Thursday, March 5, 2009

ANALYSIS-Romania govt tries to play hard to get with IMF

By Justyna Pawlak

BUCHAREST, March 5 (Reuters) - The Romanian government is reluctant to confirm reports it is holding talks with the International Monetary Fund on a loan for fear of alarming the public and causing social unrest.

Romania, which faces liquidity problems because of its reliance on external financing in the global credit crunch, has said only that it is assessing its options on securing financial support from abroad.

But an IMF-led rescue is increasingly likely for the European Union and NATO member state if it is to avoid a payments crisis and reduce the risk of recession before a presidential election due in November or December.

'They are all afraid of making an announcement on a likely deal with the IMF,' said Romanian commentator Cristian Patrasconiu.

'Admitting that a deal is needed right now could be a source of popular discontent ... and they are afraid the IMF can be damaging to their ratings.'

There are few signs of widespread public discontent, but the government is already under pressure from trade unions after temporarily freezing public sector wages.

The centre-left government, grouping the Democrat-Liberals (PD-L) of Prime Minister Emil Boc and the Social Democrats (PSD), is also nervous after protests over economic problems helped bring down governments in Iceland and Latvia.

Any deal with the IMF could involve budget cuts which would be hard for the coalition parties to sell to the public because they could be seen to be breaking election promises they made last year.

Public anger over social spending cuts in 2005 led to a strike by Romanian rail workers seeking more pay and an end to reforms prescribed then by the IMF.

Finance Minister Gheorghe Pogea said on Wednesday the government was 'testing' the idea of seeking IMF or European help, and was checking the possible conditions before it made up its mind.

'We will see whether we can accept them and we will announce (a decision) in due course,' he told reporters.

Details about any potential package, its size or accompanying reform requirements, are scant but economists say it can run up to 20 billion euros in deals similar to those sought by Hungary and Latvia last year.

POLICY RECORD

Economic difficulties before the presidential election have not produced any public evidence of strain between the government's two coalition partners.

Observers say the coalition, an uneasy union of two former enemies formed after the November parliamentary election, is unlikely to break apart over economic policies, despite deep divisions over social programmes and budget preferences.

In a crucial test of the coalition's ability to agree on policies, the PSD, the less fiscally restrictive of the two, has gone hand in hand with the PD-L in pushing through austerity measures and passing the 2009 budget through parliament quickly.

But economists are looking for cracks, after unchecked fiscal spending by the previous minority government helped pile economic problems and drive two rating agencies to downgrade Romania to 'junk'.

The presidential election is particularly important for the PD-L, which has close political ties with President Traian Basescu, a popular politician who is likely to face a PSD opponent this year.

Illustrating possible concerns over taking any blame for more cutbacks, the PSD is trying to distance itself from IMF talks. The PSD's head, Mircea Geoana, has said a loan should be the last resort.

'The two parties will act together at least in the next few months. But if the situation worsens and we see violent street protests or major strikes, they may be at risk of separating,' said political commentator Mircea Marian.

'The PSD would be more prone to social protection and eager to boost ratings.'

(Additional reporting by Radu Marinas)

(Reporting by Justyna Pawlak; editing by Richard Balmforth)

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