The presidential election campaign started last Friday in Romania. According to the polls, there are four major contenders: incumbent President Traian Basescu – a Liberal-Democrat (PDL), Mircea Geoana – a Social Democrat (PSD), Crin Antonescu – a Liberal (PNL) and Sorin Oprescu – an Independent. Without any political affiliation, I will impartially scrutinize the presidential candidates’ economic platforms. Among the many topics included in the abovementioned presidential aspirants’ programs, I will put the spotlight on two critical economic issues: near-term economic stimulus and fiscal policy.
Near-Term Economic Stimulus
According to Mr. Basescu, the current recession has nothing to do with the endogenous factors. Since Romania cannot be held accountable for the crisis, the fix should come from outside: IMF, World Bank and European Union. At the end of the day, USA and EU have triggered the global recession, so it is their responsibility to help our economy recover from the current slump. Do not worry Mr. President! We are number one on their governments’ priority list. Mr. Geoana proposes the creation of a Public Investment Fund that will support the critical economic sectors and will create jobs. The plan is indestructible except one little detail: the source of money that is going to feed that magical fund. Maybe our candidate will call IMF & Co. for help. I am enlightened, finally. Mr. Antonescu supports the idea of massive restructuring in the public sector and higher fiscal responsibility. This Sisyphus-like measure will not reignite the struggling economy, at least not in the coming year. At best, it will reshuffle some funds from the budget account. Now I got it: you have to save money in order to spend money. Mr. Oprescu will launch a plan aimed at providing support for retirees, unemployed and the young generation and at creating incentives for the private business willing to hire. It is my duty to let Mr. Mayor know that the first measure will not take us out of recession in a million years, while the second measure has failed before and it is doomed to fail forever in Romania.
Fiscal Policy
The taxation policy should stay put, according to Mr. Basescu. Believe it or not, I tend to agree with his laissez-faire approach. Mr. Geoana believes that the flat tax should be replaced by the progressive tax, while the VAT should be differentiated among products. While I agree with multiple VAT levels, I totally disagree with the progressive tax. It has been demonstrated that a flat tax rate reduces the tax avoidance and tax evasion, especially in a system where government agencies lack authority. Mr. Antonescu wants to lower the flat tax rate from 16% to 10% and VAT from 19% to 15% and to reduce by 50% the social security contributions. On one side these measures will have a limited upside by temporarily shrinking the black economy. On the other side, they will generate an insurmountable hole in the budget. The marginal cost of funding the long-term budget deficit will surpass the marginal short-term benefits. If we had Saudi Arabia’s oil receipt, maybe we would afford lowering taxes again. Until then, these measures are nothing else but cheap campaign promises. Mr. Oprescu proposes a fiscal amnesty that will allegedly de-shadow the Romanian economy. I have strong reservations that his measure will significantly curb the capital exodus to offshore accounts. Even implemented perfectly, this very populist measure will have a de minimis effect on the aggregate fiscal revenue.
Facing a growing rate in unemployment and the fear of a protracted sharp economic crisis, the Romanian citizens will have to choose between the same comic representatives of an undeniable incompetence. The president does not have to be a Nobel Prize winner for economy, but he or she should possess at least the basic common-sense. Are we asking for too much?
Yup, I think you are asking for too much.
Then, let’s make sure that the last one turns the lights off…
Then what’s your solution?
There is an economic solution and a political solution. For nothing in the world I will get involved with politics. If you are not ready to get dirty you should never get in that game. Let’s take for example Mr. Croitoru’s 15-minute of fame endeavor. Probably NBR’s governor had a favor to return to Mr. President. Since he did not want to get the PM job, he called-up one of his lieutenants. So, Mr. Croitoru assumed the task. Without having any political skill, he tried to cook-up a governement, knowing from the get-go that he had NO CHANCE of political support. Since his plan was doomed to failure, why the hell did he nominate many of the ministers from the previous government. At least he should have been consistent. If you are 100% professional, have the back-bone and do something original. Otherwise you will end-up a pawn on someone’s chess table. Frankly speaking, the political game makes me puke. It is full of ignorants and there is nothing in the world that I despise more than stupidity. My solution is a very simple one: get rid of all the politicians that have nothing to offer.
Is it that simple? You mean… get rid of the politicians that have nothing to offer, increase the standard of living, double the gdp each year, and leave well ?
To quote you, your solution is indestructible except one little detail: how can we do that?
All the presidential candidates have silly programs indeed, but this is what we have.
