Romania must speed up reform

BUCHAREST (Reuters) – Romania’s government needs to revive privatization efforts and reforms, particularly in the judicial sector, after escaping a no-confidence vote on Wednesday, Moody’s Investors Service said yesterday. Prime Minister Calin Tariceanu’s centrist minority government survived the vote in parliament, but observers have said the cabinet will struggle to see its laws passed, prolonging political standstill in the European Union newcomer. «I don’t think the turmoil in government is having any direct impact on macroeconomy,» Kenneth Orchard, sovereign analyst for Romania at Moody’s, told Reuters. «I do have concerns that the political turmoil has prevented the government from being able to put its full attention on economic matters. It has definitely been distracted… because of what’s been happening.» Moody’s current foreign currency government bond rating for Romania is Baa3. Orchard said key reform areas are education, privatization, restructuring of state-owned companies and strengthening the fight against corruption. While Moody’s does not see any immediate danger on the horizon for Romania, estimating economic growth at 5.8 and 6.2 percent for this year and next respectively, Orchard did signal concerns over loose fiscal policy. «One of our major concerns is fiscal policy. It has been lax and there has been little connection between development policy and fiscal policy and there has been too much focus on current spending as opposed to capital spending,» he said. Standard & Poor’s recently ranked Romania among countries that are most at risk of negative repercussions from a global liquidity crisis. Fitch Ratings also said tighter fiscal policy and more structural reforms would help to safeguard the Romanian economy from a potential hard landing. The first test for the government, which commands only 20 percent of seats in the legislative, will be the passage of the 2008 budget plan, which it is expected to discuss yesterday. Analysts have warned that spending plans may be erratic as Bucharest’s centrist minority government struggles to survive and opposition parties push to boost flagging ratings. But Orchard said, «I’m not more worried than I was last week.»

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