Political deadlock delays Romania’s IMF loan

Two of the major political parties in Romania refused to join talks on forming a new government on Sunday (8 November), even after international lenders warned that they would not release a payment of €1 billion as long as no real cabinet is in place.

The attempt to form a government in Bucharest is now likely to unravel yet again, one month after the Social Democrats quit a grand coalition in protest over the sacking of one of their ministers.

wanted to announce on Monday the members of his new cabinet, despite his centre-right Liberal Democratic Party (PDL) having failed to reach an agreement with the centre-left opposition that holds the parliamentary majority.

Mr Negoita is the second name put forward for prime minister so far by the country’s president, Traian Basescu. An earlier nominee was rejected by parliament.

The political deadlock is starting to have an impact on the country’s strained finances. On Friday, a joint mission of the International Monetary Fund (IMF), the European Commission, and the World Bank said that it will delay a payment of €1 billion due to the “political environment.” Earlier this year, the country was given the green light for a €20 billion loan to prop up its budget amid a severe recession.

One of the conditions to approve the tranche was for next year’s budget to be put forward by the government. The current caretaker cabinet has no legal basis to do this, however. With a parliamentary majority against it, the government is also unable to pass austerity measures aimed at capping the budget deficit to 5.9 percent of GDP in 2010, another IMF requirement.

“A broad political consensus and renewed commitment to reforms are crucial to overcome current difficulties,” the international lenders said in a joint statement. Discussions are set to continue in the following weeks and another mission will return to Bucharest “as soon as the political situation has been clarified,” the statement added.

This schedule is likely to be very tight. No breakthrough is expected until after presidential elections on 22 November. Polls show that none of the presidential candidates will garner more than 50 percent of the votes, which would mean a second round on 6 December.

Despite the problems, IMF chief Domninique Strauss-Kahn maintained a mild stance towards Romania in comparison with Ukraine, another borrower facing political uncertainties.

“On Romania, it is a normal programme. Of course there is a change of government, so there is some delay, but I have no special concern about this programme,” he told Reuters television on the sidelines of a G20 finance ministers’ meeting in Scotland.

Mr Basescu also played down the effects of the delayed payment, saying Romania will not collapse financially as a result.

The IMF’s softer attitude towards Bucharest could be explained by the fact that most of the countries in the region are in a bad shape, and unlike Ukraine, Romania is an EU member state.

A “destabilising factor” in southeastern Europe is not on the IMF’s wish list, especially not one the size of Romania – a country of 20 million people.

“They will give us the money. Provided there is someone to sign for it at the receiving end,”.

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