Monday, June 14, 2010

Romanians Pine for Ceausescu’s ‘Order’ as Premier Pushes Cuts

June 14 (Bloomberg) -- Georgeta Simionescu joined hundreds of nurses, clerks and doctors waving banners in Bucharest last week outside the gargantuan palace built by former Romanian dictator Nicolae Ceausescu, and pined for the “old order.”

Ceausescu, who ruled the former communist country before he was shot in the 1989 revolution that brought democracy, stood for “order and stability,” said the 67-year old Simionescu in front of the building that is now home to the country’s lawmakers. “He would protect us.”

Prime Minister Emil Boc faces a no-confidence motion in parliament tomorrow over budget-cutting measures, which include reducing public wages by 25 percent and pensions and jobless benefits by 15 percent to avoid Romania becoming the next Greece. Romania is joining governments from Spain to Germany in slashing spending and the EU has crafted a 750 billion-euro ($905 billion) rescue package to save the euro.

Boc, 43, is caught between placating voters and reassuring the International Monetary Fund and investors, who have poured 22.4 billion euros into Romania since it joined the EU. Investors are wary about his resolve to reduce the deficit, while economists have also raised concern the measures will erode the economic recovery in the country, the EU’s second- poorest after Bulgaria.

Credit-default swaps are the second-highest in the EU, behind Greece, and the Romanian leu has fallen to the lowest level this year as the Greek debt crisis roiled the Balkan region. Credit-default swaps linked to five-year bonds rose to 407 basis points on June 8, when Parliament scheduled the vote, according to CMA DataVision prices. The cost of insuring against default on the country’s debt is now the highest since July 13.

‘Ongoing Uncertainty’

“The ongoing uncertainty regarding the passage of the relevant legislation in particular and the upcoming no- confidence vote are among the key factors behind the recent deterioration in Romania’s relative performance in credit markets,” said Citigroup Inc. economists Ilker Domac and Engin Dalgic in a June 10 note to clients.

Romania failed to sell debt on June 7 for the fourth time since the beginning of May. The Finance Ministry rejected all bids for 1.2 billion lei ($343 million) in one-year bills and 600 million lei in three-year bonds it planned to sell at the previous auction on June 3. Five-year notes sold on March 11 to yield 5.17 percent are now trading at a yield of 6.34 percent, according to prices on Bloomberg.

“The government’s credibility or the probability to actually see the measures implemented is pretty low as far as the markets are concerned,“ ING Bank Romania Chief Economist Nicolaie Alexandru-Chidesciuc said.

Weakening Currency

The leu lost about 2 percent against the euro in the past month. It will probably fall about 3 percent by June 2011 to 4.35 per euro because of concern over the government’s spending reduction plans, ING’s Chidesciuc said on June 7. He had previously predicted the leu to rise.

Romania’s largest opposition party, the Social Democrats, needs 236 votes to topple Boc, while the premier can count on 257 votes. State worker unions are staging daily protests in front of the parliament as well as city halls across the country to urge lawmakers to vote against the government. They plan a human chain around the parliament building to block its entrance when the vote takes place.

Boc’s plan to cut wages and pensions to meet an IMF- required budget deficit of 6.8 percent of gross domestic product may push the recovery back a year, according to ING Groep NV, BNP Paribas SA and Morgan Stanley.

Neighbors Doing Better

Romania’s economy will continue to “underperform” its neighbors for the rest of the year as the government tightens spending, BNP Paribas analysts wrote in a note on June 3. The economy will be pinched this year, after shrinking a record 7.1 percent in 2009, London-based Morgan Stanley economist Pasquale Diana said on June 2.

Romania’s economic contraction slowed to an annual 2.6 percent in the first quarter from 6.5 percent in the previous quarter as industry and export growth partly offset plunging construction and consumption. The government and the IMF predict the economy will contract as much as 0.5 percent this year and return to growth in 2011.

Madalina Ionescu, a 51-year-old nurse, makes 1,700 lei ($488) a month, after 30 years of service. That’s below the average wage of $566, which in turn is less than half the average pay in the Czech Republic and Poland, two eastern European nations that dropped communism for free-market economies in the same year as Romania.

“This government is no longer doing what it’s supposed to be doing, to protect its citizens,” said Ionescu.

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