Even by the Balkans’ standards, the honeymoon accorded Romania’s new Social Democratic Party (PSD) government was brief after the party’s victory in the December 11 elections.
By late January, the PSD was on the ropes as crowds of protesters, the largest demonstrations since the fall of communism in 1989, thronged the streets and squares of Bucharest demanding its resignation.
Public anger was prompted by passage of legislation designed by Justice minister Florin Iordache that would have softened the country’s anticorruption campaign and decriminalized corruption charges against PSD leader Liviu Dragnea, enabling him to become prime minister.
As Global Finance went to press, Iordache had resigned with his legislation rescinded. The government looked set to survive with its authority damaged, even while respected president Klaus Iohannis—who joined the demonstrations and is a leading voice against Romania’s endemic corruption—has seen his stock rise further, despite claims that the anticorruption drive has become excessive.
“Romania’s politics have been turbulent, but not necessarily disruptive to the economy or to financial markets,” says William Jackson, emerging markets economist at Capital Economics, a London-based consultancy. “The last few years of political calm, with Romania governed by a technocratic administration, have been almost an anomaly.”
That’s good news for investors. Last year, Romania’s economy grew by almost 5%—the highest rate in the EU—and some expect it to expand this year, driven by consumer spending and, to a lesser extent, investment as Romania struggles to close the prosperity gap with Western Europe.
There has been no shortage of high profile projects: In mid-February, the Iulius Group—headed by Iulian Dascalu, Romania’s fifth richest man, announced a major new office and shopping development in Timisoara in western Romania.
However, Jackson warns that growth is too focused on consumer demand, reflecting the fiscal loosening that the PSD has committed itself to continuing. He projects fiscal tightening that will slow growth to around 1.8% in 2018.
If Romania wants its enviably high GDP growth to continue, it will have to boost efforts to attract foreign direct investment. And the way to do this? Maintain the anticorruption drive so the authorities can say Romania is clean and open for business.