COMMENT: Romania, caught between disenchantment and abuse of trust

By bne IntelliNews April 24, 2007

Bogdan Preda in Bucharest -

President Traian Basescu

Being president in Romania is different these days; they don't get executed along with their wives by firing squads anymore, like Nicolae Ceausescu and his wife Elena were on Christmas Day, 1989. But almost four months after Romania joined the European Union, presidents can get impeached and subsequently suspended by parliament, as just happened to President Traian Basescu on April 19. That's progress.

For those who had high hopes for a more reliable government and politicians that would crack down on corruption and make Romania more credible and predictable, this latest twist comes as a major disappointment. Despite the promises aimed at persuading EU officials to allow Romania into its club, the country is far from successfully tackling its internal issues and the trust of ordinary Romanians has been breeched, who were hoping to see themselves properly represented.

Basescu, a maverick politician that won presidential elections in November 2004, was suspended in a 322-108 vote by lawmakers including his former allies, the National Liberal Party led by Prime Minister Calin Popescu-Tariceanu, on the grounds that he exceeded his presidential powers, even as the country’s Constitutional Court denied the allegations by MPs.

After having originally said he would resign immediately if parliament suspends him only to run again in presidential elections, Basescu changed his mind a day later, explaining he would rather wait for a month until May 20, to let Romanians have their say in a referendum on whether they still want him as president.

Basescu said he changed his mind to cut a crisis short and also acting upon information that his political opponents may act to meanwhile change existing legislation in order to prevent him from running for president again. Until then, Nicolae Vacaroiu, a member of the opposition’s largest Social Democratic Party and the head of Parliament’s upper house, the Senate, will replace Basescu.

Politicians are now divided on whether a turnout of less than half of the eligible voters on May 20 means Basescu can stay as president, or, if a low turnout will actually mean people don’t want Basescu to leave. The final interpretation of the ballot will have to come from the Constitutional Court.

A former commercial navy captain and the mayor of Romania’s capital Bucharest until 2004, Basescu had repeatedly called for early elections since mid-2005, in order to get rid of the conditional support of the smaller Conservative Party. He and premier Tariceanu, who acted as allies in 2004 general elections, were at loggerheads after the latter refused to resign and allow early elections in 2005. Since then their relations have been strained to say the least.

Waving the Romanian red-yellow-and blue flag in front of crowds in Bucharest, Basescu accused lawmakers having voted to suspend him of packing against him only to keep their seats, avoid individual ballots and fight for their own financial interests for two more years. He claimed his impeachment was actually aimed at stopping his fight against corruption, which so far resulted into probes into government officials and ministers, lawmakers, and even foreign investment bankers.

Speaking in front of as many as 10,000 cheering supporters on Sunday in a Bucharest square at the foot of Parliament’s Palace, the giant building that’s a landmark of Ceausescu’s dictatorship, Basescu accused “the mafia of the transition” of trying to stop his fight.

“They want one of two things: to no longer have Basescu as president, or to have a weak Basescu,” the severed president told the crowds in his populist discourse, as he called on Romanians to turn out in large numbers at the May 20 vote.

One way or another, Romanians, EU officials and foreign investors alike, have no choice but to be disenchanted by the latest developments. Romania still remains a place where politicians and governments have wasted far too much money, time and promises over the past 17 years, and did only too little to reassure everyone that whatever politics will look like the time of major economic risks is done with.

Political volatility already threatens to bring about economic volatility.

Just a day after taking over his position as acting president, Vacaroiu, a former communist-era economist and accountant, publicly stated that he’s concerned about the country’s widening current-account deficit, and predicted major risks, including a would-be depreciation of the Romanian currency, one of the world’s best performing both against the euro and the dollar.

In the most direct speech by a president in recent years, Vacaroiu poured even more gas on the blaze, saying he would meet with the governor of the National Bank of Romania Mugur Isarescu to discuss economic risks that threaten to weaken the Romanian leu, which has attracted bets worth billions of euros in the country’s foreign exchange market in the past two years. The leu already lost some steam Friday, having fallen to 3.33 to the euro from 3.32 the day before, according to central bank data, following his statements.

The current-account deficit more than doubled over the first two months of this year to €2.03 billion from €955 billion in the year-earlier period, according to central bank data, mainly as imports rose after Romania joined the EU.

Romania’s Finance Ministry on Friday rejected all offers on its 100 million lei of three-year Treasury bonds, because banks demanded yields as high as 7.5%, on reasoning involving “political risk premium.” The ministry had previously sold similar securities to yield 7.2%.

If it continues for too long, the lack of political predictability in Romania these days may turn into a nightmare if investors, both direct and portfolio ones, take it seriously. Foreign direct investments already fell 13 percent in two months of this year from a year ago, to just 870 million euros, enough to cover only about 43 percent of the current-account gap.

Quick action by Romania’s politicians is required more than ever in the past two years to send out a sound message that whatever their governments and presidents will look like, the rules of the game will be improved and preserved. Romanians and foreigners, investors included, must feel there’s someone they can talk to seriously. Otherwise disenchantment this time may be just too big to swallow and the good job Romania’s central bank has done and government's success with inflation and FDI over the past two years will vanish.

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