Romania: Referendum on divisive graft bill to fuel civil unrest, policy uncertainty in near term


22 Feb 2017

Romania: Referendum on divisive graft bill to fuel...
  •   A planned referendum approved by parliament on 13 February on measures that would weaken anti-corruption legislation is likely to fuel civil unrest and regulatory uncertainty.
  •   Although it is too early to determine the outcome of the referendum, the controversy will likely result in an uncertain policy outlook, leading to further cabinet reshuffles and intensifying tensions between rival factions in government.
  •   The run-up to the referendum could see increased protests by pro- and anti-government groups amid a wider trend of disillusionment with the political system.

A national referendum, planned for an unannounced date, on a contentious emergency ordinance adopted in January is likely to be a key source of civil unrest and regulatory uncertainty in the next six months. President Klaus Iohannis initiated the referendum after the ruling Social Democratic Party (PSD), of which he is not a member, adopted an emergency ordinance on 31 January. The ordinance, which was voted in overnight in what opposition parties claim was an effort to bypass parliament, sought to decriminalise abuse of power offences that result in financial damages of less than USD 47,500 and was preceded by another ordinance that proposed to pardon as many as 3,000 people sentenced on corruption charges. Although the government quickly repealed the abuse of power measure after as many as 500,000 people protested in Bucharest – the largest protests in Romania since the fall of Communism in 1989 – it continues to back the amnesty. This in turn has prompted Iohannis, who is a critic of the ordinance and an opponent of the PSD, to call for a referendum in the hope that popular opposition will block the initiative.

The dispute surrounding the initiative reflects broader unease with Romania’s anti-graft efforts under the PSD, which has seen a number of its members and leaders implicated or prosecuted in high-profile corruption cases. In November 2015, the country’s anti-corruption agency indicted former PSD prime minister Victor Ponta along with five other ministers, 21 members of the combined houses of parliament, and Bucharest Mayor Sorin Oprescu. Then in April 2016, PSD leader Liviu Dragnea received a two-year suspended prison sentence for committing electoral fraud in a 2012 national referendum, and was barred from holding office. Moreover, had the ordinance become law, Dragnea – who was set to face new corruption charges on 14 February – would be one of the beneficiaries. It is worth noting that the threshold of USD 47,500 chosen for the failed reform is only a few thousand dollars more than the amount involved in Dragnea’s initial sentencing.

Other measures included in the ordinance that could have broader implications for countering corruption in Romania, include an upper limit of six months for whistle-blowers to produce evidence on graft and decriminalisation of payments of less than USD 47,500 to family members of officials. Although it remains unclear whether these measures will be included in the upcoming referendum or if they will be passed by parliament, they are indicative of a broader weakening of anti-corruption measures that will likely lead to an increase in bribery and corruption, increasing companies’ exposure to reputational risks and due diligence challenges.

Moreover, the referendum is unlikely to resolve the dispute or the political tensions surrounding corruption in Romania. Past referendums have rarely reached the 50 percent turnout required to be constitutionally valid and the result would still need to be approved by the PSD-dominated parliament, raising the possibility of political manipulation in the face of an unfavourable outcome. The December 2016 election saw a turnout of only 39 percent and it is likely the PSD conceded to the referendum with the expectation of a low turnout. It remains unclear what question will be presented to voters in the referendum, but the president will decide the final wording, ensuring a fair vote.

The stand-off will lead to a high degree of policy uncertainty in the coming months, which will be exacerbated by possible changes to key government personnel. The continuing controversy surrounding the anti-corruption measures has already led to the resignation of Minister of Business, Trade, and Entrepreneurship Florin Jianu on 2 February in protest of the measure, and to the dismissal of Justice Minister Florin Iordache, who was the chief drafter of the graft decree, on 10 February, as a concession to the demonstrators. Meanwhile, the referendum will continue to fuel tensions between the PSD and Iohannis, irrespective of whether the measures are passed. This could see the PSD pass a further impeachment motion against the president, as it did in 2013 against former president Traian Basescu. Criticism from EU member states over the PSD’s record on corruption could also push back Romania’s accession to the border-free Schengen zone, which has been delayed since 2011, with corruption cited as one of the principal reasons.

The PSD’s effort to push through the bill through the referendum will likely trigger further protests. The low voter turnout in the December 2016 election is indicative of the broader disenchantment with the political process and the PSD, which has seen many Romanians increasingly turn to protests. Although recent demonstrations have been peaceful, the potential for violence cannot be ruled out in the future, especially as counter-demonstrations are organised by PSD supporters to promote the government’s position. Protests will continue to centre on Victory Square in Bucharest, though large demonstrations are also possible in the next six months in other major cities, including Brasov and Timisoara.

 

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