Wednesday, October 14, 2009

Romania parliament topples government

BUCHAREST (Reuters) - Romanian legislators toppled the centrist minority government in a no-confidence vote on Tuesday, threatening implementation of an accord with the IMF before a presidential election next month.

The centrists will stay in power until parliament approves a new government. But forming an administration will be tough before the November 22 election which has polarised political groups and split the previous coalition earlier this month.

Political instability could pose problems in meeting terms of the 20 billion euro aid package Romania won this year from the International Monetary Fund to stave off financial crisis, or delays in preparing the 2010 state budget, economists say.

The next move belongs to President Traian Basescu, an ally of the outgoing cabinet of Prime Minister Emil Boc and a frontrunner in the election, who has to nominate a new premier.

Basescu promised to solve the deadlock quickly, but said this would depend on cooperation from all political groups. "I believe political parties have made a grave mistake by engaging in this severe fight, which does not take into consideration the country's interest," he told reporters after the vote.

Romania's Social Democrats walked out of the government on October 1 in protest at the sacking of their interior minister, leaving the centrists to rule alone.

CAMPAIGN POLITICS

The collapse underlines the risk to prospects for economic recovery and reform in eastern Europe. In Poland, markets have been hit by recent allegations of privatisation irregularities, while an IMF accord with Latvia has hit political hurdles.

Without a strong government, Romania may struggle to slash spending enough to meet budget deficit targets, or could fail to implement a contentious pension reform which the IMF says is vital for its long-term fiscal stability.

"The interim cabinet ... may fail to adopt important legislation to fulfil requirements by the IMF," Elisabeth Andreew of Nordea in Copenhagen wrote in a note. "Confusion and uncertainty may remain until at least the end of the year."

The Romanian leu fell to its lowest level against the euro in almost seven months on Tuesday and the price of insuring the country's debt edged up on concerns about the IMF aid.

A relatively poor Balkan state of 22 million people, Romania went through a sharp economic reversal in the last year, because of the global financial crisis and poor economic policies.

It shifted from being the European Union's fastest-growing economy and an attractive destination for foreign investors to a problem zone in dire need of aid.

The opposition blamed the recession, job losses and falling wages on Boc's government in the hope of damaging Basescu's image. But the recession has so far had a limited impact on his popularity. A recent survey showed the former sea captain is supported by 37 percent of the electorate. Next in line is leftist opposition leader Mircea Geoana with 24 percent.

Even if Basescu nominates a new candidate quickly, opposition groups may want to delay installing a stable government before the presidential election.

"(There may be) a short-term coalition with broad support. In (any) case, the political arrangement will be revisited after the presidential election," said Jon Levy from Eurasia Group think tank.

(Reporting by Marius Zaharia; Writing by Justyna Pawlak; editing by David Stamp)

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