Friday, May 6, 2011

ANALYSIS-Bitter austerity bears fruit for Romanian PM

By Radu Marinas

BUCHAREST, May 5 (Reuters) - Romania's prime minister's approval ratings are wallowing at 16 percent for doing what no other post-communist leader dared -- slashing public wages, hiking value-added tax and sacking tens of thousands of public employees.

Yet when the ruling party votes on whether to re-elect Emil Boc as its leader, he is expected to retain the position, and remain favourite to stay on as prime minister after next year's election, thanks to a reputation for getting things done and, most importantly, his close ties to the president.

President Traian Basescu wields significant influence in the Democrat-Liberals party and the country despite a largely ceremonial role.

"Given that the Democrat-Liberals depend on what Basescu does in 2012, Basescu's will will prevail on May 14. And Basescu prefers Boc," said independent political analyst Bogdan Teodorescu.

Unless the opposition can achieve an outright majority in parliament next year, Basescu is almost certain to use his power to reappoint Boc, who has overseen a 20-billion-euro international bailout and an economic turnaround.

Analysts say there is little to fear from the opposition.

The three opposition parties have made a loose alliance which, when added up, scores a combined 59 percent in opinion polls, but analysts say there is little chance that they will maintain their cooperation and win the election as a coherent and credible force.

USL leaders Victor Ponta and Crin Antonescu are young and inexperienced and lack a clear manifesto, and the credibility of the combined opposition has been undermined by the repeated failure of no-confidence motions against the government.

The three-party ruling coalition currently stands at just 25 percent in surveys, but the gap is narrowing and analysts still expect Boc's Democrat-Liberals to emerge as the largest party and either renew the existing coalition or form a new one.

Even if they come a close second, Basescu could still nominate Boc to try to form a government.

SOLID FOOTING

In contrast to neighbouring Hungary, Romania has shown commitment to its IMF safety belt as it aims to cut the fiscal gap to 3 percent of GDP in 2012 from 6.5 percent last year.

Boc's tough austerity measures have included a 25 percent cut in public wages and raising value-added tax by five percentage points to one of the highest in Europe at 24 percent.

The measures are now bearing fruit. The economy has resumed quarter-on-quarter growth, the leu has risen 3 percent against the euro this year, and the interest rates on Romanian debt have eased.

"Romania has just made an incredible amount of progress since mid-2010," said Barclays Capital economist Daniel Hewitt.

"The economy is on the right track, consumers are eventually gaining confidence. The way they did the reforms by doing kind of a shock therapy, taking hard measures upfront, will pay off."

Now Boc -- whom critics call "the president's man" or "yes man" for mirroring Basescu's themes and speeches -- has agreed a new precautionary deal with the IMF under which Romania will only borrow money if needed.

He should be able to pursue policies such as speeding delayed privatisations through and potentially relaxing social insurance taxes.

"The markets have priced in the Democrat-Liberals' holding on to power," said Nicolaie Alexandru-Chidesciuc, chief economist at ING Bank. "Most important for the markets is that the IMF/EU reform programme continues."

STABILITY

Leadership of the main governing party is not a condition of being prime minister, but it is an important factor in maintaining Boc's profile and would send a clear signal that he will lead the election campaign.

A defeat would put strain on the coalition and raise questions over both the premiership and IMF programme.

Basescu has made his preferences known by criticising Boc's main opponent, former interior minister Vasile Blaga, who was praised by the European Commission for his graft-fighting drive.

"It is clear Romania cannot be governed in a populist way," Basescu said in a television interview in early May, in remarks interpreted as clear backing for Boc.

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