Thursday, December 20, 2012

IMF deals in doubt after Romania slows state sell-off

By Radu Marinas

BUCHAREST, Dec 19 (Reuters) - Romania's new government delayed sales of state assets on Wednesday, going against an agreement with the International Monetary Fund and raising doubts over its commitment to a new pact.

Leftist Prime Minister Victor Ponta, who won a Dec. 9 election, had reassured investors by saying he would replace a 5 billion euro IMF deal expiring in early 2013 but the proposals of his new administration could be an obstacle.

President Traian Basescu has eased concerns over a fresh political crisis by re-appointing his rival Ponta as premier, but markets remain on edge given the row between the two men that has delayed policy and sparked European Union criticism.

Ponta also proposed splitting the country's finance ministry in two, naming a budget and a finance minister in a division of responsibilities that could complicate talks with the IMF.

The leu slipped 0.2 percent against the euro on Wednesday to move away from a three-month high. Other regional currencies were also slightly weaker.

"This is a very bad signal for investors, who had expected marked progress in reforming of the state sector this year, especially privatisations," said Raiffeisen economist Ionut Dumitru.

The IMF has regularly criticised the EU's second-poorest member for failing to sell and reform its inefficient and oversized state sector, which is seen as holding back an economy that is only slowly emerging from a deep recession.

Minority listings in big energy firms like Hidroelectrica, nuclear powerproducer Nuclearelectrica, gas producer Romgaz and energy group Petrom would generate about 1 billion euros, according to Fondul Proprietatea, a fund set up to compensate Romanian victims of communism.


The leu is the worst-performing currency in the emerging EU this year due to Romania's volatile politics, in particular Ponta's failed attempt to removePresident Basescu from office in July that prompted charges of undermining the rule of law.

Ponta's government still needs parliamentary approval, which it will almost certainly win on Friday thanks to its overwhelming majority, but it will then be stuck working with the rightist Basescu again.

Romania has trimmed its budget deficit, which will probably fall below 3 percent of gross domestic product this year, but the IMF has become more critical of its failure to make longer-term reforms and make better use of EU cash.

So far, it has only made a secondary listing of shares in electricity grid company Transelectrica, which raised 38 million euros ($50 million).

The new government postponed the deadline for selling minority stakes in state controlled companies -- including Romgaz and Nuclearelectrica, as well as freight railway firm CFR Marfa and airline Tarom -- until the end of 2013.

The sale of a minority stake in gas pipeline operator Transgaz is also delayed.

"I think the IMF will find a way to give them a programme. But I wonder how committed they are," said Barclays Capital economist Daniel Hewitt.

Ponta said the finance ministry split was part of a cabinet expansion to from 19 to 27 ministers, which will include members of all three wings of his Social Liberal Union (USL) alliance.

The two men nominated to oversee the budget and finance - Liviu Voinea and Daniel Chitoiu - were in the previous cabinet. Ponta did not specify how the previous finance ministry's responsibilities would be split between them.

"I'm not sure how this structure will be beneficial for Romania," Raiffeisen's Dumitru said.

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