Still no light at the end of the tunnel for Romania



According to officials at the IMF, their GDP shrinkage prognosis will be adjusted and published on the 10th of August to take the latest batches of data into account, resulting in the prediction of a larger than expected economic contraction. This came as no surprise as the string of negative economic forecasts continued along with scores of negative economic-related statistical data in the last few weeks.


Analysis and forecast (↑ increasing risk)


More and more clouds gather over Romania’s economy. The IMF has so far held back concrete numbers, but its new figures can be more or less accurately estimated based on the predictions of other actors. Amid the ever growing number negative forecasts government officials realised that they risk their credibility, unless they embrace the harsh reality. Finance minister Gheorghe Pogea struck the negative tone first by announcing that this year’s GDP drop could fall between 6.5% and 7.1%. So far this has been the most pessimistic government statement, which stands in stark contrast even with the announcements of a month ago. Minister of Economy Adriean Videanu continued with the pessimistic line and said in an interview that the budget deficit goal of 4.6% is impossible to reach. He thinks that it can top 7%, almost 2.5% higher than the previous target. The roles now are reversed, because the official statements are bleaker than those of private actors. Moody’s predict a 5.7% GDP drop and a 6% budget deficit, while Standard’s and Poor’s numbers are 6% and 6.2% respectively.


The unemployment rate continues to be a problem. ING analysts foresee a rate of 8.5% for this year, and 10% next year. They base these chilling numbers on the assumptions that domestic consumption will continue to fall, and partly as a result a slow recovery is ahead for Romania. According to them the highest number of non-performing credits will occur in 2010. A number of statistics were published recently that seem support these predictions. The construction industry saw its greatest fall in Romania as compared to May of 2008. The drop was 23.7%, although this constitutes only a 1.7% fall compared to this April. The country’s inflation rate was also the highest in the EU at 5.9%. Furthermore, FDI in the first 5 months fell by 42% compared to the same period of 2008, but to counterbalance this, the current account deficit also dropped by 75.5% so the FDI could cover it.






Political troubles of the government could undermine voter confidence when it’s needed the most



Three ministers of the Romanian government have come under fire with charges of several types of misconduct. Monica Iacob Ridzi, Youth and Sports minister came under fire mainly from the National Liberal Party (PNL) for the misappropriation of state funds. The parliamentary commission tasked with investigating these allegations finished its work with two opposing reports, one accepted by member of the PD-L, Mrs. Ridzi’s party, and one accepted by the commission. Not surprisingly, the former accuses the other parties of falsely accusing the minister. The latter came to the conclusion that the anticorruption agency (DNA) should start an investigation, as it believes the accusations to be true. The PNL seeks to establish similar commissions to look into similar dealings of Elena Udrea (Minister of Tourism) and Nicolae Nemirschi (Minister for the Environment).



Analysis and forecast (↑ increasing risk)


An extraordinary parliamentary session was scheduled to debate the Ridzi case, but the minister went ahead, and offered her resignation to “spare the government the embarrassment” and the president accepted it in an hour. These scandals could seriously hurt the image of the executive, and the PD-L’s even more. The PNL, which is pushing most aggressively for the investigations, hopes to gain political capital by keeping these issues in the spotlight. It is helped by the new report of the European Commission whose main point is that Romania still does not combat corruption quite effectively. The PSD seems to be an ally of PNL in this, and this behaviour could drive a wedge between the big coalition members. In times of worsening economic outlooks nothing could be moreharmful. The crisis demands more austerity measures and the streamlining of the public administration. It is essential for the successful implementation of these unpopular steps to have widespread consensus backing them and there are more than enough examples of how these measures can be sabotaged and later overruled, as seen with the ill-fated Hungarian reform initiative of health care.






President Traian Băsescu stepped up his campaign



Băsescu is consciously preparing for the presidential election. He appeared in front of a potentially hostile crowd in Băile Tuşnad, where the Youth Camp of the Summer University was organized. He also gave a lengthy interview to Radio Free Europe / Radio Liberty which mainly dealt with issues surrounding Moldova.



Analysis and forecast (↓ decreasing risk)


Traian Băsescu is staying with the image of a president floating above political bickering. Almost all of his appearances and statements were aimed at strengthening this position. His speech in Băile Tuşnad served numerous purposes. He is well aware of the very probable possibility that Viktor Orbán is going to be the next prime minister of Hungary and it will play well to be in a good relationship with him. Orbán returned this gesture by stating that he would vote for Băsescu in the second round of the election. The president was adamant that the question of autonomy would have to be handled in the context of decentralisation and not in an ethnic Hungarian perspective. By showing “bravery” to stand in front of a hostile crowd could improve his standing among Romanian voters, and by being unwavering in the autonomy theme he can also score good point among nationalists. The fact alone that he came to speak at the Hungarian Summer University also serves to ease ethnic Hungarians’ reservations against him.


His lengthy interview with Radio Free Europe / Radio Liberty, mainly on the subject of Moldova, let him pose as an all-Romanian president. He defended the practice of awarding Romanian citizenship to Moldovans, saying that “Millions of Romanians consider themselves Moldovan -- but only as a regional identity subsumed to their Romanian national identity.”


His strategy seems to pay off for now, as he is expected to win elections according to all recent polls. However, this image of an all-Romanian president has its disadvantages. Catering to voters of different parties means that he is shying away from confrontations that could alienate him from one party or another. A recent Gallup poll found that 50% of Romanians disapprove the way in which President Traian Băsescu exercises his attributions, 39% approve and 10% do not know.



Source: Central for Urban and Regional Sociology, Gallup, CCSB Romania