Context of the state reform in Romania

1. Context of the state reform in Romania • In 2008 the deficit was up to 5.4 % of GDP, in the context of an economic growth of 7.1 percent. • Government revenue is at 30-31 % of GDP, while in other EU countries it is up to 38-39 % of GDP • Inflation rate: 6.3% in 2008, 4.74% in 2009, 8% in 2010 • In 2008 there were big differences in the public payment system, the salaries varied on a scale from 1 to 100 (some heads of agencies had incomes up to 20.000 Euros/month, while the lowest salary in the public sector was around 200 Euros) • During the economic boom some of Romanian state agencies spent their money on yachts, trainings in Las Vegas or on very expensive luxury cars • In the public administration system, bonuses like: bonus for returning from holiday, bonus for birthday, bonus for smiling etc. had become a generalized practice; • There are no Romanian universities in Top 500

2. Context of the state reform in Romania. Case study:public retirement system • In Romania, there were approx. 2.5 million retired people in 1989 and there are now almost 6 million retired people. Over 1.5 million retired people are 59 years old or less. • In 2009 the total deficit of the public retirement fund was 1.7 billion Euros; in 2010 it was 2.55 billion Euros. If this process continues, the deficit is expected to reach at least 4 billion Euros in 2025. • The number of people with disability pension grew (by 430%) from 208.000 (1990) to 892.000 (2008) • In Romania there are over 900.000 people that receive disability pensions (from a total population of almost 22 million citizens) and in some districts their number rose up to 30 % from the total number of the retired population. In other districts disability pensions go to only 6% -7% of the retired people. • In 2009, we spent 39 billion Euros (approximately 8% of GDP) only on pensions; the tendency of this expenditure is to grow. • At present, for every taxpayer there are approximately 1.2 people that receive a pension of some sort

3. Public servant´s profile • By the end of 2010, the number of public servants was 130.469. The total number of positions in the public sector is 160.019 (a small amount compared to the number of contract staff), while the total number of public sector employees is 1.266.550. In 2008 the total number of public sector employees was 1.373.780 (107.230 more than in 2010) • Most of the local public sector employees, in 2008, worked in Administration, Defense, Social Care (22.1 per thousand inhabitants), Education (17.3)and Health Care (14.6). Source: A.T. Kearney study, 2008: • By gender: • Men: 36,14% • Women: 63,86% • Age groups: • 20-30 years old: 7,09 % • 31-40 years old : 28,94% • 41-50 years old : 34,22% • 51-60 years old : 26,65%

4. The profile of the Romanian public administration: a framework for strategic planning • A mentality of the public administration which favors the importance of regulations over implementation (the assumption is that once there is a law, the problem is solved) • The precarious functioning of both public services and private ones – theoretically, the private sector should provide a model of service quality for the public sector (the citizen´s trust in publicly owned companies is 42% while in private companies - 29%; in state universities - 58% and private universities - 21%) • The “swing” between pre-bureaucracy and post-bureaucracy. The transition from the communist administrative system to stages of development based on “reinventing the government”, new public management and total quality management is difficult. On the top we have the global economic crisis.

5. The profile of the Romanian public administration: a framework for strategic planning • The lack of a managerial culture at the level of public administration and political decision-makers. • The excessive influence of politics in public administration. • The lack of well defined indicators for performance measurement. • Coordination issues of the reform process at the local and central level. • Problems related to organizational culture, HRM and leadership. Lack of strategic planning capacity.

6. The profile of public services consumer in Romania: a framework for strategic planning • Lack of trust in the efficient functioning of public organizations. • Convinced of the importance of informal relationships in solving issues that involve public administrations. • Unsure of his/hers capacity to influence the public administration and the state. • Conscious of the important role played by public administration in his/hers life.

7. The profile of public services consumer in Romania. Statistical data • 61% consider that the current problems Romania faces are due to the functioning of public institutions. • High levels of trust: • Firefighters: 88% • Army: 71% • Ambulance units: 81% • Postal Services: 77% • Romanian National Bank: 68% • State Universities: 58% • Gendarmerie: 57%

8. The profile of public services consumer in Romania. Statistical data • Low levels of trust: • Members of the Parliament: 7% • City Hall: 27% • Mayor of the community they live in: 26% • NGOs: 27 % • Courts of law: 21% • Ministries: 16% • Government Agencies: 13% • 15% believe that they can influence the strategic decisions that are taken at the community level while 12% believe that they can influence the decisions that concern the entire country. • 48% consider that their lives are influenced by the decisions that are made by the City Hall and the Local Council and 53% consider that their lives are influenced by the decisions that are made by the Government, Parliament, and the President. • Sources: Trust Barometer, IRES, March 2010, Public Opinion Barometer, November 2007

9. Why has the public services consumer in Romania developed a hostile attitude towards public institutions? • A hostile attitude towards public institutions is based on the previous negative experiences of the citizen: • Excessive bureaucratic procedures • An improper management of the relationship with the citizens • Slow functioning of the public administration in its relation with the citizens • Depersonalization of the relationship with the citizen • Lack of interest in the assessment of the citizens’ needs prior to the provision of public services • Lack of a coherent measurement effort of the citizens’ satisfaction vis-à-vis public services (lack of interest in the post-provision phase)

10. Structural Reform of the State All these specific examples show the image of a state that faces significant challenges regarding: • Predictability and coherence • Managerial performance • Rational use of public resources

11. Structural Reform of the State Possible strategic reform directions: A. Redefining the size, the role and the functions of the state • Changing the size: a more flexible, better organized state, able to be a partner for the society • Redefining priorities: a state focused on good governance, quality of services and performance B. Increasing the efficiency of the state • Increasing the institutional performance. Making the public institutions focus on results and performance and not only on procedures. Rational use of resources • Simplifying the administrative system: better regulation, simplified procedures and enhanced predictability in the judicial process.

