Weekly review: a new President with an old Government and IMF strikes again

Weekly review: a new President with an old Government and IMF strikes again

Bucharest, December 6, 2014 / Independent Balkan News Agency

By Daniel Stroe

Just two weeks away from being sworn in, liberal President-elect Klaus Iohannis is mounting pressure on social-democrat PM Victor Ponta, his former rival in the presidential elections last month, to quit and leave the stage to a center-right Government. Ponta refuses to do so since, he argues, his party won the parliamentary elections in 2012 and is thus entitled to keep the reins of the executive power, but the economic outlooks that do not bode well may rush his departure.

Speaking to the Italian daily La Republica, Iohannis pointed out, when asked by the reporter how he is going to cohabitate with a hostile Government, that “I think we will need a more effective Government, capable of long term visions and to whom center-right policies can offer the necessary solutions”. He also reminded that the “President has a vision and a foreground role, he is chosen by the people, has prerogatives and the legitimacy to create a dialogue and consensus and play a mediator role”. Iohannis further said he would the President that will always look at national interests and “will unite politicians” and will “lead the political leaders on convergent ways”.

It is not the first time Iohannis is calling for a new Government. Speaking to the media before the elections, he said “it is possible that a change in the political balance of power comes up after the elections”. “I, if I become President, want another Government, for very simple reasons: the current Government is ineffective. (…) I want that this Government, another one, to be already in place in 2015”, he told RFI. Even if he has no guarantees this will happen, Iohannis said the next parliamentary elections in 2016 will bring about this new Government.

Reacting to Iohannis’s statements, PM Ponta yesterday said he is contemplating resignation only if the President-elect picks a new prime-minister from the social-democrat party. “Of course! But this a decision that only the new President can take, Mr Iohannis”, Ponta said. Even if the Magyar Democratic Union has withdrawn from power after Iohannis’s victory, Ponta is still at the helm of a parliamentary majority which enables him to keep governing. But many say the vote on 16 November, when he was defeated by Iohannis by a surprisingly wide margin, is a vote of censure against his Government and Ponta has to resign now. Ponta has had a stormy relation with outgoing President Traian Basescu, his main political arch-rival, which materialized in Romania’s most severe political crisis in the summer of 2012, kicking back the country’s reforms and aspirations to join the Schengen borderless space.

But the potential political fight between Ponta and Iohannis was yesterday overshadowed by the impasse in negotiations with the International Monetary Fund. The news that IMF is pushing for a 0.9 % deficit in 2015 has sent shockwaves across the ruling coalition. Such a proposal is unacceptable and Romania may break the agreement with IMF if the two sides don’t agree on a 1.4 % deficit, Budget Minster Darius Valcov threatened last night. He also warned Bucharest doesn’t accept that rules are changed during the game and targeting a 0.9 % deficit equals to kneeling the Romanian economy.

Speaking on the matter, President Basescu warned Government is facing huge hurdles in drafting the budget for next year and said he feared these problems could end up in the agreement with IMF being broken. This would equal returning to the “sad memory of the late 90’s”, the president highlighted.

Interrupting the agreement with IMF would mean a “big back ball” for both the Fund as well as for the European Commission, but also for the World Bank, because it would be for the first time that a “country comes out weaker from a fiscal consolidation point of view” than it entered the economic crisis.

But Basescu pointed at the international creditors for looking away when Romania was starting to have fiscal problems. “This is also the responsibility of the IMF, the European Commission and the World Bank. Romania entered the third consecutive agreement in a good condition and a large part of the blame would revert to the IMF and the European Commission if Romania left less stable than it entered” those agreements. “IMF and the European Commission have sat and watched from the distance the fiscal adventures over the eight months in the perspective of the presidential elections (…) they knew very well what was going on here” he added.

Romania seeks to go to an almost 2 % deficit next year to keep all the scheduled spending for 2015. The agreement with IMF expires in March, but the country has to still observe the commitments agreed with the European Commission which agreed on a 1.4 % deficit for 2015. But Brussels warned as far back early November that next year, unless the Government hikes taxes and cuts the spending, the deficit risks going up to 2.8 % of the GDP. Iohannis himself warned over the electoral campaign next year may be difficult from a fiscal perspective and suggested taxes may increase to cover gaps in the budget.