IMF agrees to increase in minimum wage. Will it also agree to a higher budget deficit in 2011?

The head of the IMF mission to Romania, Jeffrey Franks, believes "there could be room" for an increase of the minimum wage, but says the decision needs to be carefully analysed because an unsustainable increase would have negative effects.

As far as the possibility of increasing the budget deficit target for 2011 the signals are not very optimistic so far.

"Any increase of the minimum wage should be studied and calculated very carefully, because in case the increase is too big, it could have negative effects. There could be room for an increase, but we have to see by how much," Franks was quoted as saying by Mediafax.

The issue was discussed on Monday by the IMF delegation with several trade union representatives.

Last Wednesday, on the first day of the review, Franks explained after a meeting with the labour minister, that an increase in the minimum wage could have detrimental effects and could discourage hiring and said caution was needed. It is not very clear why the IMF has slightly altered its message. Some analysts said on previous IMF visits that the Fund would also take into consideration what happened in Hungary, where the Government suspended the arrangement with the international financial institution and levied tax on banks and on big companies in order to balance out the country's finances.

The minimum wage has stayed at 600 RON in gross amount in 2010, although the enforcement of the uniform pay law as of January 1st should have seen it rise to 705 RON.