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Leu Weakens to 1 1/2 Month Low After Boc Ousts Finance, Economy Ministers
The Romanian leu dropped to the weakest level in 1 1/2 months after Prime Minister Emil Boc reshuffled his government.
The leu weakened 0.4 percent to 4.2840 per euro as of 10:31 a.m. in Bucharest, the weakest intraday level since July 19. It declined the most among the more than 20 emerging-market currencies tracked by Bloomberg.
Romanian President Traian Basescu signed off on Boc’s firings, and new ministers will be sworn in today. Boc ousted his finance and economy ministers as he faces a no-confidence vote after raising taxes and slashing pay for public employees to qualify for international aid. The European Union’s second- poorest member is relying on a 20 billion-euro ($26 billion) bailout led by the International Monetary Fund to stay afloat after the country’s worst recession.
“Should the cabinet reshuffle be a sign that the strict fiscal consolidation course is going to be watered down this would imply that it is doubtful whether Romania will be able to implement its consolidation efforts in a sustainable manner,” Commerzbank AG currency strategists led by Ulrich Leuchtmann in Frankfurt wrote in a note to clients. “That would justify a weaker leu.”
The government has faced months of criticism from unions and the opposition, including a June no-confidence motion that Boc and his supporters won by eight votes. Two opposition parties, the Social Democrats and Liberals, said yesterday they planned to file a new motion of no-confidence by year-end as they seek to form a government that will reverse Boc’s value added tax increase and revive the economy. The two parties have 214 votes in the 471-seat legislature.
‘Political Price’
Boc’s government “is paying a political price in terms of low popularity,” Win Thin, senior currency strategist at Brown Brothers Harriman & Co. in New York, wrote in a note to clients yesterday. “If the new finance minister shows less commitment to austerity plans, then the IMF package will be at risk.”
Brown Brothers recommends investors sell the leu against the euro, predicting it would weaken to 4.4 per common currency.
The transport, labor, agriculture and communications ministers were also fired.
To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net
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