VZCZCXRO2921
PP RUEHIK
DE RUEHBM #0052/01 0321108
ZNR UUUUU ZZH
P 011108Z FEB 10
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC PRIORITY 0289
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 03 BUCHAREST 000052 
 
SENSITIVE 
 
STATE FOR EUR/CE ASCHEIBE; DOL FOR ILAB 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ELAB ECON EIND PINS PGOV PHUM SOCI IMF RO
SUBJECT: ROMANIA'S PUBLIC SECTOR PREPARING FOR LAYOFFS TO COMPLY 
WITH IMF BUDGET REQUIREMENTS 
 
REF:  09 Bucharest 756 and previous 
 
BUCHAREST 00000052  001.2 OF 003 
 
 
Sensitive But Unclassified; not for Internet distribution. 
 
¶1.  (U) SUMMARY: Although overall unemployment in Romania reached 
7.8 percent in December 2009, the number will go higher in 2010 as 
layoffs in the public sector are just beginning.  As many as 100,000 
government positions could be on the chopping block if the 
Government of Romania (GOR) is to remain within the budgetary 
constraints of its commitments to the International Monetary Fund 
(IMF).  A new draft law would limit the numbers of employees in 
local public administrations, which have seen some of the biggest 
percentage increases in staffing levels and compensation in recent 
years.  Additional layoffs have been proposed for social workers and 
teachers.  As expected, union leaders are decrying the actions as 
illegal and threatening protests in response.  END SUMMARY. 
 
UNEMPLOYMENT CONTINUES TO RISE 
 
¶2.  (SBU) By the end of 2009, Romania's 20 largest private employers 
had laid off approximately 23,000 of their almost 300,000 workers. 
With a total of 710,000 Romanians out of work, the unemployment rate 
has reached 7.8 percent, the highest level since the beginning of 
¶2004.  Although the budget approved by Parliament assumes a slightly 
reduced 7.3 percent unemployment rate and a total of 645,000 
unemployed by the end of 2010, this will be hard to achieve:  the 
private sector does not anticipate a revival of the labor market in 
the coming year, at the same time that many government workers may 
lose their jobs.  The head of the IMF Mission to Bucharest said on 
January 27 that the number of unemployed in Romania could reach 1 
million during the first half of 2010.  The impact of growing 
unemployment has been felt across the economy as out-of-work 
Romanians default on bank loans and curb their spending, as 
evidenced by discouraging sales during the Holiday season. 
 
¶3.  (U) In order to bring deficits under control, the IMF has 
insisted that the GOR reign in public sector personnel costs 
(reftels), the fastest-growing budget item over most of the last 
decade.  The first major step was passage of the "unitary salary 
law" by Parliament last September, standardizing and simplifying 
wage scales and bonus payments across government ministries. 
Reductions in force must now follow.  Labor Minister Mihai Seitan 
had previously stated there would be a maximum of 70,000-80,000 
positions eliminated in the public sector.  He added that the cuts 
would occur gradually and that retraining would be provided to 
assist those affected in finding new jobs.  Finance Minister 
Sebastian Vladescu, however, recently declared that 100,000 public 
jobs would be cut as part of a government-wide effort to meet IMF 
targets and that each institution would decide how to implement the 
plan.  (Subsequently, however, Vladescu has sought to contain the 
political fallout from his pronouncement by insisting that the 
estimate of 100,000 job cuts "is not grounded in reality.")  At the 
same time, Interior Minister Vasile Blaga pointed out that the 
Government must hold mandatory discussions with unions prior to 
submitting the draft law to Parliament for approval.  Labor Minister 
Seitan declared on January 25 that salaries and hiring in the public 
sector would be frozen in 2010. 
 
LOCAL PUBLIC ADMINISTRATIONS TO LOSE THE MOST 
 
¶4.  (U) A new draft law, initiated by the Ministry of Finance and 
endorsed by the Ministry of Interior, would cut positions in local 
public administrations (counties and municipalities) by more than 20 
percent through limiting the number of employees in town halls based 
on community population.  Romania's local public administration 
offices would lose 16,742 positions in 2010, trimming the local 
civil service to less than 65,000 employees.  Officials will base 
decisions about who is laid off on family status and eligibility for 
retirement.  The first to be targeted will be individuals with no 
children in their care and those who already meet retirement 
conditions.  Single parents and employees who will qualify for 
retirement within five years will be among the last to face 
layoffs. 
 
OTHER SECTORS TO BE AFFECTED AS WELL 
 
¶5.  (U) Following the elimination of 18,000 positions at the 
pre-university level in 2009, an additional 15,000 teachers will be 
laid off starting in September 2010.  With these reductions, the 
number of teaching jobs financed by the state will drop to 306,677. 
President Traian Basescu declared in a televised interview late last 
year that substitute teachers, employees already eligible for 
retirement, and administrative personnel would be the first to lose 
their jobs.  He further claimed that pending curriculum reform would 
reduce the number of teaching positions needed. 
 
¶6.  (U) In applying new cost standards for the number of employees 
 
BUCHAREST 00000052  002.2 OF 003 
 
 
needed to provide protection services for children, the disabled, 
and the elderly, the Government is also setting its sights on social 
services.  About 3,000 of the current 32,000 social workers will 
lose their jobs in 2010, many in state-run orphanages and similar 
care institutions. 
 
