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DE RUEHBM #0573/01 2301316
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P 181316Z AUG 09
FM AMEMBASSY BUCHAREST
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UNCLAS SECTION 01 OF 02 BUCHAREST 000573 
 
SIPDIS 
 
STATE FOR EUR/CE ASCHEIBE AND AMB. GITENSTEIN 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV EUN IMF RO
SUBJECT: ROMANIA TARGETS BLOATED PUBLIC SECTOR UNDER IMF ACCORD 
 
REF: BUCHAREST 563 
 
Sensitive but Unclassified; not for Internet distribution. 
 
¶1.  (SBU) Summary.  In order to comply with the revised IMF 
agreement (reftel), the Government of Romania (GOR) is being forced 
to take an axe to the bloated public sector.  In the last two weeks, 
the GOR has announced plans for immediate furloughs as a short-term 
measure, with permanent layoffs and reorganization of many 
government agencies to follow.  The central government is targeting 
local (county and city) governments for major personnel reductions 
as well.  Analysts question whether these measures will cut expenses 
deeply enough, and there is risk of labor unrest and some 
disruptions in government services as the fall presidential election 
campaign heats up.  End Summary. 
 
¶2.  (SBU) Under the revised agreement, the IMF will allocate roughly 
half of its next two loan disbursements, or about USD $1.9 billion, 
to the GOR to support the burgeoning budget deficit.  In return, 
however, the GOR must move quickly to cut spending by 0.8 percent of 
GDP, or roughly USD $2 billion, by the end of 2009.  The many 
temporary cost-cutting measures the GOR employed earlier this year 
to stay in compliance with the original IMF agreement will no longer 
be enough, and major cutbacks in public sector personnel and pension 
costs -- which account for over 60 percent of GOR spending -- have 
become unavoidable.  In the immediate term, public sector employees 
accustomed to bonuses and other non-salary compensation to 
supplement their base pay will find these benefits slashed.  For 
instance, the Ministry of Interior suddenly announced last week that 
it was eliminating long-standing housing and relocation subsidies 
for police, leaving them on their own to pay mortgages and rents, 
which in some cases equal half or more of their salaries.  The GOR 
also intends to require every government employee to accept a ten- 
to fourteen-day furlough, or reduce paid work hours, or both, in the 
next two months.  Public sector unions have vigorously denounced 
these plans as illegal violations of the government's work contracts 
with employees. 
 
¶3.  (SBU) Such measures, while severe, will not be sufficient. 
President Traian Basescu himself has criticized the GOR's furlough 
plans as inadequate and called on the Government to permanently cut 
staffing across the board by 20 percent.  Whether ultimately the GOR 
can stomach such huge cuts in personnel remains to be seen, but in 
recent days it has announced plans for significant layoffs.  Many 
will come from state-owned companies, which the IMF flagged as a 
particular drain on the budget.  The Ministry of Economy, which 
controls most of these companies, has announced plans to let go an 
additional 5,400 employees after dismissing 5,500 earlier this year. 
 The Ministry of Transportation is revisiting plans, shelved earlier 
this year under threat of strikes and traffic disruptions, to 
eliminate several thousand positions at the National Railroad, one 
of Romania's biggest money losers. 
 
¶4.  (SBU) With just one exception, all national ministries will shed 
positions, ranging from 1,316 jobs cut at the Ministry of Labor down 
to 86 at the Ministry of Foreign Affairs.  Even the Ministry of 
Finance will lose 477 jobs, including (as the media has caustically 
observed) a number of positions in the taxation and auditing 
departments which the GOR is relying on to crack down on tax 
evaders.  Only the new Ministry of Tourism appears to be untouched, 
with Minister of Tourism Elena Udrea resisting staff cuts even as 
she battles allegations of impropriety in her Ministry's financial 
dealings.  Anecdotal reports suggest that some of the cuts will come 
from unfilled positions, or that employees will merely be 
transferred from one office to another, constituting reductions only 
on paper.  However, real meat must be cut to meet the IMF target, 
and the Minister of Labor has publicly stated that 9,200 employees 
will lose their jobs. 
 
