Populism takes spotlight in Romania power struggle
* Populist may hold balance of power after Dec. 9 election
* Policies likely to raise doubts over IMF deal
* Vote winner has host of problems to address
By Sam Cage and Luiza Ilie
BUCHAREST, Nov 22 (Reuters) - On a sunny October day, Dan Diaconescu arrived at Romania's economy ministry with seven bags stuffed with 3 million euros in cash to pay workers' overdue wages at a chemical plant.
The government turned down the money but the stunt served its purpose for the media tycoon, raising his electoral profile along with nightly self-promoting appearances on his own television channel, calling himself "Romania's next president".
Promising steep tax cuts, his populist party may hold the balance of power after a December parliamentary election. That would set up weeks of horse trading which could raise questions over an International Monetary Fund deal and undermine Romanian markets.
"Once in power we will make things right. We will have bread, glass and brick factories like in the old days," Diaconescu told voters in the impoverished mining town of Targu Jiu, where he is standing for parliament.
Romania joined the EU in 2007 but its chaotic politics have brought into question whether it is fit to be part of the block. It remains a second-tier member - excluded from the passport-free Schengen zone and its justice subject to monitoring.
Its leftist government, led by Victor Ponta, is favourite to win the election and may well secure an outright majority. But its credibility is damaged abroad after a failed attempt to unseat President Traian Basescu, who is deeply unpopular due to his links to austerity and perceptions of cronyism.
If parliament is split then Diaconescu, whose party has poll ratings of about 14 percent and turns 45 on the Dec. 9 election day, becomes the likely kingmaker.
Both main parties - Ponta's Social Liberal Union (USL) and the Basescu-allied Romania Right Alliance (ARD) - have committed to work with international lenders, but Diaconescu's policies will alarm the IMF, which leads a 5 billion euro deal that shores up investor trust.
Diaconescu is proposing to raise salaries and pensions, cut sales tax to 10 percent and pay budding entrepreneurs 20,000 euros for starting a new business, though demands would be tempered in a coalition.
Wealthy and with designs on power, the tall, slim and sharply dressed Diaconescu is standing in Ponta's constituency. He will almost certainly lose but gain a seat under proportional party lists - and taking on the prime minister brings publicity.
"Diaconescu is luring people with a vigilante image," said Sergiu Miscoiu, an analyst with the CESPRI political think tank.
PLENTY IN THE IN-TRAY
Whoever ends up in charge has a long to-do list. Romania is the second-poorest and one of the most corrupt EU states, with an average wage of less than 350 euros - about half of candidate Croatia's and barely a quarter of France's minimum.
While the country of 19 million has made great strides since the violent revolution of 1989 and execution of communist dictator Nicolae Ceausescu, it still trails far behind other new EU members Poland, the Czech Republic and Hungary.
Agriculture is the backbone of the economy but produces nothing like its potential and swathes of the economy remain in inefficient state hands. Business and investors complain of outdated infrastructure and energy production, mind-numbing bureaucracy and corruption.
The economy is barely growing after a credit bubble burst in 2009 and forced the country to the IMF.
"I don't think, when we look back for 20 years, that there was any big difference from one government to another," said Steven van Groningen, head of Raiffeisen Bank's local unit and the foreign investors' council.
Society is split with a small number of very rich people but many millions living from subsistence farming or minimal wages. About 40 percent of residences have no running water and some areas do not have mains electricity.
"It doesn't matter who will end up in parliament after the December election, nothing will improve," said Laura Jipa, 42, who sells newspapers near the government headquarters. "They are all trying to make things better for them and their families."
While commuters in Bucharest struggle to work in clogged streets and packed trams, politicians - many of them in politics since the 1989 fall of communism - have generous expense accounts and are swept through the city in police motorcades.
In the last seven years, 23 lawmakers have been sent to trial for corruption.
"Politicians would like to keep their privileges and influence at the expense of a credible judiciary that would generate benefits for citizens through the level of foreign investment to Romania," Horia Georgescu, head of the National Integrity Agency corruption watchdog, told Reuters.
Should the USL secure a majority, it will take Diaconescu out of the equation but investors will remain on edge because it will have to work with Basescu, a blunt former sea captain who makes enemies easily. The USL could try to impeach him again.
The previous attempt at impeachment last summer drew criticism from the European Union and the United States, sent the leu currency to record lows and raised borrowing costs.
"I have to explain to lots of foreign investors what is happening in Romania - that's not easy," van Groningen said.
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