BUCHAREST Romania's leftist coalition government is on course for a comfortable election victory on Sunday, an outcome likely to prolong a political standoff that has delayed policy-making, alarmed the European Union, and worried investors.
The vote is being closely watched because Romania hopes to negotiate a new loan deal from the International Monetary Fund once its current 5-billion-euro funding package expires early next year and investors are keen to see it succeed.
But any political uncertainty could undermine its chances of brokering such a deal at a time when the economy of the EU's second-poorest country is barely growing and with no sign of progress on serious structural reform.
"If there's a delay over a new government, I think markets will freak out," said Barclays Capital economist Daniel Hewitt.
A poll on Wednesday suggested Prime Minister Victor Ponta's Social Liberal Union (USL) coalition will win 60.5 percent of the vote, securing a big majority on Sunday.
The coalition has promised to ease austerity, but a bitter feud between Ponta and President Traian Basescu looks set to rumble on regardless of the vote and could complicate the formation of a new government.
The outspoken Basescu nominates prime ministers and may not choose Ponta, a scenario that could delay talks on negotiating a new loan deal with the IMF.
With a population of 19 million, Romania has made solid progress in some areas since the 1989 revolution that overthrew communist dictator Nicolae Ceausescu, but lags regional peers Poland, Hungary and the Czech Republic and has lost more than a tenth of its population in a decade.
A failed attempt by Ponta's USL to impeach Basescu in the summer - a process the EU and the United States criticised for failing to respect the rule of law - also continues to cast a long shadow.
It raised doubts about political stability and further delayed reforms in a country still struggling to overhaul outdated infrastructure and to recover from a burst housing bubble that left half-finished projects dotting the landscape.
Basescu said this summer he would never appoint Ponta as prime minister again, the cause of much of the uncertainty. His tone has since softened, but his plans remain unclear and have contributed to a 5 percent slide in the leu currency this year.
Basescu has room for manoeuvre whatever the vote's outcome but must tread carefully to avoid another impeachment attempt.
If Ponta's USL wins a majority, he could try to split the alliance of leftists and liberals by asking someone else from the same group to take over.
And if the USL falls short of a majority, he could ask an ally from the Right Romania Alliance (ARD) to form a coalition.
Many ordinary Romanians say their patience is wearing thin.
"We need bigger pensions and better living standards," said Dumitru Malaescu, a retiree from Ponta's Targu Jiu constituency. "I have two sons and both are working abroad."
IMF REFORM PRESSURE
Ponta's USL has enjoyed ratings above 50 percent in most opinion polls and a complicated electoral system - combining constituencies and proportional representation - favours large parties.
The USL has benefited from voter disenchantment with Basescu and the previous government which pushed through unpopular austerity measures such as salary cuts and a higher sales tax.
The same opinion poll on Wednesday suggested that the ARD, a new grouping of centre-right parties dominated by the opposition Democrat Liberals, would only win about 15 percent of the vote.
Many voters say they have had enough of a political class they view as corrupt, and turnout is likely to be less than half. Prosecutors have sent 22 MPs to trial for graft since 2008 and nine of those are running for a new seat that would give them immunity, said the Institute for Public Policies think tank.
"Politicians had a lot of time to actually do something to make this country more prosperous since 1989 when communism fell. But they did nothing," said newspaper seller Laura Jipa.
Any new government will seek a new IMF deal once the current agreement expires in early 2013, but long-term reforms such as privatisations and an overhaul of the health sector have failed to materialise.
That has put off foreign investors - overseas investment was just 1.9 billion euros in 2011.
Lenders are insisting that Romania enact reform in order to fulfil the terms of the existing loan agreement, leaving the new government little wriggle room to seal a new deal.
"It's not like they (foreign investors) are dreaming about investing in Romania," said Greg Konieczny, who runs Fondul Proprietatea, a fund holding stakes in dozens of state firms.
"Romania is just one of usually 40 or 50 markets that they can invest in and if they feel they're not welcome here they won't come."
(Additional reporting by Luiza Ilie and Ioana Patran; Editing by Andrew Osborn)
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