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UNCLAS SECTION 01 OF 02 BUCHAREST 000764 
 
SENSITIVE 
 
STATE FOR EUR/CE ASCHEIBE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ENRG PGOV PREL SOCI RO
SUBJECT: ROMANIA: PRESIDENTIAL CAMPAIGN FEATURES PLENTY OF ECONOMIC 
RHETORIC BUT LITTLE SUBSTANCE 
 
BUCHAREST 00000764  001.2 OF 002 
 
 
Sensitive but Unclassified; not for Internet distribution. 
 
¶1.  (SBU) Summary:  With just over a week to go before the first 
round of the presidential election, Romania's economic woes are 
foremost in the minds of voters.  The leading presidential 
candidates have been long on rhetoric but short on specifics about 
how they would return the country to economic health, knowing full 
well that the office of President actually has little direct power 
to implement any of the measures promised.  For the most part, 
economic prescriptions offered by the top three candidates -- 
incumbent President Traian Basescu (PDL), Mircea Geoana (PSD), and 
Crin Antonescu (PNL) -- deviate little from their respective 
parties' platforms.  Broadly speaking, Geoana would raise taxes and 
increase government spending, while Antonescu pledges to cut taxes 
and shrink the size of government.  Basescu's PDL would like to 
occupy the middle ground between these two extremes.  In actual 
practice, ideology always takes a back seat to realpolitik in 
Romania once an election is won, and the policies pursued after the 
election will have much more to do with who is named Prime Minister, 
and that person's relationship with the President, than with the 
President himself.  End Summary. 
 
¶2.  (SBU) Romania's yawning government budget deficit has brought 
tax policy to the top of the agenda.  Basescu, perhaps wishing for 
an economic recovery sooner rather than later, believes that the 
current revenue shortfall is temporary and that the 16 percent flat 
income tax and 19 percent VAT tax rate should be preserved, with the 
VAT possibly increasing later in 2010 if revenues remain down. 
Antonescu supports the PNL line that taxes should be decreased where 
possible, and suggests lowering the VAT to 15 percent and the income 
tax rate to 10 percent.  He proposes to balance these cuts with a 
dramatic government downsizing.  Geoana, looking out for the rural 
population and pensioners who remain PSD's core constituency, would 
support a progressive income tax and lower VAT on "basic 
necessities."  In Romania, however, everything is negotiable.  For 
example, in a recent private meeting with business leaders, Geoana 
reportedly was already backpedaling on his call to implement a 
progressive income tax in the face of strong pushback from the 
businessmen in attendance. 
 
¶3.  (SBU) Regarding energy policy, Basescu's strong expertise in the 
area has left few openings for his challengers to exploit, although 
Geoana has made statements about the need to focus on conservation 
in an effort to draw a distinction between himself and the 
incumbent.  There is broad agreement on the need for supply 
diversification, with at least rhetorical support for the Nabucco 
pipeline common among all candidates.  (Geoana, however, takes a 
much more nuanced view vis-a-vis energy relations with the Russians 
than does the strongly anti-Russian Basescu.)  Renewable energy, 
excepting a brief mention by Geoana, has received short shrift, 
although its further development could bolster energy security, and 
the European Union (EU) will almost certainly push for more in this 
area in the next several years.  In terms of carbon-free energy 
production, nuclear power has broad support, with Basescu coming out 
most strongly in favor of this option. 
 
¶4.  (SBU) Romania's economic Achilles heel remains its 
underdeveloped agricultural sector, employing nearly 30 percent of 
the population (by far the highest percentage in the EU) but 
accounting for only eight percent of GDP.  Small plots of land and 
the failure to adopt modern agricultural techniques have meant huge 
weather-dependent swings in production every year.  The large rural 
population has made reaching this constituency a priority for all of 
the presidential candidates.  Antonescu believes that support for 
entrepreneurship and efforts to improve access to commercial credit 
would help this sector to grow.  Basescu, perhaps recognizing that 
GDP is being held back in part by underemployed laborers in the 
rural sector, would like to find ways to reduce the agricultural 
workforce and move excess labor to other sectors, although he offers 
few specifics.  Geoana, on the other hand, has vowed to train a 
cadre of farmers in new technologies, while offering the proven 
vote-getter of "living credits" (subsidies) to make rural life more 
attractive to young farmers. 
 
