Monday, March 9, 2009

Romania president prepares public for tough budget

By Justyna Pawlak

BUCHAREST, March 9 (Reuters) - Romanian President Traian Basescu will seek cross-party support for fiscal austerity in a speech to parliament on Monday, in a bid to prepare the public for a possible International Monetary Fund aid programme.

Romania is increasingly likely to seek an IMF-led loan package as the economy teeters on the brink of recession and a financing crisis because of its heavy dependence on foreign cash at a time of global credit shortages.

But its centre-left coalition government has been reluctant so far to confirm reports that it is holding talks with the global lender for fear of alarming the public and sparking social unrest.

It faces an uphill struggle to win support for international aid, which will probably require cuts in social spending just months after it won parliamentary elections on a promise of higher pay and increased welfare payments.

While no mass protests have taken place yet, unlike in some of Romania's eastern European neighbours, Prime Minister Emil Boc is already under pressure from trade unions for cutting back pay rises in the public sector.

'It will be an option for parliament, for Romanians, whether we fasten a safety belt (through external financing),' Basescu said late last week.

Basescu, who faces a presidential election later this year, also wants to ensure budget cuts do not strain the ruling coalition between Boc's centrist grouping and its leftist coalition partner, the Social Democrat Party (PSD), which appears more reluctant to seek IMF involvement.

'If people take to the streets and say they do not want to tighten the belt ... this is something that must be taken into account,' presidential adviser Cristian Preda said.

Commentators say feuds within the uneasy coalition could have a negative impact on Basescu's re-election chances because of his close links with Boc's Democrat-Liberals (PD-L) and a history of strained relations with the PSD.

At the same time, Boc wants to ensure there will be broad support for an IMF programme after protests over economic problems helped bring down governments in Latvia and Iceland.

'The president wants to give the people a sense of involvement,' said commentator Cristian Patrasconiu.

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

Romania has gone from bring the European Union's fastest-growing economy last year, which attracted billions of euros in foreign investment, to one of its most troubled economies.

Its external imbalances ballooned in recent years as companies and individuals amassed hard currency debt, and unchecked private consumption and state spending failed to finance infrastructure and development.

Basescu was due to start speaking at 4 p.m. (1400 GMT).

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