Romania president survives impeachment but political instability remains

By bne IntelliNews May 21, 2007

Anca Paduraru in Bucharest -

Romanians voted Saturday against impeaching President Traian Basescu after parliament had suspended him a month ago for alleged breaches of the constitution. But judging from the comments by politicians immediately after the polling stations closed, the referendum didn't succeed in smoothing over the political differences between the two opposing camps, meaning the bickering is set to continue.

Partial results Monday morning showed that 74.2% wanted Basescu returned to office, while 24.9% wanted him gone. Voter turnout was 44.0%.

Basescu and his political allies in the Democratic Party (DP) trumpeted the result as a landslide victory, and Basescu said that while he would invite the political parties to the presidential palace for consultations, he was "not ready to negotiate." The president of the DP, Emil Boc, said he "wouldn't sit at the same table to negotiate with [Romanian Prime Minister Calin Popescu] Tariceanu, nor would any of his colleagues."

Still in a job

In fact, analysts say there's not really anything to negotiate apart from a return of the DP to the ruling coalition. The DP has been missing from the coalition since April 1, when PM Tariceanu, leader of the National Liberal Party, decided to remove from the government all eight ministers appointed by its then-coalition partner the DP. The country has since been run by a minority government of the National Liberal Party and the Democrat Union of Hungarians in Romania.

Even so, Basescu said his priorities in the two and a half years left of his term of office would be amending the constitution and the voting system, granting 6% of the GDP to the national education system, creating comprehensive legislation for national security and extending the irrigation system in the countryside. The last item on the list is a topical addition, given that the current drought is already affecting Romania's agricultural output.

However, Basescu can't really make any of the above happen, because under the constitution he has no actual executive powers - he only undersigns what the PM decides. Even his powers over dissolving parliament are somewhat limited. Political analysts say there is a real imbalance in the legal provisions that assign the president a weak executive role, in spite of him being elected in a popular vote.

Indeed, it was Basescu's alleged attempts to overstep his constitutional role by assuming executive powers that comprised most of the 19-count indictment on which the parliament based its vote to impeach him. The list cited his attempt to propose legislation and his refusal to sign into office the PM's choice for foreign minister.

However, the mutual finger-pointing of the opposing camps before and during the campaign for the referendum showed to the voter that there was more at stake than merely upholding the constitution. Each side has continually accused the other of earmarking government deals for their business allies.

The EU report card

Basescu made fighting the influence of the country's wealthy elite a cornerstone of his campaign during the referendum, throwing in Russia's political and economic influence as well as freemasonry as other possible threats to the country for good measure. Yet analysts say Basescu never distanced himself much from the oligarchs during his five-time tenure as a minister in the various governments of the 1990s or during his time as the mayor of Bucharest.

However, corruption and other items will be a principal focus of the European Commission's report in June on the country's progress since its accession to the EU in January. The main concern is over Romania's reform of its justice system and home affairs – a lack of progress in these regards will result in the triggering of a safeguard clause, which would make domestically adopted court rulings not recognized elsewhere in the EU, thus turning Romania into a lesser member of the EU. As Romania's representative on the European Commission, Leonard Orban, said on April 20, "it is of paramount importance for Romania to make good on its commitments, to avoid the safeguard clause."

On Monday, the president of the Commission, José Manuel Barroso, said: "I want to congratulate President Basescu for the result in the referendum yesterday. I hope that this outcome will contribute to allow Romania, as a full member of the EU, to move forward with the reforms that are needed, especially in the areas of judicial reform and the fight against corruption. To achieve these reforms, Romania needs a stable political and legal framework with all political actors working together to achieve the growth and social development of Romania. The Commission will continue to support the Romanian institutions in their efforts to deliver on the commitments that the country has made when joining the European Union."

So far the political uncertainty hasn't affected the economy. When the parliament voted for the president's impeachment by 322 to 108 votes in April, the capital markets hardly flinched. The leu actually appreciated against the major currencies that day.

It remains to be seen, however, whether foreign investors will remain so sanguine if they believe the continued political instability is set to continue indefinitely.

Foreign money is becoming increasingly important as it helps to cover the growing current account deficit. The current account deficit amounted to 10.3% of GDP in 2006 and ING forecasts it will reach 11.8% of GDP this year, or some €14bn. Healthy 12-month accumulated foreign direct investment inflows of €8.7bn cover 75% of the current account shortfall, but the percentage is falling as the privatisation process draws to an end.

"This could be partially compensated by portfolio inflows, currently at very low levels, if the Romanian government would implement a coherent treasury policy and list some of the large state-owned companies on the stock exchange," says Ciprian Dascalu of ING. "At these levels of the current account gap, we would expect foreign investors to demand a higher premium for holding Romanian assets. In this context, among currencies, we see the leu as one of the most vulnerable to a shift in the risk appetite of international investors."

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