12. Structural Reform of the State • The government’s strategy in reforming the public administration between 2000-2008 was based mainly on three dimensions: • The reform of civil service (the creation of a body of professional public servants) • The reform of local public administration (this is based on the enhancement of public management at the local level and the promotion of decentralization and deconcentration of public services) • The development of the public policy formulation process (it is based on the enhancement of the coordination systems of governmental activities and the improvement of managerial capacity of governmental agencies).

13. Structural Reform of the State Creating a unitary public pay system : • The ratio between the top and the bottom of the public pay system varies on a scale from 1 to 12 (compared to a scale from 1 to 100, previously) • The decrease of the number of positions in the public sector • Improving the hierarchical system in the public sector together with the gradations and wage level system • In 2008, over 10% (13.63 billion euros) of the GDP was spent on public sector salaries, while in 2010 this percentage dropped to 8% (9.76 billion euro) of the GDP

14. Structural Reform of the State Reforming the pension system • Men and women will retire at the same age (65) • Recalculation of pensions established by special laws (applying the contributiveness principle) • Increasing the number of contributors to the unified public pension system • Discouraging the early retirements by tightening access to this type of pension • New and more stringent criteria for disability pensions that will discourage abusive retirements medically unjustified

15. Structural Reform of the State Justice: • Passing 4 new legal codes: the Civil Code (in use since 1864), the Criminal Code, the Civil Procedure Code and the Criminal Procedure Code • Decreasing the time necessary for rulings Health Care: • Descentralization: 370 out of 435 public hospitals subordinated to the Ministry of Health were transferred to the local authorities; only 65 hospitals of national interest remained in the Ministry´s subordination • Classification of hospitals into five categories, based on competence • Reorganizing and improving hospital activity

16. Structural Reform of the State Financial System Reform • Establishment of a Fiscal Council which analyzes whether government measures are included in the fiscal strategy. It is formed from a representative of the National Bank of Romania, the Romanian Banking Institute, the Romanian Banks Association, the Romanian Academy, the Romanian Academy of Economic Studies. • A 3-year fiscal budgetary strategy, which allows a medium-term vision in terms of revenues, expenditures, investments, current expenditure of the state. Implementation of the multi-annual budgets of public institutions. • Unique income statement - one statement for contributions to health, pension, unemployment, personal income tax – once a year (online) or every six months (in person) • Elimination of 248 special taxes (from 491 to 243). The final target is 100 special taxes • The introduction of cost and personnel standards for public administration (limitation of the number of employees and the maximum cost by type of investment, in local government) • Broad utilization of the Public Acquisitions Electronic System (a growth from 4% in 2008 to 40% percent in 2010) • Listing, under private management, the property fund - estimated at 3.6 billion euros. The Property Fund was established by the Government in December 2005 to compensate those whose property was abusively expropriated by the communist regime. The Fund holds shares in 83 state and private companies, an important component of the portfolio is represented by the sectors of electricity, oil and gas

17. Structural Reform of the State Education Reform: • Massive decentralization of higher education (universities) • ¨Funding follows student¨ principle • Classification of universities on the basis of international assessments • Classification of universities - research, education, advanced research • Focus on excellence through financial support of the best programs (based on quality indicators)

18. Structural Reform of the State • Increasing the EU funds absorption • A new Labour Code (in debate) • Reducing the number of governmental agencies from 223 to 112

19. Austerity measures • Reduction in public sector salaries by 25% (2009) • Reduction of pensions by 15% (rejected by the Constitutional Court). As such theVAT was increased from 19% to 24% • Block vacancies and allowfilling only 15% of the newvacancies • Banning the purchase of cars, office furniture and equipment by public authorities and institutions • Freezing the pension point value for 2010 • 15% reduction of unemployment benefits, child allowances and other suchsocial rights • Reduce by 50% of the norms of expenditure on fuel for public institutions and authorities • Dismissals in administration, education andhealth care: 34000 in 2009 and 63500 in 2010.

20. Conclusions • The difficulty of a state reform during an economic crisis: is the crisis only a threat or also an opportunity? • Positive effects: in the fourth semester of 2010, the GDP grew by 0.1%; exports increased by 28% in 2010, compared to 2009; the turnover in industry increased by 12.0% in 2010 and the industrial new orders increased by 26.3%. Economic decline in 2010 was 1.2%, less than the initial estimates of 1.9-2%.