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Will We Face an Economic Uncertainty from the Current Political Instability?

Will We Face an Economic Uncertainty from the Current Political Instability?

No. 7-8, Sep.-Dec. 2017 » Bridging News

By a system instability we must not understand a general fluctuations or oscillations of the system in its entirety. The instability of a system is done by only a few number of its components, but they must be crucial for the system identity/personality (the so called hub components). More, not any fluctuations or oscillations should be qualified as being instability, but only these fluctuations or oscillations which either are unpredictable (in their entirety or partially), or pass beyond a threshold usually accepted. This threshold could be viewed either as size, or as duration. So, the instability is, in fact, much lesser than it is usually considered.

If we are talking about the political instability, that is, the instability affecting the political system, the most important and significant hub-component of such a system is (after the Parliament), of course, the Government, as the highest executive institution within the state. However, the Parliament could be considered as a hub-component of instability in the case of anticipated elections, but, because the low frequency of such kind of elections, the Government remains the most significant institutional hub-component generating the political instability. Even in that case, the real instability occurs only if the prime minister (or the entire Cabinet) is sacked or submits its mandate. The replacing of one or other of the ministers is not necessarily generating political instability (however, in particular cases in which we are talking about key-ministries, the things could be different).

Now, if it seems really appearing a political instability (like the current situations in Romania, when a new prime minister was designated, by the Romanian’s President, to form a new Cabinet) why the political instability occurs, and which are the minimal conditions for occurring such an instability?

Firstly, the political instability happens only if the Governance Program is under the risk to be replaced or, at least, fundamentally changed. What we already know? The new Cabinet will belong to the same political party like the former one. In addition, the new designated prime minister already declared her determination to implement without any derogations, the social-democrat Governance Program. So, if by political instability is understood, as said above, a significant deviation from the established past course, it seems will be not such an instability. Of course, if, in fact, some crucial provisions of the known Governance Program will be changed, so the risk of political instability returns.

Second, the political instability could also be generated by the prominent ministers which, in the virtue of their own professional personality, could deviate from the guiding lines of the Governance Program, even by facing the party authority. In fact, the Social-Democrat Party, especially through its leader, have already obviously demonstrated, in several past occasions, that only the genuine obedient persons can be selected and, so, can access ministerial positions. Consequently, it is expectable the new Cabinet that will be entitled by the Parliament at the end of January, will do not generate political instability.

If it seems the political instability will do not occur as a result of replacing the old Cabinet with a new one from the same political „colour”, what can be said about the economic uncertainty in the marge of the political change?

Firstly, even the political instability occurs, this doesn’t mean the economic uncertainty occurs too. This uncertainty occurs only the economic plans, strategies and objectives are basically linked to the political targets which change. For example, if the exchange rate regime is changed (let’s say, from the managed free regime, to full free regime), or the limit of the conventional consolidated general budget deficit is increased (let’s say, from 2.9% to 3.5%) a certain channel of transmission to the economic uncertainty could appear. But, if less important macroeconomic variables are changed, these „instabilities” are not transmitted to economic uncertainty.

Secondly, it is possible the simple anticipated risk of political instability could generate economic uncertainty, no matter the concrete species of the political instability taken into consideration. It is what is called the business environment unpredictability. So, the political instability could generate economic uncertainty by its simple potential to induce

Thirdly, even a certain political instability (in its significations accepted here) occurs, and no radical changes are publicly announced, the economic environment will be induced with a possibility of non-announced changes, so with a certain uncertainty.

All in all, it seems any political change has the potential to generate, either punctually, or in a vague way, an economic uncertainty. On the other hand, the concrete case which we now face (the new Government belonging the same political party and under the same Governance Program) has a relatively small potential to generate an economic uncertainty, in the proper sense of the word, and in the semantic, and logical framework discussed here. But, taking into consideration the political instability contained either in nuce in the social-democrat Governance Program, or in the political declaration delivered into the public space (mass-media), although new radical changes in the political policy are not foreseeable, the olds ones are…sufficient. So, we are dealing with a maintaining of the publically announced political instability, although new changes in the field are not on the order of the day.

However, it is required now to pose an upsetting question: really, Romania wouldn’t have need even such a political instability, in order to change the unsustainable course induced by the social-democrats, regarding especially the violation of the macroeconomic fundamental correlations (see, for example, the policy regarding the salaries in the budgetary sector) and, not less important (even by the contrary, more important) the violation of the state of law by judiciary laws expected changes? Sometimes, to avoid a more instability or uncertainty, it is preferable to deliberatively induce a less instability or uncertainty. This principle is valid in the institutional or economic field as well as it is valid in ethics. In fact, the politics is, as long been said, the art to minimize the bad for the society.




The Romanian-American Foundation for the Promotion of Education and Culture (RAFPEC)
Amfiteatru Economic

OEconomica No. 1, 2016