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IMF Urges Romania to Shun Pre-Vote Populism After EU Budget Feat

Romania’s government, which freed itself from European Union budget shackles in June, must maintain fiscal rigor before a presidential election next year, the International Monetary Fund said, quoted by Bloomberg.

“With Romania having exited the excessive-deficit procedure, pressures for populist measures are on the rise that would unwind earlier difficult reforms or create new risks,” the fund said today in a report on its website. “These pressures need to be resisted.”

Renewed political uncertainty in the run-up to the 2014 ballot “could weigh on investor and consumer sentiment,” according to the Washington-based lender, which approved a third loan for the eastern European country last month.

Romania, the second-poorest EU member, has brought its budget gap within the 28-nation bloc’s limit of 3 percent of economic output through tax increases and public-wage cuts. A power struggle between President Traian Basescu and Prime Minister Victor Ponta before general elections last year pushed the leu to record lows and prompted a surge in borrowing costs.

The leu is this year’s best performer against the euro among 24 emerging-market currencies tracked by Bloomberg with a 0.5 percent gain. Yields on government bonds due 2020 rose five basis points, or 0.05 percentage point, to 4.349 percent at 3:09 p.m. in Bucharest after falling yesterday to the lowest since the debt was sold on Sept. 12.

Fiscal Goals

This year’s budget shortfall is planned at 2.3 percent of gross domestic product, down from 7.2 percent in 2009. To narrow the gap to about 2 percent in 2014, Romania intends to revamp the health-care, transport and energy industries and sell state-owned stakes in companies.

The government plans to sell 15 percent of natural gas producer Romgaz by mid-November and stakes in hydropower generator Hidroelectrica SA and energy company Oltenia SA by June. A majority stake in power distributor Electrica SA will be sold by May, the IMF said.

“Moving the structural reform agenda forward will be the most challenging part, given strong vested interests,” according to the lender.

Romania must repay about 4.4 billion euros ($6 billion) to the IMF in 2014 under a 20 billion-euro bailout from 2009. It hasn’t drawn funds from a 5 billion-euro accord that ended this year. The latest 4 billion-euro package from the IMF and the EU will guard against potential financial-market spillover as central banks around the world consider paring stimulus.

Political Battle

As next year’s election draws nearer, Basescu and Ponta are once again at odds, this time over over a delayed gold-mine project that’s majority owned by Canada’s Gabriel Resources Ltd (GBU) and has triggered street protests by environmental activists.

Ponta has approved a bill allowing development of the mine and sent it to parliament for a final decision. Basescu has called him “a coward,” saying the government should decide. Crin Antonescu, who heads the Liberal Party that’s part of Ponta’s coalition, opposes the project because of the use of cyanide for extracting the precious metal.

“After a relatively calm period, political tension appears to be growing again,” the IMF said. “As the structural reform measures deepen, vested interests will test the authorities’ resolve. Active engagement in program implementation will likely be required at the highest levels to manage these pressures.”