Thursday, July 30, 2009

Romanian govt tensions rise as IMF mission arrives

By Justyna Pawlak

BUCHAREST, July 29 (Reuters) - Romania's ruling coalition shows signs of a rift over public spending as the latest of eastern Europe's crisis-hit states to face a review of economic reforms needed to keep its 20 billion euro IMF-lifeline flowing.

Starting on Wednesday, the IMF will spend two weeks checking Bucharest's progress on shoring up its bloated finances and reforming the public sector, key conditions for aid secured in March to prevent a financing crisis.

Hit by a severe credit crunch and an outflow of investment since the crisis started last year, Romania joined fellow crisis-stricken EU members Latvia and Hungary in grabbing emergency loan packages from the EU and IMF.

The Fund has said so far that Romania's performance was on track, but observers warn further divisions within the seven-month-old centre-left coalition could threaten its ability to meet IMF conditions and secure payments.'There are risks. Not necessarily at this (IMF) mission, but for the next ones,' said Nicolaie Alexandru-Chidesciuc, chief economist at ING Bank in Bucharest. 'This uncertain situation in the coalition may end up in delays of (aid) disbursement.'

Bucharest's governing groupings, the Democrat-Liberals (PD-L) of Prime Minister Emil Boc and the Social Democrat Party (PSD), formed an uneasy coalition last year in a bid to rescue the economy hit hard by global crisis.

But signs of disagreements intensified in recent weeks as both groups jostle for position ahead of a presidential election due late this year which will pit PSD head Mircea Geoana against President Traian Basescu who has close links with the PD-L.


Earlier this week, the PSD teamed with the Liberal opposition to demand a parliamentary inquiry into allegations of mismanagement of public funds by the PD-L's tourism minister.

The leftists have also demanded their ruling partners explain how IMF cash is being used to help the economy, prompting the prime minister to accuse them of undermining the governing partnership and delaying public finance reforms.'Slowly but surely our partners have made other priorities. They prefer to run an election campaign,' Boc said this week.

Both parties and their seniors have a history of conflict, with Geoana and Basescu often trading accusations of obstructing reforms in the former communist state, making a slow transition into a market economy.To ensure IMF aid continues, they will have to introduce sweeping fiscal reforms, including spending cuts and pay transparency.

This is particularly difficult for the PSD, which draws much of its support from powerful public sector trade unions.Without aid, Romania could face a financing crisis, if investor sentiment is damaged and its public deficit spirals out of control amid deepening recession.One of the issues Romania is likely to discuss with the IMF is the current budget target.

Several coalition officials have said Bucharest may ask for a raise in the goal, now at 4.6 percent of gross domestic product (GDP), because deepening recession is diminishing tax revenues to the budget.

IMF and EU bailouts have stabilised their beneficiaries to varying degrees -- Latvia is seen as shaky, while Hungary has returned to international markets -- but analysts say the crisis is far from over.Other countries in the region that economists say may opt for bailouts include Bulgaria and non-EU member Croatia. Other non-members, including Serbia, Ukraine, Bosnia, and Belarus have all secured deals.

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