 
¶5.  (SBU) The real story is less about the headline numbers, and 
more about the accompanying restructuring among ministries and 
subordinate institutions.  In total, the GOR has promised to 
eliminate 114 agencies, institutes, and regional offices.  The 
reduction will equally affect agencies reporting directly to the 
Prime Minister, as well as those under the various ministries, and 
includes entities under both PD-L and PSD control.  The 
restructuring will generally leave untouched agencies that manage EU 
funds and entities with a solid track record such as the Complaint 
Council. 
 
¶6.  (SBU) As the GOR is discovering, however, eliminating agencies 
doesn't automatically translate into big personnel reductions, since 
essential government functions must be preserved.  For example, the 
four agencies dealing with family and child protection issues will 
be combined into one, and the two entities dealing with student 
 
BUCHAREST 00000573  002 OF 002 
 
 
scholarships and student loans will be bundled together.  This may 
reduce bureaucratic inefficiency, but probably will not result in 
significant staff reductions.  In one announced case, the State 
Assets Resolution Agency will dismiss 18 percent of its current 
staff, but will be required to reemploy personnel from the Land 
Reclamation Company, which is closing.  Similarly, the National 
Energy Regulatory Agency has to reduce its existing staff by 33 
percent but then take on part of the staff of the Energy Development 
Agency, which will also cease to exist.  The much-maligned Foreign 
Investment Agency (PSD) will be bundled with the Trade Promotion 
Agency (PD-L) into a Trade and FDI Promotion Agency, which will be 
subordinated to the Ministry of Small and Medium Enterprises (PSD). 
 
¶7.  (SBU) Urged on by the IMF, GOR axe-wielders have also set their 
sights on bloated local bureaucracies, which employ more than 
320,000 people across Romania -- a number that has increased by 60 
percent just since 2005.  The IMF is requiring that Romania 
establish guidelines for numbers of public employees each county or 
municipality should have based on the population size.  Localities 
with 1,500 to 3,000 inhabitants, for instance, should have town 
halls with no more than 14 civil servants under the GOR's proposal. 
If enforced, the guidelines will lead to thousands more layoffs 
nationwide, including a 60 percent reduction at Bucharest City Hall 
(which would drop from 1,060 to 400 employees).  The GOR lacks the 
authority to dismiss local public servants directly, but is 
threatening to withhold funding from non-compliant municipalities, 
which financially are almost totally dependent on the central 
government. 
 
¶8.  (SBU) Comment.  While the personnel cuts proposed by the GOR 
look draconian, the reality is more complex and raises many 
questions.  Foremost is the question of whether it will all be 
enough to meet the stated budget objectives.  Even if the GOR 
succeeds in getting rid of all the central and local government 
employees proposed so far, the projected cost savings is in the 
hundreds of millions, not billions, of dollars.  Public sector 
employment has exploded in recent years, and it will take truly 
merciless slashing to return the bureaucracy to levels of even two 
or three years ago.  At the same time, letting all these employees 
go is not cost free, as most will be eligible for hefty severance 
payments and will then transfer directly to the GOR's unemployment 
benefits roster.  Total net savings to the GOR are likely to be 
disappointing.  Add to this the parallel GOR effort, also required 
by the IMF, to pass legislation aimed at harmonizing pay scales 
across the government and eliminating the myriad of bonuses and 
subsidies.  The GOR acknowledges that the legislation will likely 
result in a majority of public servants, especially those lower down 
the wage scales, actually getting a significant salary increase. 
The math simply doesn't add up, and everyone's fear is that Romania 
will end up with a smaller but even more dysfunctional bureaucracy 
which still doesn't meet the IMF agreement's budget goals. 
 
¶9.  (SBU) Comment continued.  The other big question is whether the 
PD-L/PSD coalition can take the political heat this downsizing 
process will generate.  Romania's fractious public sector unions so 
far this year have shown little ability to carry through on threats 
of serious labor protests, but that could change once large numbers 
of their members actually start receiving pink slips.  Restructuring 
and consolidation of government agencies will disrupt the carefully 
negotiated division of patronage and control between the PD-L and 
PSD.  At the same time, imposition of major cutbacks in local 
bureaucracies will threaten the power bases of local party barons 
who wield substantial influence, particularly within the PSD. 
Heading into the fall presidential election campaign, it is a 
volatile mix.  End Comment. 
 
GUTHRIE-CORN