Moody's: IMF and EU show leniency toward policy slippages in Romania

The government's collapse will have no significant impact on the Romanian economy in the short run, as the economic sector appears to be well insulated from politics, ratings agency Moody's said in a report Wednesday. Moody's said both the International Monetary Fund and the European Union are likely to show leniency toward "policy slippages" in Romania until after the presidential elections due November 22, but this may change in 2010."Come the new year, however, the IMF and EU will likely pressure the government to re-commit to the reform process outlined in the stabilization program. Failure to rejuvenate the reform process could eventually lead to friction with international partners," said Kenneth Orchard, Moody's lead analyst for Romania.

Moody's is the only major ratings agency that still has Romania on a stable, investment-friendly recommendation, after both Fitch Ratings and Standard&Poor's downgraded their sovereign ratings on Romania to "junk" last year.However, Moody's said the Baa3 rating would come under downward pressure if the IMF/EU program unraveled, "which could be related to political instability".

Romania's centrist minority government was ousted in a no-confidence vote in Parliament on Tuesday, raising doubts over the country's ability to comply with the terms of a EUR20 billion IMF-led financial package.The country, hit hard by the economic downturn, had to turn to international institutions for financial aid earlier in the year. The bailout, however, came with a series of strings attached, including severe cuts in public spending and an overhauling of the pension system.