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October 1 zero hour of political crisis

As voting gets underway in Romania’s presidential elections, the two parties that formed the government have set off a political crisis that led to the collapse of the coalition, members of the Social Democratic Party leaving the government after President Traian Basescu agreed to the removal of democrat Interior Minister from his post.

Romanian and foreign economists warn that the political instability could limit the government’s ability to bolster the supervisory framework on public finances. In the worst-case scenario, Romania will fail to meet conditions imposed by the International Monetary Fund under the stand-by arrangement, namely the reduction of budget gap, the political crisis putting the completion of IMF accord at risk.

Should the program agreed with the International Monetary Fund failed to complete due to the country’s failure to meet terms, rating agencies said there would be the possibility of downgrading Romania’s sovereign ratings.

The political crisis didn’t affect Romania’s image in the eyes of foreign investors only, but has also put the local currency on edge. The leu slumped yesterday 1.2% versus euro, to an official exchange rate of 4.2495lei/euro.

The rupture of the ruling coalition puts leu on edge