Romania

Politics:

• Analysis

  Romania politics: Quick View - New government sworn in

  Event

  On December 21st parliament approved the new USL government.

  Analysis

  With 522 members of parliament (MPs) present out of a total of 586, the joint session of deputies and senators voted in the new Social Liberal Union (USL) government, dubbed "Ponta II", by 402 votes in favour to 120 against. There were changes in the ministerial line-up compared with the earlier list of nominees presented by the prime minister, Victor Ponta. The new cabinet has been slimmed down to 19, including the prime minister, three deputy prime ministers-Daniel Chitoiu (Public finance), Liviu Dragnea (Regional development and public administration), and Gabriel Oprea-and 15 other ministers. Three portfolios from the original list of 20 became delegate ministers (without portfolio), of which there will now be nine rather than six as first announced. The new cabinet is full of familiar faces from the outgoing interim USL government and from previous administrations run by the Social Democratic Alliance (SDP) and the National Liberal Party (NLP). There are only a couple of new names. The decision to reduce the number of ministries may have been a response to criticism that a bloated government was inappropriate at a time of fiscal austerity.

  Despite the elimination of three portfolios, the new cabinet will nevertheless have 28 members, compared with 21 in the outgoing Ponta government. The proliferation of cabinet posts reflects the need to satisfy the political ambitions of the USL's constituent members, the SDP, the NLP, the National Union for the Progress of Romania (UNPR) and the Conservative Party (CP).

  The leader of the NLP, Crin Antonescu, who was voted in as leader of the Senate, a powerful position in Romania, behind only the prime minister and the president, has dismissed speculation about a falling-out between the two main USL partners (the SDP and NLP) over the distribution of posts. However, over the coming months it is likely that policy and personnel tensions between the two parties will come to the surface.

  The government faces little opposition in parliament and the centre-right parties are in disarray following their electoral failure. It will take years for the centre right to rebuild as a credible political force, giving the USL free rein in parliament.

  December 27, 2012

• Background

  Romania: Political forces at a glance

  Political outlook: Political forces at a glance

  Current government: Romania is a parliamentary democracy with two legislative chambers. The current, interim government was formed in April 2012 by the Social Liberal Union (USL), comprising the former communist Social Democratic Party (SDP) and the Centre-Right Alliance (ACD) of the National Liberal Party (NLP) and the Conservative Party (CP), after the USL unseated the previous government in a no-confidence vote in parliament. This is the fifth government to have been formed since the 2008 parliamentary election, after which the Democratic Liberal Party (DLP) formed a coalition government with the SDP, giving it a large working majority across the two parliamentary chambers. The only other parties to win parliamentary representation were the NLP and the Hungarian Union of Democrats in Romania (HUDR). In September 2009 the SDP left the government, which fell in a vote of no-confidence. A new government of the DLP and the HUDR was formed in December 2009, after the incumbent, Traian Basescu, won a second presidential term. However, popular protests in early 2012 led to the resignation of the prime minister, Emil Boc, who was replaced by an independent, Mihai Razvan Ungureanu, who formed a new cabinet. The government was short-lived, falling in a no-confidence vote in April 2012.

  Structure of parliament, June 2012
  (no. of seats)
  	Senate	Chamber of Deputies	Total
  Democratic Liberal Party	39	110	149
  Social Democratic Party	43	96	139
  Centre-Right Alliancea	29	58	87
  Hungarian Union of Democrats in Romania	8	20	28
  National Union for the Progress of Romania	13	14	27
  National minorities	-	17	17
  Independents	2	10	12
  Total (incl vacant seats)	137	332	471
  a Made up of the National Liberal Party and the Conservative Party.
  Sources: Chamber of Deputies website; Senate website.

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  Next elections: The next parliamentary election is scheduled for November 2012 and the next presidential election is scheduled for late 2014.

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  June 22, 2012

• Structure

  Romania: Political structure

  Official name

  Romania

  Legal system

  Parliamentary republic; a new constitution was adopted in 1991 and 2003

  National legislature

  Bicameral parliament composed of the Senate (137 seats) and the Chamber of Deputies (334 seats). Both chambers are directly elected from 41 multimember constituencies, comprising 40 counties and the municipality of the capital, Bucharest

  Electoral system

  Universal direct suffrage over the age of 18

  National elections

  November 30th 2008 (legislative); November 26th and December 6th 2009 (presidential). The next parliamentary election is scheduled for December 9th 2012 and the next presidential election is scheduled for late 2014

  Head of state

  President, Traian Basescu

  National government

  Cabinet, headed by the prime minister, nominated by the president. The Social Liberal Union (USL) government led by the prime minister, Victor Ponta, comprises the Centre-Left Alliance of the Social Democratic Party (SDP) and the National Union for the Progress of Romania (UNPR), and the Centre-Right Alliance (ACD) of the National Liberal Party (NLP) and the Conservative Party (CP)

  Opposition parties

  Christian Democrat-New Generation Party (CD-PNG); Democratic Liberal Party (DLP); Greater Romania Party (GRP); Hungarian Union of Democrats in Romania (HUDR); People's Party-Dan Diaconescu (PP-DD)

  Key ministers

  Prime minister: Victor Ponta (SDP)

  Administration: Radu Stroe (NLP)

  Agriculture, forests & rural development: Daniel Constantin (CP)

  Communications & information technology: Dan Nica (SDP)

  Culture: Mircea Diaconu (NLP)

  Defence: Corneliu Dobritoiu (NLP)

  Economy: Daniel Chitoiu (NLP)

  Education & research: Ecateriina Andronescu (SDP)

  Environment & water management: Rovana Plumb (SDP)

  European affairs: Leonard Orban (independent)

  Finance: Florin Georgescu (SDP)

  Foreign affairs: Titus Corlatean (SDP)

  Health: Raed Arafat (independent)

  Interior & administration: Mircea Dusa (SDP)

  Justice: Victor Ponta (acting)

  Labour, social protection & the family: Mariana Campeanu (NLP)

  Tourism & regional development: Eduard Hellvig (NLP)

  Transport & infrastructure: Ovidiu Silaghi (NLP)

  Parliamentary speakers

  Lower house: Valeriu Zgonea (SDP)

  Upper house: Crin Antonescu (NLP)

  Central bank governor

  Mugur Isarescu

  December 03, 2012

• Outlook

  Romania: Key developments

  Outlook for 2013-17

  • The government led by Victor Ponta, comprising parties from the Social Liberal Union (USL) and technocrats, is likely to win a majority in the election on December 9th.
  • The election could result in an unstable government if the USL fails to win an overall majority and the president appoints a prime minister from a minority party to form a coalition.
  • The government's attempt to impeach the president in 2012 brought it into conflict with the EU and undermined the country's chances of joining the border-free Schengen group.
  • The government would like to negotiate a new stand-by arrangement with the IMF (the current arrangement runs to April 2013), but the Fund is likely to be tougher on the delayed structural reform timetable.
  • An improvement in budget performance in the third quarter indicates that the government may fulfil the 2.2% of GDP target in 2012, as long as there is no pre-election fiscal loosening.
  • We estimate real GDP growth of 0.5% in 2012, after growth of 2.5% in 2011, reflecting a contraction in euro zone GDP. We forecast weak growth in 2013, of 1.3%. Annual growth is forecast to average 3.9% in 2013-17.
  • After an estimated deficit of around 4% of GDP in 2012, the current account is forecast to record an average deficit of about 7% of GDP in 2013-17.

  Review

  • Popular support for the USL dipped after the debacle of the presidential impeachment referendum, but has risen in recent polls.
  • An IMF delegation criticised the pace of reform and argued that growth will be slow without radical reforms to state-owned enterprises.
  • At its meeting on November 2nd the central bank decided to keep its monetary policy rate unchanged at 5.25%, after an acceleration in inflation.
  • In a policy about-turn, on November 5th Mr Ponta said that Romania's deadline of 2015 for joining the euro was "not set in stone".
  • Seasonally adjusted real GDP fell by 0.5% quarter on quarter in the third quarter and by 0.8% year on year (0.6% on a gross basis).
  • In October the consumer price index rose by 0.3% month on month and 5% year on year.
  • The current-account deficit shrank by 23.2% year on year in January-September. Foreign direct investment (FDI) inflows rose by 28.8%.

  December 03, 2012

Economy:

• Background

  Romania: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	21.4	Population growth	-0.1
  GDP (US$ bn; market exchange rate)	189.8b	Real GDP growth	1.4
  GDP (US$ bn; purchasing power parity)	270	Real domestic demand growth	1.6
  GDP per head (US$; market exchange rate)	8,851.5	Inflation	6.0
  GDP per head (US$; purchasing power parity)	12,425	Current-account balance (% of GDP)	-7.6
  Exchange rate Lei:US$ (av)	3.05b	FDI inflows (% of GDP)	3.8
  a Economist Intelligence Unit estimates. b Actual.

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  Background: Romania fell under communist control at the end of 1947. The communist leader, Gheorghe Gheorghiu-Dej, embraced Stalinism, but gradually loosened Romanian ties with the Soviet Union. The split widened under Nicolae Ceausescu, who took over as party general secretary in 1965. The grip of the Ceausescu clan on the economy and polity ended in a coup in December 1989. Parliamentary and presidential elections were held in May 1990. A new constitution was adopted in 1991, and this was revised in 2003.

  Political structure: Romania has a bicameral parliamentary system. The Senate (the upper house) has 137 seats and the Chamber of Deputies (the lower house) has 334. Both chambers are directly elected for a four-year term from 41 single-member constituencies, comprising 40 counties and the municipality of the capital, Bucharest. The head of state is the president, currently Traian Basescu, who is serving a second five-year term. The Social Liberal Union (USL), comprising the SDP and the Centre-Right Alliance (ACD) of the National Liberal Party (NLP) and the Conservative Party (CP), formed a new government in April 2012, after unseating the unpopular administration run by the Democratic Liberal Party (DLP) and the Hungarian Union of Democrats in Romania (HUDR). Scheduled parliamentary elections will be on December 9th 2012.

  Policy issues: Gradualism was the hallmark of reform in Romania in the 1990s. Macroeconomic stabilisation programmes were undermined by a failure to undertake structural reforms, and periods of growth were superseded by bouts of high inflation and macroeconomic imbalance. Important structural reforms in the early 2000s helped to stabilise the economy, but lax fiscal and incomes policies led to overheating in 2007-08, as well as to rising external imbalances. A painful fiscal adjustment was a central component of Romania's IMF stand-by agreement in 2009-11; further fiscal and public-sector structural reforms are the focus of the 2011-13 precautionary stand-by agreement.

  Taxation: Romania introduced a flat tax of 16% for personal income and corporate profits in January 2005. From July 2010 the uniform rate of value-added tax (VAT) increased from 19% to 24%. Social security contributions are high, equivalent to 49.5% of gross wages. Tax rates are likely to be raised as a result of fiscal shortfalls in the near term.

  Foreign trade: In 2011 merchandise exports totalled US$62.7bn and merchandise imports totalled US$73.1bn. The current-account deficit was US$8.1bn, equal to an estimated 4.3% of GDP. Around 70% of exports went to the EU in 2011.

  Major exports 2011	% of total	Major imports 2011	% of total
  Machinery & equipment	26.9	Machinery & equipment	27.3
  Base metals & products	12.2	Minerals & fuels	12.1
  Textiles & products	8.0	Chemicals & products	9.9
  Minerals & fuels	5.7	Textiles & products	6.4
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	18.6	Germany	17.1
  Italy	12.9	Italy	11.4
  France	7.5	Hungary	8.7
  Turkey	6.1	France	5.8

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  December 03, 2012

• Structure

  Romania: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 03, 2012

• Outlook

  Romania: Country outlook

  Romania: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: A government led by the Social Liberal Union (USL) is the most likely outcome of the parliamentary election on December 9th. Popular support for the USL dipped following the debacle of the presidential impeachment referendum, but has risen according to recent polls. If sustained over the coming weeks, recent support levels of 57% would give the USL a working majority in parliament. However, the election could result in an unstable government if the USL fails to win a majority. A less than emphatic USL victory could result in the president, Traian Basescu, appointing a prime minister from a minority party to form a government. If the USL forms a government, which seems the most likely prospect, the Economist Intelligence Unit expects the alliance to be prone to disagreements, given the sharp personal and policy differences between the two main constituent parties.

  ELECTION WATCH: The election will be contested by four main groupings, two of which are cumbersome electoral alliances. All are expected to cross the 5% threshold for representation in the new parliament. The governing USL comprises the Centre-Left Alliance of the Social Democratic Party (SDP) and the National Union for the Progress of Romania (UNPR), and the Centre-Right Alliance (ACD) of the National Liberal Party (NLP) and the Conservative Party (CP). The Alliance of the Romanian Right (ARD) comprises the Democratic Liberal Party (DLP), the Civic Force Party (PFC) and the Christian-Democratic National Peasants' Party (PNTCD). The New Republic Party has merged with the PNTCD and will have candidates on the ARD lists. The other two groups are the Hungarian Union of Democrats in Romania (HUDR) and the populist People's Party-Dan Diaconescu (PP-DD).

  INTERNATIONAL RELATIONS: In its biannual report under the special monitoring regime (the co-operation and verification mechanism), published on July 18th, the European Commission condemned the government's attempt to impeach the president and accused it of disregarding the rule of law. The Commission said that the events had put at risk progress made over the past five years. The Commission has demanded that the government address its concerns, and will monitor its progress before issuing a further report by year-end. The cancellation of the meeting of the EU Justice and Home Affairs Council scheduled for September 19th-20th to discuss Romanian membership of the Schengen area was unsurprising given the impeachment row. Several EU members--including the Netherlands, Germany and Belgium--had called for a delay of discussions until the publication of the European Commission report later in 2012. We expect a long delay before Romania is admitted to the Schengen area.

  POLICY TRENDS: An IMF delegation visited Romania on November 6th-14th to discuss tax and monetary policy, and progress in structural reforms. The IMF will return to finalise the seventh review of the stand-by agreement once a new government has been formed. Mr Basescu, Victor Ponta (the prime minister) and Mugur Isarescu (the central bank governor) have agreed that Romania needs a new agreement with the IMF, to run for one to two years. The current precautionary agreement expires in April 2013. The IMF has acknowledged the relatively strong progress in fiscal and monetary policy over the past three years, which has continued since the change of government in May, but has concerns over the lack of progress in structural reforms and reforms to the healthcare system. In a separate report, the IMF published detailed criticisms of the pace of reform and argues that growth will be slow without radical reforms to state-owned enterprises. This may presage a harder line by the IMF on the implementation of privatisation proposals in any new agreement.

  ECONOMIC GROWTH: Recovery from recession in 2009 and 2010--when real GDP fell by 6.6% and 1.6% (on revised Eurostat data), respectively--has been modest. Real GDP grew by 2.5% in 2011. Although year-on-year growth reached 1.9% in the fourth quarter, real GDP fell by 0.2% quarter on quarter. GDP fell again in the first quarter of 2012, by 0.1% quarter on quarter, partly as a result of extreme weather conditions, pushing Romania into a technical double-dip recession. Seasonally adjusted real GDP grew by 0.5% quarter on quarter in April-June. Year-on-year growth (calculated on a gross basis) has been revised from 1.2% to 1.1% in the second quarter, and from 0.8% to 0.7% in the first half. Seasonally adjusted real GDP fell by 0.5% quarter on quarter in the third quarter and by 0.8% year on year (0.6% on a gross basis), according to provisional flash estimates. GDP grew by 0.2% year on year in January-September on a gross basis and by 0.4% on a seasonally adjusted basis. The outlook for the fourth quarter in the euro zone is much worse, pointing to another bad quarter for Romania.

  INFLATION: Year-on-year consumer price inflation has been accelerating since June, after slowing to 1.8% in May, the lowest level since post-communist price liberalisation. Rising domestic and international food prices contributed to increased inflationary pressures in September, when the consumer price index (CPI) rose by 1.2% month on month and 5.3% year on year. However, year-on-year inflation slowed to 5% in October, but remained above the original forecast of the National Bank of Romania (NBR, the central bank) for the third quarter (of 3.5%) and for year-end (of 3.2%).

  EXCHANGE RATES: The leu fell by 3% against the euro and by 5.9% against the US dollar between end-December 2011 and end-June 2012. This reflected political developments related to the fall of the government on April 27th, as well as the worsening economic outlook in the euro zone. Political strife connected with the move to impeach the president led to a further depreciation. The central bank was unable to prevent the leu from falling to a historical low against the euro of Lei4.6481:EUR1 on August 3rd, although the currency firmed immediately after the Constitutional Court ruling of August 21st, which ended the intense political ferment of recent months. The authorities have intervened only moderately to support the currency or to absorb excess liquidity, prompting speculation that the NBR is happy to allow the currency to depreciate within certain limits. We expect the leu to remain subject to turbulence, given the forthcoming parliamentary election and the euro zone crisis. The leu is forecast to appreciate modestly in real terms against the euro in 2013-17, in line with productivity differentials, as the economy recovers.

