Wednesday, June 16, 2010

Leu Is Little Changed as Romania No-Confidence Fails by 8 Votes

By Krystof Chamonikolas and Piotr Skolimowski

June 15 (Bloomberg) -- The leu strengthened, then weakened and finally was little changed against the euro in late trading after Romanian Prime Minister Emil Boc survived a no-confidence motion by eight votes, clearing the way for economic austerity.

The leu was at 4.2272 per euro as of 7:04 p.m. in Bucharest, after gaining as much as 0.1 percent and depreciating as much as 0.2 percent following the vote.

Legislators today voted against a no-confidence motion filed by the opposition in an attempt to block austerity measures designed to meet the conditions of an International Monetary Fund loan. Boc has proposed reducing public wages by 25 percent and pensions and jobless benefits by 15 percent. The leu weakened as much as 0.4 percent against the euro before the vote, the lowest intraday level in more than a month.

“It is supportive for the market even if it is not good for the people,” said Murat Toprak, an emerging-market strategist at Societe Generale SA in London. “The government will be able to implement austerity measures to contain the deficit and keep the IMF program going. From an investor’s perspective, this reduces the sovereign risk.”

The European Union’s second-poorest member is relying on a 20 billion-euro ($24 billion) IMF and EU loan to resurrect its economy from recession. Romania stands to receive 2.5 billion euros from the IMF and 2.3 billion euros from the European Commission if it meets the deficit target of 6.8 percent of gross domestic product, agreed with the IMF as a condition of its loans, Boc said on June 7.

Even so, the government will need to borrow as much as 3 billion euros this year, he said. Boc’s plan to cut wages and pensions may push the economic recovery back a year, according to ING Groep NV.

‘Precarious’

The opposition and trade unions say the austerity measures will spark a social crisis. State worker unions have staged daily protests in front of the parliament as well as city halls across the country to urge lawmakers to vote against the government.

“The situation is starting to look precarious,” Nigel Rendell, a senior emerging-market strategist at RBC Capital in London, said by phone before the results. “The measures proposed by the government look rather harsh and they are facing widespread protests. There seems to be doubts whether the plan is feasible.”

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