I see no solution from inside now, all we have to do now is to work hard to pay back the immense external debt that we accumulated in these 7-8 years of ‘boom’, plus… interest, of course.
Mircea,
The solution with “working hard to pay-down the debt” rings a bell. The last guy who paid-down the debt ended-up killed on the Xmas Day. Debt-free status does not buy you economic prosperity, and you should know that.
I am not born yesterday to draw a magical solution here on my blog. We can talk offline and I am sure we will have our share of disagreement. On top of that, I am not and I will never be a political figure to come-up with solutions. However, I can figure-out which economic plan makes sense and which does not.
Not at all. He was executed for a simple reason called information. I have never said that Wall Street is a one-size-fits-all solution.
Last decade RO had little debt. However, the economy was in complete disarray. I would better think about ways to encourage the economis growth and the debt expense will go down eventually. But this is another topic altogther.
Toni,
Going deeper into debt doesn’t buy you long term economic prosperity either, of course with the exception of US, who can just print dollars to finance their deficits and spread them worldwide. From Wall Street you may think that’s the way things work everywhere.
What I want to say is that the next president will have few options in hand for economic recovery. In fact they will just have to borrow more and more from international institutions to postpone the collapse little bit, with a higher and higher unemployment rate and negative economic growth to follow probably some years from now.
BTW, and off topic: you think that Ceausescu paid with his life just because the creditors wanted our economic prosperity ?
Am vazut ca toata lumea scrie in engleza. Imi cer scuze… eu o sa scriu in romana.
Sincer, nu dau doi bani pe politicieni desi e bine sa fii acolo sus. Consider ca indiferent cine vine la putere nu va gasi o solutie miraculoasa. Probabil ca o sa vina cu tot felul de idei, care mai de care mai stralucite (TVA mai mare, impozite mai multe, restructurari de personal). Astfel de masuri sunt inevitabile pentru ca la un moment dat o sa trebuiasca sa dam banii inapoi si nu producem suficient de mult incat sa acoperim datoria. Sa vezi beleaua draqului atunci.
Singura solutie pentru noi este TEHNOLOGIA. Nu stiu cat ne ajuta investitia in tot felul de minunatii dar daca reusim sa producem energie ieftina, si daca strangem randurile si ne protejam putinele resurse pe care le avem, cu siguranta o sa avem de castigat. Ne-am bucurat ca am dat resursele pe mana altora. Cred ca e timpul sa le luam inapoi si sa le dramuim noi cum trebuie.
Doar prin tehnologie ne putem salva. Energie verde din abundenta => export de energie => venituri. Pana la urma totul pleaca de la resurse. Daca tot ne indatoram macar sa o facem cu cap. Infrastructura bazata doar pe consumul de curent (fara pacura, petrol, benzina, biodisel s.a.m.d—–drumuri, parcari, peco, centrale, absolut totul sa functioneze pe curent). La finalul proiectului sa ramai doar cu costurile de intretinere a infrastructurii.
Eu asa o vad.
Va salut si va doresc tot binele din lume, dragii mei.
Spor…
Gino,
E posibil ca o cale de urmat pentru RO sa fie cea cu “green energy”. Nu cunosc foarte bine subiectul asa ca nu am autoritatea sa dau solutii in sensul asta. Eu as fi propus modelul Irlandei: investitii in invatamantul tehnic urmat de sprijinirea unui sector IT. Ar fi o solutie…
Sa ne ridicam in picioare si sa-i multumim presedintelui nostru pentru tara in care traim, …vai de noi
Dupa ’89 am tot sperat ca va veni in RO o revolutie…Asa cum au asteptat bunicii nostri pe americani asa am asteptat si eu…Si intr-o zi am decis sa plec. Asta e.
Toni,
Fac destule excursii etc si am vazut multe in tara cu ochii mei. IT tehnic etc ar fi o idee buna. As adauga pe langa totodata turism … sa le dam drumuri si tot ce se leaga de infrastructura, sa invatam sa zambim putin ca in rest avem ce ne trebuie, fara sa ne “rupem” prea tare de spate, eurisorii ar intra in tara … “easy money”.
BMM
The actual EUR inflow is way under the level of the initial expectations. As you know, under these circusmtances, there is no such thing as a free lunch coming from the Eurozone.
Toni,
Yes, right now it’s exactly as you say … but I mean as an idea/project for the future etc
BMM
The future is very uncertain for the Eurozone today. Let’s see how they cope with the PIIGS and then we can have an idea about the EUR adoption.