  EXTERNAL SECTOR: In January-September 2012 the current-account deficit shrank by EUR1.1bn (US$1.4bn) year on year, from EUR4.8bn to EUR3.7bn, reflecting improved performance in the services, incomes and current transfers balances. The merchandise trade deficit widened by EUR216m year on year, to EUR5.44bn, as a result of the weak external environment in Romania's main markets in the EU. Exports fell by 0.5% year on year in nominal euro terms, to EUR33.5bn, and imports were stagnant, at EUR38.9bn. Foreign direct investment (FDI) inflows increased by 28.8% year on year, from EUR861m to EUR1.1bn, and covered 30.2% of the current-account deficit. Investment in equity accounted for EUR556m and intra-group loans (loans between parent companies and their resident branches in Romania) accounted for EUR553m. This is the first growth in FDI inflows since 2008, but the volume of investment remains far below that attained in the pre-crisis period, as weak growth continues to have a negative impact on investor confidence. The current-account deficit is forecast to average around 7% of GDP in 2013-17 as rising import prices have a negative impact.

  December 01, 2012

• Forecast

  Romania: Country forecast summary

  Country forecast overview: Highlights

  • The Economist Intelligence Unit expects the Social Liberal Union (USL) to win an overall majority at the parliamentary election on December 9th. If it fails, the president may appoint a prime minister from a minority party to form a politically diverse government coalition. If the USL forms a government, which still seems the more likely prospect, we expect the alliance to be prone to disagreements, given the sharp personal and policy differences between the two main constituent parties.
  • The main challenge to the USL will come from a new centre-right grouping, the Alliance of the Romanian Right (ARD). This includes the Democratic Liberal Party (DLP), the Christian-Democratic National Peasants' Party (PNTCD) and the Civic Force Party (PFC). The ARD could join forces with the populist People's Party-Dan Diaconescu (PP-DD) and other smaller parties.
  • On August 21st the Constitutional Court ruled that the referendum of July 29th, in which 88% of those participating voted to impeach the president, was invalid because the turnout was below the legal quorum of 50% plus one of the electorate. However, the scale of the vote in favour of impeachment undermined the authority of the president, whose term expires in 2014.
  • Whether the next government is led by the USL or the ARD will not make a significant difference in terms of economic policy, given that Romania depends on good relations with the IMF, the EU and the World Bank to bolster confidence in the country among risk-averse international investors. However, the USL is proposing some radical fiscal changes, including the replacement of the flat-rate income tax with a progressive tax system from 2013.
  • We expect the budget deficit to exceed the 2.2% target only marginally in 2012, and we do not expect the deficit to exceed 3% of GDP in 2013 or beyond. Romania will probably delay adoption of the euro, scheduled for 2015, by several years.
  • Real GDP grew by 2.5% in 2011, but is estimated to have slowed to 0.5% in 2012 under the impact of a contraction in euro zone GDP and a drought-weakened harvest. Weak growth is forecast for 2013 (1.3%), accelerating in 2014-17, to an annual average of 4.6%, boosted by exports and rising domestic demand.
  • We expect the current-account deficit to average about 7% of GDP per year in 2013-17, following a sharp correction in 2009-12, partly reflecting rising import prices.

  

  December 03, 2012

View detailed map

Country Briefing

Land area

238,391 sq km; 12th-largest in Europe

Population

21,5286,27 (May 28th 2008)

Main towns

Population in '000 (July 1st 2006)

Bucharest (capital): 1,931

Timisoara: 304

Iasi: 317

Craiova: 301

Constanta: 306

Galati: 297

Cluj-Napoca: 306

Brasov: 281

Climate

Continental

Weather in Bucharest (altitude 92 metres)

Hottest month, July, 16-30°C (average daily minimum and maximum); coldest month, January, minus 7-1°C; driest month, February, 33 mm average rainfall; wettest month, June, 89 mm average rainfall

Language

Romanian

Weights and measures

Metric system

Currency

Leu = 100 bani; the plural of leu is lei. Average exchange rates in 2010: Lei3.18:US$1; Lei4.21:€1

Fiscal year

Calendar year

Time

Two hours ahead of GMT

Public holidays

January 1st-2nd, January 6th, Easter (Orthodox calendar), May 1st, December 1st, December 25th-26th

March 21, 2012