HARSH NEGOTIATIONS BETWEEN THE SOCIAL DEMOCRATS (PSD) - LIBERALS (PNL) - IMF Romania will take Hidroelectrica, Electrica and the Oltenia Energy Complex public in 2014

• Update 12:26 Schaechter: "The authorities have clearly said that there are no intentions to raise the flat tax rate"

The head of the IMF mission, Andrea Schaechter, said that the options proposed by the experts of the Fund included the increasing the flat tax rate, but this issue was not negotiated from the beginning, because there was common knowledge that the Government did not support this measure.

"When talking to the authorities, including on the budget side, we conduct an assessment of the situation and we have every available option on the table. The authorities have however made it very clear that there is no intention to raise the flat tax rate, so no negotiations took place on that matter. Clearly, the authorities have identifies their priorities and these are the measures which have been announced yesterday", said Schaechter.

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The government has pledged to the international financial institutions to take 15% of Hidroelectrica public, and 51% of Electrica in May-June 2014, and a stake in the Oltenia Energy Complex in Q4 2014.

The minimum wage will increase from 800 to 850 lei, on January 1st, 2014, and from 850 to 900 lei, on July 1st, 2014, prime minister Victor Ponta announced yesterday. He also said that in next year's budget, a fund for increasing wages is stipulated, aimed at specific categories, and negotiations will continue for increasing the wages of resident doctors, debutant teachers, as well as other categories of employees. Also, all pensions will be raised by 3.76 percentage points.

The prime-minister admitted that the talks with the mission of the IMF were not easy, as extremely difficult issues were approached and difficult decisions concerning priorities.

For next year, a budget deficit of 2.2% of the GDP has been set, lower than in 2013, and the GDP is estimated to increase 2.2%.

The prime-minister has also announced last night investments that would amount to more than 6% of the GDP, allowing the economic growth to continue and the launch of certain extremely important projects. Victor Ponta also said: "We will have 2 billion lei allocated to continue investments in local infrastructure and 500 million lei for continuing investments in infrastructure with foreign financing. We will see an increase in the debt ceiling for infrastructure for local authorities of 1.2 billion lei, and the co-financing for European grants will increase 3%. We also have a < buffer > for infrastructure projects, first of all for Comarnic Braşov, and Suplacu de Barcău - Borş".

• Social security contributions will be reduced by 5 percentage points, starting July 1st

Social security contributions will be cut by 5 percentage points in the second semester of the year, but the government will be required to find alternative revenue sources to make sure this measure won't affect the budget, Victor Ponta also said. The measures which are intended to increase the budget revenues which were announced by the authorities include the indexation of excises to inflation, the introduction of a tax for special constructions (usually electricity grids and poles, warehouses, which are currently not taxed), the 25% increase of the royalties for mineral resources, excluding oil and gas, and the introduction of an additional excise of 0.7 cents per liter of fuel. The Prime Minister said that the money will go towards developing the road infrastructure.

Deputy prime-minister Daniel Chiţoiu last night announced that the flat tax rate will not be raised this year.

The negotiations of the authorities with the IMF had reached a deadlock last night. However, by the time the newspaper went to print, political sources told us that a there was a chance that the negotiations might be successfully completed, as Finance minister Daniel Chiţoiu received a mandate for dealing with some of the issues which arose during the talks coordinated by Liviu Voinea, the minister of the budget.

The sources told us that the main issue in the negotiations with the IMF was finding sources of revenue for the state budget that would not hamper economic growth and not violate the major political commitments that each of the governing parties had committed to in the governing program of the USL.

On the other hand, PSD wanted to raise pensions and salaries starting next year, and the PNL wanted to keep the flat tax rate at 16%, as well as cutting the Social Security Contributions by 3 percentage points.