Monday, November 23, 2009

PREVIEW-Romanian crisis hinges on presidential vote

By Radu Marinas

BUCHAREST, Nov 20 (Reuters) - Romania holds a closely fought presidential election on Sunday that investors hope will resolve a government crisis that is holding up IMF aid and revive momentum for political and economic reforms.

Opinion polls show centrist incumbent Traian Basescu holding a slim lead with about 33 percent support, compared with 30 percent for his left-wing challenger, Mircea Geoana. The third candidate, Crin Antonescu, has about 18 percent backing.

A second round of voting between the top two candidates will take place on Dec. 6 if no one wins an absolute majority.

Most opinion polls point to a runoff between Basescu and Geoana. They show them running neck-and-neck in the second round, although two recent surveys have shown Basescu just behind but within the margin of error.

The centre-left coalition government collapsed last month, just weeks before the election, as a result of party feuding. The new president is expected to appoint a prime minister to form a new cabinet.

Its main task will be to win back the trust of international lenders, including the International Monetary Fund and the European Commission, and restore investor confidence damaged by political instability and back-pedalling on reforms.

With the presidential vote too close to call, what kind of government will emerge is unclear. Whoever forms it will have three election-free years to overhaul bloated public finances and clear out a political class steeped in murky deals and graft.

Broad reforms are vital. Twenty years after the end of communist rule, Romania, a Balkan country of 22 million people, remains one of the poorest and most corruption-prone corners of the European Union.

'Most other countries seem to have already done these reforms, it's ancient history for them ... and Romania is losing the confidence of investors as it still struggles with them,' said Daniel Hewitt, Barclays ( BCS - news - people ) Capital senior economist in London.

'But having three election-free years is its best chance to reforms.'


In the short-term, mending relations with the IMF will be vital to restore payments from Romania's 20 billion euro aid package led by the Fund earlier this year, and to ensure the economy moves smoothly out of recession.

This will require passing a sound budget plan for 2010 and making further cuts in public spending, particularly difficult ahead of the election.

The new president will have little direct effect on policy implementation but he will play a vital role in helping build a sound coalition after the election.

If Basescu is re-elected, he may try to revive his drive against corruption which won him votes in 2004. To see reforms through, the former sea captain may have to change the confrontational style that has alienated politicians across the spectrum.

After sweeping into office in 2004 on promises of reform, Basescu has seen his support crumble from 50 percent at its peak, as voters have lost patience with slow progress.

His main opponent, Geoana, is seen as less likely to tackle graft with a firm hand. A government formed around his Social Democrat Party, dogged by sleaze scandals, would be less motivated to reform public finances than a centre-led cabinet.

Both politicians support Romania's IMF deal but the third candidate, Antonescu, has said in the past the agreement should be renegotiated.

'There's a great deal of tension from the investors' side as to what it (the presidential election) means for the government, and further what it means for the budget,' said Jon Levy from Eurasia Group think tank.

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