Romanian stocks fell the most in more than two months and bonds slumped as Prime Minister Emil Boc resigned after protests over his government’s austerity measures turned violent.The benchmark BET index of shares fell as much as 2.7 percent and traded 1.2 percent weaker at 4,942.61 by the close in Bucharest, the biggest drop on a closing basis since Nov. 28. Banca Transilvania SA, the country’s second-largest publicly traded bank, fell 2.4 percent. Romania’s euro-denominated bonds maturing in 2018 declined, lifting the yield 14 basis points to 6.4 percent.
Boc announced yesterday in a televised speech during a government briefing in Bucharest that he quit to “ease political and social pressures in the country” and let another government continue reforms. President Traian Basescu named Justice Minister Catalin Predoiu as interim premier, according to a statement on his website.
“Today’s move by the premier should be seen more as a sign of desperation, given the strong pressure on the government to cede to protests over the last few weeks,” Simon Quijano-Evans, a London-based economist at ING Groep NV, wrote in a research report today. Quijano-Evans cited “political noise” among the reasons for recommending an “underweight” position in Romanian equities.
Romania’s leu snapped two days of gains, depreciating 0.1 percent to 4.3426 per euro.
Boc’s coalition saw its support fall by more than half after it cut public wages and increased a value added-tax to lower the budget deficit to 1.9 percent of gross domestic product this year from 4.4 percent in 2011 to meet pledges to the International Monetary Fund and the European Union.
Boc’s resignation “is likely to weigh heavily on the country’s financial markets over the next day or so” and may make Romania vulnerable to a potential escalation of the euro area crisis, William Jackson, a London-based analyst at Capital Economics, wrote in a research report today.
The IMF expects Romania to honor the terms of its new lending accord and any new government must keep the fiscal terms laid out in the agreement after the resignation of the prime minister, Jeffrey Franks, a mission chief for the Washington- based lender, said today in an interview in Bucharest.
“The new government will need to realize there is no other chance than continue with fiscal consolidation,” Juraj Kotian, a Vienna-based fixed income analyst at Erste Group Bank AG, said in a telephone interview today. “The president is a strong supporter of the IMF and EU program. He will appoint a new government which will be still cooperating.”