Romanian parties promise spending spree before polls

Economists warn sparring sides to tighten their purse strings

The front-page headlines of Romanian newspapers in Bucharest announce Barack Obama has won the US presidency. Romania is now bracing for its own general elections, scheduled to take place on November 30.

By Justyna Pawlak - Reuters

BUCHAREST – Romania’s main political parties are outbidding each other with big spending plans ahead of the November 30 general election, defying international calls for belt-tightening to insulate the country from financial crisis.

Economists warn that the new European Union member needs to cut spending, reform the public sector and ensure policies are implemented effectively or risk destabilizing the economy.

Some even say Romania should pre-emptively seek support from the International Monetary Fund (IMF), after neighbors Hungary and Ukraine asked for help to shore up investor sentiment.

But neither the centrist government of Prime Minister Calin Tariceanu nor opposition parties, locked in a close three-way election race, have made fiscal prudence their top priority.

While all slam foreign criticism, including from the IMF, as biased, the government also risks undermining its efforts to take credit for Romania’s rapid economic growth this year, the fastest in the EU.

“Romania’s political picture now has basically all the ingredients of a Molotov cocktail, destructive for reforms,” said political analyst Emil Hurezeanu.

“We have battles on all fronts: between the president and the government, between trade unions and government and between government and parliament.” Most Romanians have yet to experience the impact of global financial woes as painfully as many Western Europeans, making it more difficult to explain the need for fiscal austerity.

The leu currency’s fall after the demise of US investment bank Lehman Brothers was cushioned by central bank intervention and the nearly 75 percent decline this year in blue chip stocks affected the tiny proportion of the population that actually invests in shares.

And while jobs will be cut next year as a global demand slowdown hits sales, for now unemployment stands at 4 percent.

“I won’t say Romanians won’t buy their pork for Christmas because Lehman fell,” said Ovidiu Fer from Wood & Company in Prague. “But next year we might see some more problems.”

Romania is the EU’s second-poorest country after Bulgaria, but living standards are rising fast on the back of economic growth, driven largely by consumption, technology imports and construction investments.

The first sign of trouble came last week, when Standard & Poor’s lowered Romania’s sovereign rating to “junk” level, placing it as the only EU member with non-investment grade status and making access to funds more expensive.

Other rating agencies did not follow suit, with Moody’s Investors Service saying it would be “loath” to downgrade Romania, in part because of its low state debt.

Tariceanu also tried to curb pre-election spending by forcing parliament to delay a law mandating a 50 percent hike in teachers’ wages. Shortly after the downgrade, he said such increases were dangerous at a time of global financial unrest.

“Imagine the global economy is the Titanic, which has just hit the iceberg and... some people on the lower decks are up to their necks in water, while on upper decks music plays,” he said. “And those for which music is playing are here in Romania. They have not heard that the Titanic has hit an iceberg.” But his party continued to promise higher wages next year as public sector trade unions threatened massive strikes.

Unlike in 2004 when the election campaign focused on corruption, this year wages and pensions have become the main topic of debate, particularly as the opposition Social Democrat Party (PSD) fought to revive ratings hit by sleaze scandals.

Parties are promising giveaways, including higher pay, subsidies for students and children and sales tax cuts.

Even more worrying are signs that the close race between the ruling Liberal Party and the centrist and left-wing opposition groups may be followed by protracted coalition talks.

Opinion polls show the Democrat-Liberal Party (PD-L) of President Traian Basescu and the ex-communist PSD almost neck and neck at some 30 percent of support, with Tariceanu’s Liberals (PNL) garnering just below 20 percent.

The two main scenarios seen as the likely outcomes of coalition talks, a centrist cabinet of PD-L and the PNL or a PNL-PSD partnership, are seen as burdened by deep divisions.

Some observers say Romania’s best chance for reforms could be to recreate a partnership of the two centrist groups that swept into power in 2004.