Romania: IMF loan frozen due to political crisis - full text
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The International Monetary Fund (IMF) on Nov. 11 withheld the latest instalment of its Stand-by Arrangemnt (SBA) loan to Romania, citing the failure to form a new government. Being unable to access the IMF funding forced Romania to borrow funds on the more expensive open credit markets. Romania has been without a government since Emil Bocs minority National Liberal Party (PNL) government was brought down by a vote of confidence in early October. Parliament (the bi-cameral legislature) rejected President Traian Basescus proposed replacement, the economist Lucian Croitoru, on Nov. 4. A care-taker government is likely to continue until at least Nov. 22 when the country is set for a presidential election.
Immediate Context
The IMF loan, a 24-month Stand-by Arrangement (SBA) worth around 12.9 billion euros (US$1.00= 1.1201 euros as at Nov. 13, 2009), formed part of a package (to which the European Union, World Bank, and European Bank for Reconstruction and Development were also contributing) to disburse 20 million euros to Romania in quarterly instalments. In a press release dated Nov. 6, the IMF confirmed that while the management of Romania's economy had been generally satisfactory over the quarter, the position of the interim government - including its inability to submit a budget - meant that the release of the next tranche of money had to be delayed. The SBA had been agreed in May and the first payment under it, worth around 1.85 billion euros, had been disbursed in September.
The previous government under prime minister Emil Boc, initially a coalition between the Social Democrat (PSD) and Liberal parties, had taken office in 2008. It replaced the government of Calin Popescu-Tariceanu, which had been dominated by the Justice and Truth Alliance (DA) and later by a coalition of the PNL and Hungarian Democratic Union of Romania (UDMR). The Boc government's tenure had been characterised by inter-faction quarrelling, not least over allegations (and stalled investigations) of graft. The pressures of the global recession, which saw Romania's economy reverse a 2008 growth rate of seven percent to register an expected eight percent contraction in 2009, intensified local calls for reform. President Basescu's own proposed reforms, including the abolition of the upper house of Romania's bicameral legislature, had polarized Romanian politics and become mired in opposition.
Basescu's personal reputation also suffered: he faced allegations of nepotism relating to appointments given to his daughter, and faced claims that he had asked his brother to surrender shares at a military supplier when reports emerged that it had sought state contracts. Basescu had also been accused of using racial slurs, and was filmed driving while under the influence of alcohol. The October 13 vote of no confidence that dismissed the cabinet, the first such vote in Romania's post-Communist history, had been brought following the withdrawal earlier in October of the PSD over the dismissal of the interior minister, and saw 254 (against 176) MPs vote against the standing government.
Following the Boc government's collapse President Basescu had proposed Lucian Croitoru as the new Prime Minister. Croitoru - lacking support among the numerous opposition members in Parliament, who regarded him as a Basescu loyalist - was rejected in the legislature on 5 November. On Nov.6, Basescu nominated Liviu Negoita who was able to nominate an interim cabinet; as of Nov. 14, Paliament had not met to vote on his nominations.
Reaction and Outlook
In response to the IMF's announcement, Romanias cost of borrowing on the financial markets increased. The currency, the lei, was however relatively little affected. The interim government announced further economic austerity measures to ensure future compliance with the IMF's terms, including mandatory unpaid leave for state employees, a move considered likely to provoke domestic dissatisfaction in the wake of mass public sector strikes over cuts during October.
The IMF, according to a Reuters news agency report on Nov. 18, told a Brussels meeting of the European Bank Coordination Initiative Group that it anticipated resuming talks in Bucharest when the political situation stabilized. At the same meeting nine international banks agreed to maintain an adequate supply of capital to their Romanian affiliates, a provision regarded as vital to the maintenance of the Romanian economy.
The first round of fresh presidential elections was scheduled for Nov. 22. If no candidate secured over fifty percent of the vote in this first round, a run-off was scheduled for Dec. 6. The four leading candidates were Mircea Geoana of the PSD, Crin Antonescu of the PNL, the independent Sorin Oprescu, and incumbent president Traian Basescu. Opinion polls in mid-November gave Basescu a lead of around ten percentage points, with Antonescu beginning to eclipse Geoana for second place. It was reported in several Romanian press outlets that United States Vice President Joe Biden had expressed his support for Mr. Geoana, claims that the US Ambassador to Romania, Mark Gitenberg, on Nov 18 denied, pronouncing the US neutral in the matter. It was anticipated that a new government would be formed following the elections in early 2010.
Historical Context
Romania entered the Second World War in alliance with Nazi Germany, despite having fought with the Allies in the First World War and having been rewarded with territorial concessions. When Soviet forces closed in on Romania in 1944 the government switched sides and agreed an alliance with Russia. A communist government was installed and fascist members of the former government prosecuted.
Romania remained under communist rule until a popular uprising in December 1989. The Romanian army refused to suppress the protesters and the Soviet Union declined to intervene. President Nicolae Ceausescu was captured trying to flee the country and he and his wife were executed. Democracy was established but members of the communist-era ruling class remained in power.
The former communists lost power to a centre-right coalition in 1996 though one former communist, Ion Iliescu, was elected president in 2000. Romania aligned itself further towards the West with mass privatisations in 2001. This was followed by membership of NATO in 2004. Romanias efforts to join the EU led to the European parliament passing Romanias accession in 2005.
Romanias entry to the EU was conditional on judicial reforms and the reduction of corruption. The country received repeated warnings that reform was too slow and that entry could be delayed. In response, the Romanian anti-corruption directorate made some progress on high level corruption, indiciting Adrian Nastase (prime minister 2000-04). The EU was satisfied with these measures and admitted Romania on 1 January 2007.
