Friday, February 4, 2011

Romania PM tightens control as opposition dithers

By Radu Marinas

BUCHAREST, Feb 3 (Reuters) - Romania's Prime Minister Emil Boc has tightened control over his coalition and defeated opposition challenges, and now has a fighting chance in 2012 parliament elections.

Three opposition parties will agree to an alliance this weekend but analysts said this is little more than papering over the cracks and poses no a threat to Boc, in the short term at least.

"Boc stands strong and will keep power in the current formula until 2012," said independent political analyst Mircea Marian. "This year has the potential to be a better one as the economy is slowly recovering following tough measures."

The European Union's second poorest member, which depends on a 20-billion-euro International Monetary Fund-led bailout, has forced through harsh austerity measures that eroded Boc's popularity but did not stop him surviving four confidence votes.

The prime minister instead shored up the centrist coalition by imposing strict discipline on his own party and making concessions to the allied ethnic Hungarians, including a law to allow education in their own language.

Boc's successively wider margins in those confidence votes indicate future such challenges -- the only way to topple the government -- now have only a slim chance of success.

Analysts said the decision of opposition leader Victor Ponta's Social Democrats to strike an alliance with Liberal and Conservative parties will not shift the balance of power in parliament and is rather focused on bolstering support in elections due in late 2012.

The risk of a government collapse dominated market sentiment for much of 2010 and its new-found solidity may mean a smoother ride for investors, easing debt costs and propping up the leu currency.


While the government's commitment to the IMF deal has earned investors' confidence, Boc needs to ensure his sometimes unruly ministers stick to the same line, said Robert Luke, managing director at private equity firm GED Capital Development.

"Everybody needs to be on the same page with a clear direction and strong leadership and that's what foreign investors are looking for," Luke said.

The government reformed the outdated pension system, cut wages, sacked thousands of state employees and increased value-added tax to bring the budget deficit below an IMF-agreed target of 6.8 percent of gross domestic product.

Bucharest is currently negotiating a new IMF deal, which would further bolster confidence and give the central bank leeway to resume rate cuts once the inflationary effects of higher VAT start to fade later this year.

It would show Romania's willingness to implement further reforms such as restructuring and privatising inefficient state-owned companies, speeding up local government payment of debts to businesses and improving use of EU funds.

Romania sold 5-year debt at an interest rate of 7.16 percent in its last tender in January -- already lower than late last year -- and this could come down gradually to 6.8 percent by the end of 2011, said Nicolaie Alexandru-Chidesciuc of ING Bank.


The basic numbers still look bad for the government. The new opposition alliance had a combined 64 percent support in the most recent poll, versus just 15 percent for Boc's Democrat Liberals, and could yet force more no-confidence motions.

But with elections still nearly two years away, Boc has time to recover. His grim popularity ratings have already recovered from 10 percent and will probably benefit when an expected economic recovery kicks in later this year.

"The new alliance seems impressive as it coagulates the entire opposition, but it only really has potential to create noise," said political commentator Cristian Patrasconiu.

"The simple fact that they look bigger after pooling forces is not a guarantee that they can overthrow Boc, who can rise if predictions about economic recovery are confirmed."

Opposition MP Eugen Nicolaescu told Reuters it would not file a fresh no-confidence motion before the middle of the year.

"This new alliance made of Liberals, Conservatives and Social Democrats has nothing to offer to lure coalition partners to leave the current power structures," said political analyst Marian.

"It's just a way to present yourself as an alternative to the current government in future elections." (Additional reporting by Sam Cage, Editing by Sonya Hepinstall)

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