Crisis Management Programme Faces Its Own Crisis

The global economic crisis is the most ardently debated topic on all continents. Even Romanian talk shows were forced to tackle economic subjects which used to be regarded as uninteresting and quite boring. I"ve seen a debate on the economic crisis attended by a former minister of Finance and the current minister of Economy. At the end of the programme, the host concluded that they had discussed interesting subjects. Indeed, it was interesting to watch a debate in which the current Government was accusing the former Government of having indulged into irresponsible electoral charity that had depleted the Treasury and made it impossible for the current Government to keep even more irresponsible electoral promises.

We could say that Romania has been favoured by circumstances for the past few years - a growing global economy, the liberalization of workforce migration and substantial foreign capital inflows that materialized opportunities in industry and services and led to an active participation in the privatization process. Under such circumstances the so-called "invisible hand" of the market created substantial economic growth, although the act of ruling in the economy can hardly be credited for a notable contribution to the consolidation of the market economy and economic growth.

Economic laws remained faulty. The use of State resources was corrupted, so the distribution of national revenues was uneven as public interest was second to personal interest. Things have changed. The conditions favouring economic growth are gone. Supply is abundant in every sector of the global economy. Too many cars, too many electronics, too many private and governmental debts... Only money and jobs are scarce.

Almost all Governments are trying to turn their economies around by feeding the market with substantial amounts of money coming either from loans or straight from the printing press. The U.S. Government flooded the market with an amount equal to 25% of the gross domestic product. In many countries, Governments are accused that the public debt created to get out of the crisis will be a burden for several generations. Many economists predict that such a massive capital injection can only shift the lever from deflation to galloping inflation in the very near future.

One thing is certain: the economic landscape of the future will be very much different from what we have grown used to see. However, to the disappointment of Mr. Ion Iliescu and other comrades, capitalism will continue to be the main driver of progress and welfare.

• What is the Romanian Government proposing?

An economic expansion programme, even at the cost of an even higher budget deficit in order to preserve jobs. Investments in infrastructure would be the instrument of choice. Theoretically, this type of investment is the most efficient economic revival tool and is also able to cause immediate effects on the job market. However, without a study on the labour market, someone could find out the hard way that, for instance, there are not enough construction workers, but there are plenty of jobless people who are skilled in something that has nothing to do with the construction industry.

The fact that the Government has no money and seems inclined to increase indirect taxation, which will affect mainly the low-income population, while refusing to accept the inequity of the flat tax, in the current context, will make budget objectives even harder to reach. The Prime minister is saying that protecting the low-income population is the most important thing to do. The paradox is that he is making such statement while preparing to increase indirect taxation (taxes on property, consumer goods etc), which will primarily hit those he says he wants to protect.

Well, the Government approved the first crisis measure - vacation coupons. There was never any study to show that the hotel industry was in a desperate situation and needed an urgent capital injection. On the contrary, judging by press statements, hotel owners refute accusations that they are charging five-star prices for one-star services, as long as there are plenty of customers ready to pay the price and absolutely no reason to cut the price. Therefore, we could say that the vacation coupons will inflate hotel prices and hotel owner profits even more. The restrictions that come with the coupons will force the recipients to accept maximum price for minimum benefit.

For the purpose of analysis, let us assume that this idea has some merit and will lead to a higher occupancy rate. If so, the lady minister could have negotiated a discount with the industry and made the coupons transferrable. That would mean bearer coupons instead of nominal coupons and the option to trade. Perhaps some of the recipients would prefer to pay the VAT on medicines (an obscene tax, which the Government deems to be in the public interest) or their gas and electricity bills, rather than go on vacation. This way, the money allocated for the coupons would surely be used by someone, the hotel industry would be supported and the recipients of the coupons would have an option to use them in the most suitable way for their specific budget.

Setting aside the aberrant decision described above, we should note that the Government"s economic expansionism is conflicting with the National Bank"s monetary policy. It appears that the National Bank still wants to control inflation and the foreign deficit. The key rate is still expressed in two digits and the mandatory reserves of the commercial banks are not reduced for fear of capital repatriations that would put more pressure on the exchange rate. In other words, the Government wants to expand the economy and the National Bank wants to brake it. BNR probably believes that the economic revival should be entirely financed by the Government, which has no money, while the monetary policies are maintained within parameters that discourage consumption and private investment.

But Romania is lucky once again. Although the Government seems to be out of money and ideas, as the press reports, a measure taken by the German government, similar to the Romanian Government"s plan to stimulate the replacement of old cars with new ones, has sparked a substantial increase in the demand for Romanian-made Dacia Logan. While the jobs in Ploiesti were saved by the German orders for Dacia Logan, the Romanian State can return the favour and supply dignitaries with Mercedes, BMW and so on. It"s only fair!

There is another economic revival measure, supported by PSD: the Felix Tax - a tax exemption for reinvested profit. Maybe it is a good idea, because such decision would prevent the Government from collecting any money from businesses, and so it would not be able to offer public employees incentives such as vacation coupons. The "invisible hand" and the revival of the global economy will take care of the possible turnaround of the Romanian economy. Until then, God help the unemployed!

It"s a pity that the head of the notaries" guild did not make it to Parliament as he would have been able to propose some notary coupons to help the public notaries whom the real estate market collapse is preventing from making the obscene revenues they had grown used to via monopoly prices protected by the law.