The draft bill meant to protect national interests in the economic activity threatens the development of the capital market

Aurel Constantin 10/06/2020 | 11:28

Fondul Proprietatea urges the Chamber of Deputies, as the decision-making chamber, to analyse the potential negative effects and to reject the draft bill on certain measures to protect national interests in the economic activity. The piece of legislation, which intends to suspend all disposals of shares owned by the Romanian State for a period of 2 years, will seriously jeopardize Romania’s economic recovery by obstructing the development of the capital market and discouraging potential investments.

While the legal initiative claims to protect Romania’s economic interests in difficult times, it is expected that due to its excessive nature it will have the complete opposite effect. Amongst others, it risks freezing ongoing procedures for listing SOEs (such as Hidroelectrica) on the Bucharest Stock Exchange, the completion of which will contribute significantly to the development of the Romanian capital market, will improve the implementation of corporate governance principles and its potential upgrade to emerging market status.

“The capital market is a key component of any economy, and as such has the potential to greatly enhance the country’s recovery as the pandemic crisis subsides. It is disingenuous to attempt to introduce such obstacles that risk impeding a country’s economic potential. Simply put, obstructing the capital market means obstructing the economy. The local market has not seen a SOE listed since 2014. It is extremely disappointing to see another attempt to introduce legislation that would seriously complicate or potentially even freeze listings of SOEs, especially when considering that the benefits include higher transparency, accountability, better corporate governance and improved financing sources for all these companies. Listings also play a critical role in Romania’s potential upgrade to Emerging Market status, which risks being postponed indefinitely and means Romania would be sabotaging its own objective. If passed, the bill would send an extremely negative signal regarding efforts to maximise economic recovery potential and lack of political support for the development of the capital market in Romania. Once again, this will be snatching defeat from the jaws of victory,” said Johan Meyer, CEO of Franklin Templeton Investments and Portfolio Manager of Fondul Proprietatea.

Other potential negative effects of the draft law includes:

  • International “isolation” of Romania, resulting in adverse effects across the entire economy;
  • Romanians and international investors will look for investment opportunities in countries with more welcoming capital markets;
  • Romania’s country risk would increase, resulting in higher financing costs for the Ministry of Public Finance;
  • Romanian pension funds would be forced to invest in equities abroad in search of greater diversity and promising returns, due to a lack of new issuers on the local stock exchange;
  • The state budget, as well as large energy and infrastructure investments would lose a key source of financing.

Moreover, the draft law has been proposed without any due assessment of its impact and implicit risks. It would be extremely concerning and disappointing to see the repetition of past mistakes when major legislative changes were introduced without prior analysis, resulting not only in significant real economic damage but also to the image of Romania as an attractive investment destination.

Accordingly, Fondul Proprietatea urges the Chamber of Deputies to carefully consider the potential damaging effects on the capital market and the economy, and to categorically reject the bill on certain measures to protect national interests in the economic activity.

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