Thursday, December 24, 2009

Romanian Parliament Approves New Centrist Government

BUCHAREST (Reuters) - Romania's new centrist coalition won parliamentary approval on Wednesday, promising painful action to tackle the financial crisis and meet the requirements of an IMF-led international aid deal.

Prime Minister Emil Boc pledged measures "which are not necessarily popular but badly-needed," and analysts said he faces one of the toughest jobs in Romania's post-communist history as his government must speed up economic recovery while preparing to adopt the euro currency.

Boc said his main priority was parliamentary approval by mid-January of a budget to cut the deficit to 5.9 percent of GDP from an estimated 7.3 percent this year. This belt tightening is essential for meeting the International Monetary Fund's demands and unlocking the stalled 20 billion euro aid package.

Wednesday's vote solved a three-month political crisis but Romania may yet face long term instability as feuding political parties look no closer to setting aside their differences on making the reforms needed to fight the recession.

Boc's line-up is built around his Democrat-Liberal party and comprises an ethnic Hungarian party and independent allies. The cabinet faces three years with no elections if it can complete its term but has only a slim parliamentary majority.

"The fact that the next election is quite far away, it's clearly a positive, especially since other countries in the region have elections in 2010," said Nicolaie-Alexandru Chidesciuc of ING Bank in Bucharest.

"The problem with having a fragile majority is obvious. It'll make reform implementation more difficult. Support comes from independents and their backing is not safe in longer term."

However, analysts say parliamentary endorsement for Boc's team was good news for financial markets and could provide short-term support for the leu currency. The leu led gains in emerging European economies on Wednesday.

AUSTERITY BUDGET

A draft budget, imposing up to 100,000 job cuts in the state sector and a freeze of pensions and wages including keeping the minimum salary at 600 lei ($204) a month, is expected to be finalised by the new cabinet later on Wednesday.

"My priorities are: observing commitments under the accord with the IMF and the European Commission," Boc told parliament.

"2010 will be also a difficult year ... we must be aware that before we reach a bit of wellness we have to undergo a bit of hardship ... so I will need to take responsibility for measures which are not necessarily popular but badly-needed."

Romania has already taken harsh measures to cut spending this year -- including freezing wages and laying off 1.3 million public workers for 8 to 10 days -- but the 2010 budget still depends on quick parliament approval.

The IMF said last week it was optimistic Romania could receive its next loan tranches in February, which together with an European Commission aid disbursement could amount to 3.3 billion euros ($4.72 billion).

Boc's task getting the 2010 budget through parliament next month should be straightforward as his coalition has up to five votes more than the necessary majority. His cabinet won Wednesday's confidence vote with 276 in favour and 135 against.

But market watchers said Boc may struggle to get longer-term economic and judicial reforms through parliament due to a strong leftist opposition and possible absenteeism, a frequent problem in the Bucharest legislature.

"Work ahead is not going to be easy, as the government is actually relying on the tacit support of numerous independent/(ethnic) minority MPs, making a vote of no-confidence always a possibility," said Cheuvreux strategist Simon Quijano-Evans.

(Writing by Radu Marinas; editing by David Stamp)

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