ROMANIA'S PUBLIC SECTOR PREPARING FOR LAYOFFS TO COMPLY

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

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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

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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

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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