¶7.  (U) The IMF has also urged the GOR to limit losses at state-run 
enterprises, many of which survive only with large government 
subsidies.  At the top of the list is state railway company CFR, 
where downsizing may result in about 11,000 jobs being axed, in 
addition to the 4,700 employees forced into retirement in 2009. 
 
BIG LAYOFFS MAY GENERATE ONLY SMALL SAVINGS 
 
¶8.  (SBU) The proposed cuts may not generate the savings that the 
Government expects, however.  The GOR estimates it will reduce 
annual personnel expenditures by 471.5 million lei (about $165 
million), but some critics claim the actual savings would only total 
230 million lei ($80.5 million).  The difference reflects lost 
income tax revenue and higher expenses for severance pay and 
unemployment benefits, which the GOR estimate fails to account for. 
Moreover, critics assert that many of the positions caught in the 
crosshairs are vacant, so actual layoffs and, therefore, personnel 
expenditure savings may be significantly less than the GOR has 
projected.  Considering its double role -- of employer and of social 
guardian -- the state is faced with a new conundrum: on the one 
hand, it cuts costs by eliminating 100,000 positions; on the other 
hand, it incurs the responsibility of providing social welfare 
benefits for the unemployed and their families, possibly for a long 
time. 
 
¶9.  (U) As a temporary cost-cutting measure included in the unitary 
salary law, the GOR required most state employees to take eight days 
of leave-without-pay in November and December 2009.  Economy 
Minister Adriean Videanu stated recently that public sector 
employees will not face forced furloughs this year because their 
salaries will be frozen in 2010.  He optimistically added that "the 
economic recovery signs are already visible...and the industrial 
output has started to show signs of growth."  He also denied rumors 
that the IMF would require the GOR to increase the VAT rate to 21 
percent if 100,000 public sector employees are not sacked before 
September. 
 
UNIONS REACT IMMEDIATELY, THREATENING PROTESTS 
 
¶10.  (U) Not unexpectedly, public sector unions criticize the 
Government's approach.  Unions say the measures are being imposed by 
international institutions without due regard for local realities, 
are unsubstantiated by impact studies, and contradict Romanian labor 
laws.  Unions are demanding legislation to standardize layoff 
conditions and severance pay, which are currently decided by each 
ministry.  They also request an amendment to the current 
Unemployment Law to standardize unemployment benefits and provide 
training programs for reintegration of workers into the labor 
market. 
 
¶11.  (U) Two hundred public service, transportation, and industry 
employees -- members of the National Federation of Trade Unions in 
Administration (FNSA) and National Confederation of Free Trade 
Unions of Romania-Brotherhood (CNSLR-Fratia) --picketed in front of 
the Ministry of Finance on January 25, calling for an extension of 
unemployment benefits.  The FNSA has also announced a general strike 
beginning in mid-February if the GOR proceeds with the announced 
layoffs in local administrations.  Cartel Alfa has indicated that 
unions all over the country are gathering signatures in support of 
street protests and strikes. 
 
¶12.  (U) Aurel Cornea, the leader of one of the most important 
teachers' union federations, told post that his union will file new 
constitutional challenges to the unitary salary law and will 
organize protests against its implementation.  He characterized the 
law as "abusive" and said it failed to incorporate union input.  The 
leaders of two other public sector union federations warned of work 
stoppages and drastic decreases in efficiency in many local public 
administration offices, some of which they claim are already 
short-staffed.  One union leader expressed concern over how layoffs 
would be carried out, fearing that the best professionals may be 
fired to make room for those employees with personal or political 
connections. 
 
¶13.  (U) After meeting with union leaders, the Government announced 
on January 28 that it would extend "technical unemployment" status 
for several months to cushion the effects of layoffs.  While in this 
status, workers are considered laid off and stay home while 
continuing to receive 75 percent of their salaries, tax-free.  In 
addition to losing out on tax revenue, the Government covers the 
employee's costs for health care, pension, and other employment 
 
BUCHAREST 00000052  003.2 OF 003 
 
 
benefits.  This measure is expected to cost the GOR approximately 
411 million lei ($140 million) this year. 
 
COMMENT 
 
¶14.  (SBU) Despite persistent rumors of impending layoffs since 
Romania concluded the IMF agreement last March, the GOR managed to 
avoid significant RIFs during the politically sensitive 2009 
presidential election season.  Meeting the deficit target for 2010, 
however, will be impossible without more drastic measures to 
eliminate redundant public sector employees.  This ultimately may 
have a positive impact in cutting the country's immeasurable red 
tape, but only if the reductions leave the bureaucracy's most 
efficient and productive workers in place.  Otherwise, 
poorly-planned layoffs may simply impede public functions without 
improving efficiency at all.  President Basescu has labeled public 
sector reform and modernization as a key goal of his new term in 
office.  This year offers a unique window of opportunity in many 
respects, and if this massive personnel restructuring is not 
implemented now, such unpopular measures will be very difficult to 
take later on.  END COMMENT. 
 
GITENSTEIN