Interesting disagreement is taking place recently in Romania. Following the government decision to implement some harsh economic measures, the Constitutional Court ruled that some of the government’s decisions are illegal. The reaction of the government was to raise VAT from 19% to 24%, which will increase the VAT revenues by around RON 4.20b (which will offset the cost savings from the previously suggested 15% cut in the pensions). According to Dr. Gil Feiler the recent economic measures will significantly reduce the local consumption, reduce the growth rate in the second half of 2010 and will increase the inflation rate due to the VAT increase.

In a working paper Dr. Gil Feiler submitted to the one of the Romanian government agencies the real GDP will register second year downtrend of 2.4 percent compare to little more than 7 percent in 2009. The reduction in the households consumption plus the planeed 150,000 public sector employee cut and out of the system will lead to higher unemployment rate which will register almost 9 percent compare to 6.5 percent last year. The local currency will depreciate by further 4 percent in 2010 according to Dr. Feiler. It should be noted that the local currency exchange rate was 3.61 in 2007 will reach by year end to 4.40, depreciation of 22 percent in 4 years. Dr. Feiler warned from the surge in the public debt which grew from 18 percent in 2007 to more than 36 percent of the GDP according to his forecast.

Feiler said that the prompt and fast measures of the Romanian government are crucial for the 2010 deficit as well as for the confidence building from the international investment community. It should be noted that the IMF approved the disbursement of around EUR 900 million to the country following a new
review of the country’s performance under the standby agreement. So far, Romania has received around EUR 9 bn in IMF money plus EUR 2.5 billion from the EC. The Commission is expected to disburse a third tranche worth EUR1.15 billion to Romania in the coming September.