Thursday, December 6, 2012

Romania’s election: more of the same?

Financial Times,
December 05, 2012

Most Romanians will be pleased to see the back of 2012, a year that began with a bitter winter of street protests against austerity and government heavy-handedness, then saw the toppling of two prime ministers, the failed impeachment of an unpopular president, and a constitutional crisis that brought international opprobrium.

But the year may have one more drama in store: on Sunday, Romanians vote in a general election. The governing coalition seems certain to win but Romania’s constitutional set-up means a rather different administration could take shape. Whatever government emerges will be under pressure to negotiate a new deal with the International Monetary Fund and restart reforms to trim the public sector.

A poll published on December 4 suggested the Social Liberal Union (USL) headed by Victor Ponta, the social democrat prime minister, would win 57 per cent of the votes. The Right Romania Alliance (ARD), aligned with Traian Basescu, Ponta’s rival and the country’s president, is on 17 per cent. The new populist force of TV presenter turned media tycoon Dan Diaconescu and his People’s Party (PPDD), is on 15 per cent.

The poll, commissioned by public broadcaster TVR, suggests the USL would win an outright majority, giving Ponta a clear mandate. There are concerns that the prime minister could then relaunch his efforts to topple Basescu (pictured) and strengthen government control over state institutions. In the summer, his attempts to change the constitutional court, replace the ombudsman and alter the way laws were transcribed drew strong protests from Romania’s European Union partners.

Should the USL fail to win an absolute majority, Basescu would be constitutionally mandated to choose the prime minister. The tough and stubborn president could well try to form a coalition between the ARD and the PPDD, or appoint Ponta only on condition that he jettison his hardline coalition allies, including Liberal leader Crin Antonescu, who covets the president’s job, and Conservative Party media tycoon (and avowed foe of Basescu’s) Dan Voiculescu, whom some see as one of the powers behind the USL throne. However, the president’s political stock is very low and the parliamentary arithmetic is unlikely to stack up in his favour.

Basescu’s term expires in 2014, so almost two years of uncomfortable cohabitation may be in prospect. Romania badly needs a stable government and an end to constitutional shake-ups. Investors have given the country short shrift this year thanks in part to the political situation. Foriegn direct investment in Romania was just €1.1bn in the first nine months of 2012, down from a record €9.5bn in the same period of 2008, and the currency, the leu, is near an all-time low. The economy shrank by 0.5 per cent in the last quarter and growth is expected to be less than 1 per cent for the full year.

Romania is also feeling the effects of swingeing austerity imposed by pro-Basescu governments, which were replaced by the USL after a vote of confidence in April. Having followed pro-cyclical, loose fiscal policy during the good years at the middle of the last decade, Romania embarked on similarly pro-cyclical tightening once the boom came to an abrupt end in 2009.

Romania has been praised by the likes of the IMF and ratings agencies for its determination in forcing through measures including a 25 per cent cut in public salaries. Indeed, the previous government overshot the IMF’s deficit reduction targets, allowing its Ponta-led successor some space for pre-election loosening.

A new standby loan with the Fund is likely to be a priority for the next government – provided it is not preoccupied with infighting or with purging Basescu and his allies. An agreement should help strengthen investor confidence. But Romania will be under pressure from the IMF and the EU to make good on previous promises to reduce the burden on the public purse of state companies such as airline Tarom, rail freight operator CFR Marfa, and chemical complex Oltchim. Past experience suggests that such sell-offs are not easy; often, they have been botched.

On the other hand, Romania has a large domestic market, some useful natural resources, a diversified economy, a well-educated workforce and a strategic location. Romanians aware of their country’s potential will hope it gets the government it deserves – and that next year will be an improvement on this one.

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