Modest hopes placed in new Romanian government

Modest hopes placed in new Romanian government
By Kit Gillet in Bucharest November 20, 2015

Romania’s newly installed prime minister, Dacian Ciolos, chaired his first cabinet meeting on Thursday, after his government was sworn in following an overwhelming vote of confidence in parliament on November 17, when it received 389 votes for to 115 against (with two abstaining). 

The focus will now shifts to looking at what areas the new government will likely focus on, and whether it can achieve anything of substance within its limited, one-year mandate.

The new technocrat cabinet was brought in after the resignation of former Prime Minister Victor Ponta, who stepped down two weeks ago following mass protests after a tragic nightclub fire on October 30 in Bucharest left at least 56 dead.

With such a short time to prepare, the new cabinet was unable to clearly outline its main policy goals, and the action plan released before the vote in parliament was light on concrete targets, to say the least. In fact, the very few specific targets inked in the first drafts of the strategy, such as the two-ballot local elections, were removed from the final draft. A more detailed version will be drafted and submitted to parliament by December 15, Ciolos has promised.

The first cabinet meeting was therefore said to involve initial discussions on the administrative and legislative priorities, but with just 12 months before scheduled parliamentary elections in December 2016 – not to mention a parliament still dominated by the previous centre-left coalition – will they be able to achieve much of anything?

On November 18, Romania’s outgoing finance minister Eugen Teodorovici revealed a highly optimistic draft budget plan, which targeted a fiscal deficit of 2.8% of GDP in cash terms and 4.1% GDP growth for 2016. The projections were said to include all of the recent public sector wage hikes. This budget plan paints a far rosier picture of Romania’s economic health than some would have you believe.

In terms of economic policy, Ciolos, a former agriculture commissioner at the European Commission, has promised not to reverse the wage hikes and the recent tax rate cuts, but has also promised to draft a 2016 budget plan that would not put at risk the country's macroeconomic stability. This will please the IMF and the country’s foreign partners, who have been concerned over fiscal loosening by the previous government.  

“The expectation we all have from the new government is for it to start taking decisions in a completely different manner,” said Guillermo Tolosa, the IMF Resident Representative for Romania and Bulgaria, on November 18, in a speech given at the Romanian Banking Forum. 

“If the choice is to hike salaries, this measure has to be part of a comprehensive public sector reform package that has to include various measures such as improving administrative capacity,” he added.

Fiscal slippage

In its 19-page ruling strategy released before being voted into office, the new government promised efforts to improve the functioning of the public administration – particularly in regards to the electoral process – to stimulate the voluntary payment of taxes by establishing a fair relationship with taxpayers, to prioritise public spending, to consolidate sustainable growth, and to improve the absorption of EU funds. All of which were outlined in the ruling strategy of the previous cabinet.

In healthcare, the new government has suggested it would organise a public debate followed by the adoption of new public health law, and establish a multi-annual investment plan for the public health system. While in transport it would draft institutional reforms for state companies subordinated to the ministry of transport that run major transport infrastructure projects.

It also said it would adopt and implemented measures to ensure fast convergence with the European economy towards joining the euro area, establish integrated management of state companies through a single administrative structure, and increase transparency of public administration activity by improving access to public information.

Meanwhile, it also outlined plans to develop a system to monitor individual performance of public servants – likely to appease the recent protestors if it goes ahead – linked to performance-related pay.

So far, so good. However, what the government plans to do and what it can actually do are two very different things.

The new technocrat government looks, on the face of it, to be composed of solid administrators. The new finance minister for instance, Anca Paliu-Dragu, has a strong professional record, having worked for the European Commission, the IMF and the Romanian central bank, which is a positive sign.

But the new government is backed by an informal coalition of the two main political parties in Romania, the Social Democratic Party (PSD) and the National Liberal Party (PNL), which are both resistant to deep reform. The PSD has made the new government responsible in advance for preserving the country’s positive economic developments, which could be in danger because of potential fiscal slippage from the last government’s own policies.

While the two major parties can hardly afford the political cost of overthrowing the government less than a year before elections, they can be expected to use their control of parliament to resist any major reforms that they see as damaging their self interests or that would hurt their control of public administration or the state sector.

With that in mind it is hard to see this new government being able to push through major reforms, or function as anything more than a caretaker government holding the fort until next December. 

Yet, while not expected to deliver major political or economic reforms, the new government should be able to prevent major slippages, marginally improve the functioning of the public administration, and possibly even set institutional grounds for further and more relevant reforms to be implemented by a future government, one that has more robust political support. Anything more than that should be considered a bonus.