May 19, 2010 / 9:42 AM / 9 years ago

UPDATE 1-Thousands of Romanians protest austerity measures

* Police say up to 20,000 protest cuts * Cuts crucial for IMF deal * Union leaders call for general strike

(Releads, updates with details of protest, context, comment)

By Luiza Ilie and Ioana Patran

BUCHAREST, May 19 (Reuters) - One of the largest mass protests since the fall of Communism in 1989 hit Bucharest on Wednesday over deep government spending cuts, casting doubt on Romania’s ability to meet its IMF loan commitments.

Analysts say the government may end up bowing to public pressure and softening the planned cuts in a bid to preserve popularity for its shaky parliamentary majority, even though elections are not scheduled until late 2012.

The demonstration by some 20,000 people was the first serious test of the six-month-old centrist government’s determination to force through austerity measures, required to secure international aid for the recession-hit economy. [ID:nLDE64H0M1]

“We want the government to fall or they will destroy us,” said Maria Vasile, a 42-year-old teacher carrying a whistle who was urging people to join the protest. “It’s either us or them.”

Romania’s leu fell 0.3 percent to 4.197 per euro by 0933 GMT EURRON= and the country’s blue-chip BET share index was down 1.6 percent .BETI, while the cost of insuring Romania’s sovereign debt edged higher.

However the drop was modest compared with other European indexes. The pan-European FTSEurofirst 300 .FTEU3 index of top shares was down 2.3 percent at 1,002.91 points.

International Monetary Fund-led aid packages across recession-hit emerging Europe have hit state workers and pensioners and the protest in Romania, the second poorest European Union state, raises the spectre of debt-wracked Greece.

Romania’s 20 billion euro IMF-led bailout package is crucial for the government’s ability to finance its ballooning budget deficit, an issue highlighted by two failed debt auctions earlier this month when investors feared the government backtrack in the face of mounting social pressure.

It has promised cuts to state wages of 25 percent and to pensions of 15 percent as part of an effort to secure the release of the next tranche of loans. [ID:nLDE64B1PN]

Neighbouring Bulgaria, the EU’s poorest member, is also trying to impose public spending cuts of about 20 percent to fill a revenue gap and keep its budget deficit under control.

IMPORTANT BLOW

Police said 18,000-20,000 demonstrators had assembled by midmorning, shouting: “Down with the government”, making the protest outside government headquarters one of Romania’s biggest since mass protests forced Communist dictator Nicolae Ceausecu to flee.

Union leaders called for a general strike.

Romania’s state sector, criticised for inefficiency and corruption, employs one-third of the working population and pensions, wages and other social benefits account for two-thirds of budget revenues.

Such spending has become increasingly hard to finance after triple-digit pay rises in the booming 2005-2009 period, as the private sector faces shrinking domestic demand and higher unemployment.

The IMF has said it will disburse its next tranche of aid only after Romania enforces a credible plan to reduce its budget deficit to 6.8 percent of gross domestic product.

It was 7.2 percent in 2009 and the IMF says that without cuts it could reach 9 percent of GDP.

“The ability of the government to deliver substantial cuts by July to meet IMF’s demands is low,” BNP Paribas analysts said in a note.

“A failure to meet the performance criteria then and a second postponement of the IMF disbursement could be an important blow.” (Additional reporting by Marius Zaharia and Radu Marinas; Writing by Sam Cage; Editing by Matthew Jones)

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