Economic outlook continues to deteriorate
According to the World Bank Romania’s economy could contract by 7-8% in 2009. The bank cites the slower than expected consolidation of the international financial market and the structural problems of the Romanian economy as reasons for the pessimistic report. This is also in line with the forecast of ING Bank analysts. The government cannot afford fiscal relaxation as the council of the finance ministers in the EU (ECOFIN) has started the Excessive deficit procedure on the 7th July against Romania. The country was called upon to bring the budget under the Maastricht criterion of 3% until 2011. The report also calls on Romania to accelerate its pension reform, to improve the efficiency of the health care system among others. It also emphasises the need for an independent fiscal council and to restructure the salary system in the budgetary sector. This will be especially hard in light of the rising rate of unemployment: between May 2008 and June 2009 unemployment increased from 3,7% to 6%.
Analysis and forecast (↑ increasing risk)
The series of bad news for the Romanian economy has continued in the past few weeks. While the Romanian Central Bank (BNR) remained positive and cut the interest rate to 9%, other bodies, including the government and the president are more pessimistic: the Finance Ministry expects a 6.5% shrinkage. According to analysts at ING Bank, a 7% drop is also possible, while the World Bank predicts a 7-8% decrease in its latest forecast. It seems certain now, that Romania will need to renegotiate the loan agreement with the IMF. The budget deficit was set at 4.6%, but this estimate was based on a GDP drop of 4%. At present however,, even the most optimistic views are below that number. In addition, the political parties are preparing for the presidential elections taking place sometime in November, and the IMF has already warned of possible populist measures which could make the agreed deficit goal even harder to reach.
Another condition in the IMF agreement challenging the big coalition is the reform of the public sector. The government will have to cut the number of state employees by at least 200 000 to fulfil its obligation. The Social Democrats (PSD) will strongly oppose this measure and this can put them in a conflict with the Liberal Democrats (PDL) in the near future. Further clashes are expected when the government will release the draft legislation aimed at defining the list of state-funded health services, as it implies the introduction of consultation fees which have already faced very strong opposition in Hungary and the Czech Republic.
Source: Interviews and the websites of the above institutes, Political Capital compilation
Source: National Institute of Statistics
Presidential campaign preparations
President Traian Băsescu is leading the presidential election polls: the incumbent president is supported by 35% of the voters, while the other two major candidates Mircea Geoană (PSD) and Crin Antonescu (PNL) have 25% and 20% respectively. The Hungarian Democratic Union of Romania (UDMR) named Hunor Kelemen as their presidential candidate.
Analysis and forecast (↓ decreasing risk)
The election campaign is slowly picking up steam. With the nomination of Hunor Kelemen as presidential candidate, UDMR can start to focus on its campaign. The party hopes to keep up the momentum after the successful European Parliamentary Elections. According to his statements, Kelemen will try to reach out to Romanians as well by pointing out the need for reforms in the public administration and by advocating for restoring the balance of power between the president, the government and the Constitutional Court.
President Traian Băsescu is also not wasting time. He has become very active in day-to-day politics, taking every chance to make a statement to convince the electorate of his worthiness. His strategy seems to consist of three elements: to demonstrate that he represents all Romanians, that he is the most competent leader and that he puts Romania’s interests above politics. His speech in Miercurea Ciuc on the National Flag Day is a good example of the first point. He spoke about the importance of the army because it represents the unity of the nation and he would be glad to see an ethnic Hungarian officer. The second strategic element can be seen in his increasingly critical remarks on the government and the public institutions. To show that he does not care about politics when it comes to Romanian interests, in May he stated in Paris to the Romanian community in France that he now regrets the support for the big coalition which then was the only option to guarantee the stability of the country. He later put out a statement following the scandal around sport and youth minister Monica Iacob-Ridzi in which he reaffirmed that he will suspend any minister who becomes a subject to criminal prosecution.
Source: Central for Urban and Regional Sociology