but also the development of the self-awareness of the individual and of the group. The key factors in making this possible are Education and Culture.