Bloomberg News

Romanian Cabinet Wins Confidence Vote, Vows to Keep IMF Deal

February 09, 2012

(Updates with comments from ruling coalition members, economist from fifth paragraph.)

Feb. 9 (Bloomberg) -- Romanian lawmakers approved a new government as Prime Minister Mihai-Razvan Ungureanu pledged to pursue an international agreement and foster economic growth, a main condition for possible wage and pension increases.

Lawmakers voted 237-2 today in Bucharest in favor of the government’s program, which wants to keep the budget deficit within 3 percent of gross domestic product, Vasile Blaga, the chairman of Romania’s upper Senate house, said. Opposition legislators want to challenge the vote in the Constitutional Court, according to Mediafax. The ruling coalition, with a majority in parliament, faces general elections later this year.

“Our main goal is to consolidate all the good signs of the measures and reforms that have been undertaken so far and stimulate economic growth through investments and European fund absorption,” Ungureanu said before the vote. “We’re also looking to prudently increase public-sector wages and pensions if the economic conditions allow it.”

Ungureanu, 43, turned to a new generation of politicians to resuscitate the government’s fortunes after austerity measures, mandated under a bailout loan, sparked protests that turned violent last month. Bogdan Dragoi, 31, was named as finance minister and Lucian Bode, 38, as economy minister, to steer the Balkan nation’s growth as Europe’s debt crisis damps demand for exports and limits credit flows.

Functioning Coalition

“The ruling coalition works and that’s very good because we’ll have a stable government in the following months, but the hard part has yet to come during an extremely difficult period, when we have to prepare the local and parliamentary elections,” said Bela Marko, who was re-appointed vice prime minister, after the vote.

Opposition leaders will base its challenge to the vote on procedural grounds, Mediafax reported today, citing a statement. Opposition lawmaker boycotted the vote.

The Romanian leu, the seventh-worst performer among 25 emerging-market currencies tracked by Bloomberg so far this year, was little changed at 4.3519 per euro as of 3:40 p.m. in Bucharest. The leu posted two days of losses following the resignation of the government on Feb. 6. The Bucharest Stock Exchange’s BET index rose 1 percent to 5,082.88.

‘Surprising’ Timing

“Our view is that the departure of former Prime Minister Boc was surprising in timing, but doesn’t indicate a coming change in policy stance rather the pre-election positioning of the ruling parties,” Raffaella Tenconi, a London-based emerging-market economist at Bank of America Merrill Lynch, said after the vote. “We continue to see the cooperation with the IMF-EU as proceeding smoothly, which is supportive of the overall recovery of Romania”

Europe’s debt crisis has roiled financial markets, sparked protests and taken a political toll as well. Former Premier Emil Boc, who resigned on Feb. 6, is among seven European Union leaders who have already given up power, while Slovakia will hold snap elections in March.

Romania’s government has pledged to narrow the budget deficit to 1.9 percent of economic output this year from 4.35 percent in 2011 to meet the terms of the loan accord with the International Monetary Fund and the European Union.

The coalition is trying to regain voter support after accusations of corruption and two years of tax increases and government spending cuts, including a 25 percent reduction in public-sector wages, under the IMF-led loan agreement. The austerity measures prompted the most-violent protests in a more than a decade, leaving 60 people injured.

Corruption Report

The EU said yesterday that Romania needs to take “stronger action” to ensure transparency and revamp its judiciary, though “progress is visible.”

Romania relied on a 20 billion-euro ($27 billion) loan from the IMF and the EU from 2009 to 2011 to help it emerge from the deepest recession on record. The government secured another 5 billion-euro precautionary accord with the lenders to reassure investors it will keep fiscal discipline ahead of the elections. It doesn’t plan to draw on the money set aside.

The country’s economic growth will probably slow to as low as 1.5 percent this year, after output grew an estimated 2.5 percent in 2011, on declining exports to western Europe and weak domestic demand, according to IMF forecasts.

“Our top priority is to ensure economic growth through investments and European-fund absorption,” Dragoi said yesterday. “We’ll seek to attract 6 billion euros in European funds this year, which roughly means about 5 percent of GDP.”

President Traian Basescu nominated Ungureanu on Feb. 6 as a candidate for premier, hours after his political ally and Liberal Democrat leader Boc said he was resigning “to ease political and social pressure.”

--Editors: Alan Crosby, Elizabeth Konstantinova

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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