¶5.  (SBU) Underinvestment in infrastructure is another commonly 
recognized barrier to Romania's further growth.  While EU funds 
could help, none of the parties has proven capable while in 
government of fully tapping this potential resource.  Of the funds 
available to Romania since 2005, only 2.11 percent had been 
disbursed as of September 1, 2009, with a miniscule 0.09 percent 
going to transportation projects.  Both Basescu and Geoana 
acknowledge the pressing need for infrastructure improvements, yet 
offer few solutions (aside from promising better use of EU funds) 
for financing them.  Geoana has suggested a better coordinating body 
for accessing EU funds, while the current PDL government has tried a 
similar tactic to improve Romania's poor absorption rate, with only 
 
BUCHAREST 00000764  002.2 OF 002 
 
 
modest results.  Antonescu's platform largely skirts the 
infrastructure investment issue, preferring to focus on lower taxes 
instead.  Basescu holds out hope for improvements in navigation on 
the Danube River, while Geoana promises investments in roads, rails, 
airports, and waterways. 
 
¶6.  (SBU) Healthcare in Romania suffers from the double drains of 
insufficient resources and widespread corruption and the candidates 
are all eager to be seen as doing something about it.  Basescu 
sponsored a blue-ribbon commission to systematically evaluate the 
system, although few of the recommendations from the 2008 report 
have yet been implemented.  He also broadly supports increased 
decentralization of Romania's vertically integrated and 
state-controlled health system.  Antonescu, looking for the rural 
vote, says that access should be expanded in rural areas, but offers 
few concrete plans.  Geoana would look to the government to diminish 
health disparities in disadvantaged populations, curb pharmaceutical 
prices, increase medical salaries, and modernize facilities. 
However, with Romania currently devoting less than four percent of 
GDP to healthcare, compared to an average of eight percent in the 
rest of the EU, real improvements will require a major infusion of 
resources in addition to administrative reforms. 
 
¶7.  (SBU) The recent decision by the IMF, European Commission, and 
World Bank to postpone their review of Romanian compliance until a 
new government is in place has lobbed a live grenade into the midst 
of the campaign.  With the next funding tranches from these 
institutions now delayed, all of the main candidates are engaged in 
vigorous finger-pointing in an effort to deflect blame.  Both 
Basescu and Geoana acknowledge the importance of meeting the IMF's 
criteria, and the PSD has supported efforts in Parliament to allow 
the lame-duck PDL Government to submit a budget.  However, with the 
Parliament scheduled to take two weeks of unpaid leave as a "budget 
saving" measure starting next week, nothing is likely to happen 
until after the election.  While the PNL has traditionally been the 
most hostile to deals with the IMF, Antonescu has promised his 
party's support for the prior actions needed to keep the program on 
track.  Whoever is elected president will be under pressure to name 
a prime minister and work to pass a 2010 budget quickly so as not to 
prolong delays in disbursements under Romania's IMF-led loan 
agreement. 
 
¶8.  (SBU) Comment:  While the voters' deep economic concerns are 
inescapable in this campaign, the fact remains that the President 
has very little direct ability to improve the economy.  This is 
little consolation for the incumbent Basescu, who is hurt by 
association with the unimpressive record of Emil Boc's PDL-led 
government.  The true test will be whether whoever is elected 
actually nominates a prime minister with a credible economic plan 
and a pragmatic approach to following the IMF program and bringing 
Romania out of the current recession.  Just like one year ago, when 
the parties were showering goodies on everyone during the 
parliamentary election campaign even as the economy went over a 
cliff, an air of unreality pervades this campaign as well.  All the 
candidates are promising new spending as a panacea for Romania's 
multiple ills, while ignoring the stark reality that this money is 
not to be had.  In order to stay within IMF deficit targets, Romania 
will have to cut government spending by at least three percent of 
GDP -- or more than eight billion dollars -- in 2010.  That will 
still leave a deficit of nearly six percent of GDP needing to be 
financed, and growth-smothering tax increases may have to accompany 
painful spending cuts.  Not surprisingly, none of the candidates is 
saying much about that.  End Comment. 
 
GITENSTEIN