Thursday, October 1, 2009

Romanian leftist govt coalition partner resigns

BUCHAREST, Oct 1 (Reuters) - Romania's leftist coalition partner the Social Democrats (PSD) resigned from government on Thursday in protest over the sacking of its interior minister.

Analysts said the move was negative for markets but they would wait to see what kind of government emerged from the situation before drawing wider conclusions.

They added the resignation posed a risk to the country's 20 billion euro emergency rescue package from the European Union and International Monetary Fund, and they would keep a close watch on whether policymakers would stick to fiscal commitments linked to the deal.

The leu extended earlier losses, falling 0.8 percent lower to 4.245 against the euro, and dealers said the central bank had stepped in to stabilise the currency.

The stock market also dropped 1.2 percent, underperforming gains for the region's other bourses.

But analysts said they did not expect a more severe market reaction in the short term because there were negligible long leu and Romanian bond positions among international investors that could potentially be unwound.

Following are comments from analysts after PSD's decision:

MARKO MRSNIK, ASSOCIATE DIRECTOR, STANDARD & POOR'S

'If this situation leads to the government failing to adhere to the IMF-EU consolidation programme, leading to a continued worsening of public finances and if there is a deterioration in the banking sector, then there are further downside risks to Romania's credit rating.'

GHEORGHE POGEA, FINANCE MINISTER, ROMANIA

'We will respect our commitments (to the IMF and EU).'

'We have noticed some rise in revenues, so we are confident the deficit will be below the IMF's ceiling.'

KENNETH ORCHARD, SENIOR ANALYST, MOODY'S INVESTORS SERVICE

'It's not unexpected to have political turmoil ahead of the presidential elections.'

'Political noise in Romania acts as a cap on its ratings, preventing it from going up.'

'The medium-term risk is if the (IMF and EU) programme is put on hold. This could have implication on its ratings.'

'The outlook remains stable. A certain amount of political noise is already factored into our rating.'

'The main risk to our rating is that the IMF and EC become frustrated with the lack of progress on structural and fiscal reforms and diminish their support for the country. However, the international organisations have been remarkably tolerant of Romania's slow pace of reforms over the past six months.'

'We think that they will wait until after the election -- perhaps early 2010 -- before pushing for a rapid resumption of the reform agenda.'

MIROSLAV PLOJHAR, EMEA ECONOMIST, JP MORGAN

'That the government could fall has been known for relatively long time. The government was put together relatively quickly and the likelihood that problems could arise has been there from the beginning.'

'At the present situation when optimism on markets is relatively large, the political situation will not have a significant impact on the Romanian market, the political situation was never too rosy there.'

'What would affect the market would be if there were problems with a new government, if this one ends, and if it keeps pledges made to IMF and EU for the emergency package.'

FOREX DEALER ON POTENTIAL CBANK INTERVENTION

'It's a definite reaction (to the resignation). It could have been worse (for the leu) if the central bank hadn't been in the market.'

ANOTHER FOREX DEALER ON CBANK INTERVENTION ON LEU

'The leu started to fall from 4.22 when expectations that the PSD will resigned increased in the morning. The central bank is already in the market now.'

NICOLAIE ALEXANDRU-CHIDESCIUC, ANALYST, ING BUCHAREST

'It will be hard to make the right decisions, and if a minority government replaces this one it will be complicated to pass reforms and there is a significant risk that the IMF conditions won't be met.'

'If we can't keep the IMF deal, then imbalances will become larger, especially the budget deficit and a correction afterwards would be more difficult and more painful.'

'It will prolong the pain and recession at a time when things were seeming to go in the right direction. It will impact both markets and the real economy.'

ROZALIA PAL, ANALYST UNICREDIT TIRIAC BUCHAREST

'This is going to negatively impact (the economy). I see an enormous risk for the budget deficit this year ... Cost-cutting reforms may be delayed, everything remains unclear.'

KOON CHOW, STRATEGIST, BARCLAYS CAPITAL

'It's still very early days and one should be careful in jumping to conclusions. But of course one needs to see how a minority government, if that's what we do get, can continue to adhere to the IMF programme. That's key.'

'In terms of immediate market responses, while sentiment is of course going to be negative impaired by such a development, it is unlikely that there were sizeable longs in the Romanian leu, whose exit would be triggered by such a move.'

'Also with bonds, positions were negligile.'

'In addition, if there are politically related pressures in the market, the central bank can, if it chooses, step in to stabilise the market.'

LARS CHRISTENSEN, ECONOMIST, DANSKE BANK

'The collapse of the Romanian government is clearly negative as it means the .. the only remaining party in the government will not be able to push through the fiscal tightening and labour market reforms agreed with the IMF.'

'Hence, there is a risk that IMF deal might fall apart. The RON has already been under some pressure and we would expect the pressure to intensify on the back of this.'

RAFFAELLA TENCONI, CHIEF ECONOMIST, WOOD & CO.

'It's negative but I wouldn't panic. The worst that could happen is that the next (IMF) tranche will be delayed for a few months, I don't think the next government will walk out of the programme.'

'It's earlier than I expected. It does create a risk for the IMF programme and it does create a risk for the leu.'

'Probably if the PD-L will go for a government with the PNL, this would be better for the implementation.'

'I do expect the central bank to stay in the market for a while.'

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