Romanian Protests a ‘Credit-Negative Development’ at Moody’s

Romanian anti-austerity protests are “a credit negative development” that may stall the government’s cost-cutting efforts to meet international loan terms, according to Moody’s Investors Service.

Eleven days of protests, which turned violent on Jan. 14 and Jan. 15, prompted the government to withdraw a draft bill that was part of changes to the health-care system to conform to a loan agreement with the International Monetary Fund and the European Union, said Atsi Sheth, a senior analyst at the ratings company, in Moody’s Weekly Credit Outlook today.

Romania’s governing coalition, led by Prime Minister Emil Boc, is facing growing opposition to its austerity budget and calls to resign ahead of a general election later this year. It cut public wages by 25 percent and raised taxes in 2010 and as it froze wages and pensions for this year. Moody’s rates Romania Baa3, the lowest investment grade, with a stable outlook.

“Since 2012 is a national election year in Romania, the endorsement of the protests by opposition political parties is hardly surprising,” Sheth said. “It does, however, bode ill for building on the fiscal discipline that the government demonstrated over the past year.”

Lost Votes

The eastern European country agreed to a 5 billion-euro ($6.5 billion) precautionary two-year credit from the IMF and the EU in March last year after a 20 billion-euro bailout loan ended.

“The most important thing for Romania is its stability and credibility, which were obtained with the price of peoples’ suffering, and we have no right to take that away,” Boc said in a speech in Parliament today. “Yes, we have lost votes but it was worth it.”

More than 10,000 people took to the streets on Jan. 19 to demand early elections after the opposition joined the protests to support a Health Ministry official who resigned because he opposed the draft law, said Florin Hulea, a riot police spokesman, in a phone interview today.

The protests, the largest since the austerity measures were announced in 2010, have softened in recent days after turning violent for the first time in more than a decade. Riot police tightened security and low temperatures and snow deterred people from participating, helping ease tensions.

“We included in our outlook the risk of fiscal slippages because of the elections, but as long as the government keeps a prudent approach we aren’t particularly worried,” said Vlad Muscalu, an economist at ING Bank Romania SA in a phone interview. “Given the low number of protesters as compared with what happened in other countries, we don’t see a significant impact on the market.”

Muscalu estimates an economic growth of 0.8 percent for this year and the budget deficit at 3.1 percent of the gross-domestic product, compared with the government’s target of a gap of 1.9 percent of GDP for this year. The government forecast economic growth of 2.1 percent this year.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE