Thursday, December 24, 2009

FT: Turmoil ends with Bucharest anxious for aid

By Chris Bryant in London

Published: December 23 2009

Romania attempted to leave behind weeks of political turmoil on Wednesday when parliament approved a new centrist government that will seek quickly to restore much needed financial assistance from the International Monetary Fund.

Parliament voted 276 to 135 to endorse a 15-member cabinet led by Emil Boc, the prime minister, who spoke of the “need to return to reason and stability” after three months of political deadlock.

The leu, Romania’s currency, rose to a three-month high following news of the government’s confirmation.

Twenty years after a revolution toppled the communist dictatorship of Nicolae Ceausescu, the new government faces a challenging year as it seeks to restore economic growth and narrow the budget deficit, while hold together a fragile coalition.

Romania has been ruled by a caretaker government since October, when a previous administration led by Mr Boc collapsed, forcing the IMF to put a €20bn ($29bn, £18bn) aid package on hold. The prime minister is an ally of Traian Basescu, the president, who was re-elected in bitterly fought elections earlier this month.

The new government is composed of members of Mr Boc’s Liberal Democrat party (PDL), the ethnic Hungarian UDMR, as well as independents.

Its priority will be to pass a credible budget that will persuade the IMF to unlock payments to the recession-hit country as early as ­February.

“The fact that we have a government is good news,” said Ionut Dumitru, chief economist at Raiffeisen Bank Romania.

“They can now implement the measures needed to comply with the IMF requirements.”

The IMF is pressing Romania to narrow its budget deficit from 7.3 per cent to 5.9 per cent in 2010, forcing the new government to consider a range of austerity measures.

Although Mr Boc has promised to maintain the 16 per cent flat tax and 19 per cent sales tax, he is expected to cut about 100,000 public sector jobs and freeze public sector wages next year. The cabinet also plans to adopt a fiscal responsibility law and reform the creaking pensions system.

The economy is forecast to contract by at least 7 per cent this year, before returning to modest growth of 1.3 per cent next year.

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