Nov. 20 (Bloomberg) -- Romanian voters will try on Nov. 22 to elect a president and break a political deadlock that has depressed the value of the currency, driven away investors and stalled the payment of a bailout loan. They will probably fail.
The leading candidates, incumbent Traian Basescu and former diplomat Mircea Geoana, lack enough support for outright victory, opinion polls show. With 10 others vying to woo 18 million eligible voters, the election will probably go into a second-round runoff on Dec. 6.
The 10-month-old government collapsed on Oct. 13 after a no-confidence vote and Basescu failed to win lawmaker support for a new premier. The law forbade him from calling early elections within six months of the end of his term, leaving the new president to end an impasse that risks weakening the leu and pulling down bond and stock prices as investors may shy away from the European Union’s second-poorest state. It’s already stalled payment of the latest installment of bailout money.
“The important thing in this election is to get a government,” Nicolaie Alexandru-Chidesciuc, the chief economist at ING Bank Romania SA. “It doesn’t matter so much who’s elected as whether the new president can form a government and end the uncertainty.”
Until a new government is formed, Prime Minister Emil Boc remains in charge, albeit in a limited role. If an agreement on a permanent replacement is not reached after a new president takes office, early elections may be called for March or April.
The economy, the fastest growing in the EU last year, shrank an annual 7.1 percent in the third quarter and unemployment doubled as companies including carmaker Dacia SA, chemicals maker Azomures SA and ArcelorMittalRomania SA fired workers.
The leu fell to a seven-month low and bonds plunged the day after the government collapsed over a dispute about budget cuts needed to meetInternational Monetary Fund demands and help bring Romania closer to adopting the euro as early as 2015.
The currency has recovered since then, rising 0.4 percent since the no-confidence vote, though the yield on the benchmark international sovereign debt due June 2018 is up 19 basis points at 6.398 percent, according to Bloomberg data.
“What matters most for the markets and the economy is that the country be able to stick to the IMF guidelines for recovery,” said Alexandru-Chidesciuc.
A continuation of the stalemate may hurt markets further because of the inability to pass legislation in line with IMF limits, said Raffaella Tenconi, chief economist at Wood & Co. in Prague.
The IMF is withholding disbursements from the 20 billion- euro ($30 billion) international financing bailout package as it awaits a budget plan.
Though a payment should be made in January, “the potential for political instability could delay” further payments, Tenconi said. “We expect significantly greater leu depreciation risks in the near term. The political environment is likely to undermine prospects for capital inflows.”
Basescu, 58, a former tanker captain supported by the Liberal Democratic Party, and Geoana, 51, who heads the Social Democrat Party, would each get 32 percent in the first round, according to a Nov. 18 survey by the INSOMAR polling institute. The survey, which has a margin of error of 3 percent, shows Geoana winning the runoff with 54 percent versus Basescu’s 46 percent.
The Liberal Democrats hold 167 of Parliament’s 471 seats while the Social Democrats have 158 and the Liberals 79. After Parliamentary elections a year ago, the Liberal Democrats and Social Democrats joined under Boc.
Whoever emerges as the next president would have to seek compromises across party lines for a new premier because neither the Social Democrats nor the Liberal Democrats have enough seats to support a candidate on their own.
Finding that support may be easier for Geoana than Basescu, said Alina Mungiu-Pippidi, a political analyst at the Romanian Academic Society in Bucharest.
Basescu twice this month failed to name a new premier. His first candidate, Lucian Croitoru, a central bank
“We need a government very fast,” Mungiu-Pippidi said. “But I really doubt Mr. Basescu could form the majority he needs in Parliament even if he wins allies from other parties and the independents.”
Basescu and Geoana have said they favor a premier who would meet IMF conditions of a narrower budget deficit, though they differ on tax policy and other areas. The winner must have a wide enough margin to ensure he has the influence to help create a stable majority government.
“The worst outcome,” Tenconi said, would be a close result between the two main candidates, giving the winner a weak mandate to form a government. “The government would be unstable and would likely fall in the not-too-distant future.”
To contact the reporter on this story: Adam Brown in Bucharest firstname.lastname@example.org; adviser, was rejected in a 250-189 vote, while lawmakers have refused to vote on his second choice, Liviu Negoita.