Romania risk falls after surprise election result

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Romania’s country-risk score improved slightly in the immediate aftermath of the Klaus Iohannis’s surprise election victory, as participating economists cautiously signalled their optimism over the likely policy direction the country might now take.

by Jeremy Weltman

Klaus Iohannis_R-envelope
Romania's newly elected president Klaus Iohannis


The score rose by 0.1 points to 47.1 – a score of 100 would indicate total safety for foreign investors. Gheorghe Savoiu, senior lecturer at the University of Pitesti, says: "The new president is promising a normal market economy, real justice and an attack on corruption. But we must wait a month or two before we can properly evaluate his claims."

Iohannis is the former mayor of Sibiu and an ethnic German, giving hope for better tolerance, and has made early progress too on his desire to clamp down on corruption by imploring parliament to drop an ill-conceived bill that would have prevented MPs from being sent to jail.

The new president was voted in on an explicit anti-graft programme, which could provide a boost to Romania’s business environment.

Matthieu Pautonnier, an economist at TAC Financial, says: "Political tensions are expected to remain during the forthcoming cohabitation [between Iohannis and prime minister Victor Ponta], and it remains uncertain whether the display of fiscal prudence will be sustained."

The surprise victory for Iohannis raises the risk of tensions between the executive and legislative branches of government.

Lying in the fourth of the five tiered categories, in 70th place in the global rankings – normally associated with a B- to BB+ credit rating – Romania has been on a moderate downward trend in Euromoney’s Country Risk Survey for several years.

That suggests a higher level of investor risk than is presently factored into its low triple-B credit ratings.

The EU member and Economic and Monetary Union aspirant is in reasonable economic shape, posting solid GDP growth during the third quarter, with inflation low and an external deficit contained.

Careful budgeting pushed the fiscal imbalance down below the 3% of GDP target to 2.2% last year, with gross debt just 38% of GDP – and its economic risk indicators were consequently improved.

Yet Romania’s total survey score of just 47.1 points from a possible 100 – downgraded by 1.4 points this year and 3.8 since 2010 – highlights doubts over many aspects of its risk profile, with none of its six political risk indicators marked higher than six out of 10.

TAC’s Pautonnier says: "Since 2010, social security and income inequality have improved, but corruption [scoring just 3.7 out of 10 in the survey] is rampant at the various levels of government."

The new president’s National Liberal Party is seeking political alliances to oust Ponta before the elections are scheduled for 2016. Political wrangling over the election result is flagged for the short term.

This article was originally published by ECR. To find out more, register for a free trial at  Euromoney Country Risk.