Download
1 / 16
160 likes | 263 Views
RESPONSES TO GLOBAL CRISIS Case study on Romania. Sorin Ioniţă sorin@ionita.eu Chişinău, Jul 2010. Six dimensions of analysis. Structural imbalances prior to crisis Severity of recession Socio-political consensus Quality of response to crisis (I): timing and diagnosis
E N D
RESPONSES TO GLOBAL CRISISCase study on Romania Sorin Ioniţă sorin@ionita.eu Chişinău, Jul 2010
Six dimensions of analysis • Structural imbalances prior to crisis • Severity of recession • Socio-political consensus • Quality of response to crisis (I): timing and diagnosis • Quality of response to crisis (II): policy package • Implementation capacity
1. Structural imbalances • Major problem: increasing expectations in society overcoming real growth, consumer boom, pensions’ explosion • Gap: EU-style aspirations / developing country resources (38% spending commitments / 29% revenues in GDP) – “premature welfare state” (J. Kornai) • Crisis hit at maximum optimism: rapid catch up with “the West”
1. Structural imbalances However, convergence achieved at a price: • GDP grew, but public deficits grew even faster, esp. in pension fund (1 employee : 1.4 pensioners) • Main items: public salaries, social expenditure • Old weaknesses remained: investments hard to execute, so unspent money shifted in Nov to “soft items” • The crisis only revealed imbalances
1. Structural imbalancesBudget deficits (% GDP) deeper than in other countries
1. Structural imbalancesSalaries, % of government revenues, 2008
2. Severity of recession • Due to pre-existing imbalances (simultaneous growth of GDP and deficits) little space for stimulus • Rapidly rising debt (from 25% to 41% in one year and a half) just to keep previous (social) commitments • Complete change of mental map: from expansion plans (central / local governments) to nominal salary and staff cuts
3. Socio-political consensus (-) Little consultation by government on policy; distrust from social partners (-) Intensely politicized mass-media, no policy debates, denial of problems (+) Moderate social partners, non-ideological unions (esp in private) (+) Moderate power of lobby groups, low extractive power – social protest by tax evasion (40%) (+) Resilience of population (compare to ‘90s)
4. Response to crisis: timing • Electoral cycle (Nov 08, Jun 09, Nov 09) delayed diagnosis of problems, slow response • Little capacity to read the trends in real time: 2009 budgets (esp local) designed with expansionary plans – on both social and capital spending
5. Response to crisis: content • Devaluation (approx 25% in two years) • Small stimulus package: focus on EU projects, some eco-related programs, car-for-clunkers (protectionist) • Continuity with pre-existing agenda (decentraliz health / education) but on a background of budget reductions may force rationalization of sectors • 2009: stopped spending increases built into the system before elections
5. Response to crisis: content Full adjustment package – just in mid-2010 • Public wages: 25% cut, pension freeze • Unification Laws to increase transparency and horizontal equity • Borrowing, spending and staff caps for local governments (anti-decentraliz) • Direct staff and capital investment cuts in central government • Tax increases (VAT), close loopholes, enlarge base
6. Implementation capacity • Little analytic capacity in government difficult to target spending, prioritize • Dissonance in society on priorities: keep benefits; against enlarging fiscal base • Judiciary = veto power over changes; visible preference for positive rights • Salary reductions counter-selection in public institutions (self-defeating) • Delegitimation of capital spending / procurement / PPPs in public discourse
