FINANCIAL JUNE

Government in a state of alert, people at ease, deficit rising

06 iul. 16:06 English Section
Emilia Olescu, George Marinescu (Translated by Cosmin Ghidoveanu)
Government in a state of alert, people at ease, deficit rising

The state of alert has left its mark both on the political scene and the economic activity carried out in June. Many of the measures passed by the Government and Parliament have been aimed at further supporting the private business community and citizens in the face of the pandemic, even if, as of June 10, there is a noticeable disobedience from the population when it comes to the restrictive measures imposed, which has resulted in a rapid increase in the number of people infected with Sars-Cov2, especially in the last ten days of June. Over this period, the National Committee for Emergency Situations passed five decisions through which it ordered several easing measures and the resumption of certain economic, cultural, religious and athletic activities. Unfortunately, the restrictions on these measures have not been followed by citizens, and the number of new cases of Covid-19 infections increased in the last half of June. Practically, between June 15 and June 30, between 275 and 460 infected people were recorded daily, with a peak in the last week of June. That may be why, based on earlier information, in order to reduce the spread of the pandemic, the Government, at the suggestion of CNSU, decided, on June 16, to extend the state of alert by another 30 days.

On June 1, we entered the second easing period, with the reopening of food and drink venues.

On June 4, on the occasion of the first Government meeting held last month, the rough draft of the National Investment and Economic Recovery Plan was drawn up, a plan that was subsequently launched in the beginning of July.

One month ago, Prime Minister Ludovic Orban was talking about increasing the flexibility of work through the SURE program, about supporting SMEs and investments through outsourcing on axes 2.1 and 2.2 of the Regional Operational Program, as well as about a state aid scheme to guarantee loans for large companies.

In fact, in the June 4th government meeting, a memorandum was passed concerning the program to support large companies to provide working capital and investments. According to the memorandum, the cap was set at 8 billion lei (in the beginning of July, the European Commission decided it would only amount to 4 billion lei), and Finance Minister Florin Cîţu assured us that the program would have a multiplier effect of almost 28 billion lei in the economy. The loan guarantees would apply to companies established based on Companies' Law number 31/1990, republished, with the subsequent completions and modifications that had a turnover of more than 20 million lei in 2019.

Also on June 4, Virgil Popescu, Minister of Economy, Energy and Business Environment, signed the order concerning the guidelines for the state aid scheme for large energy consumers, which subsidizes part of the kilowatt price consumed by the 15 major energy consuming sectors .

Local officials had their terms extended until November 1st

On June 9, after a meeting at the Cotroceni Palace with some of the members of the Orban government, President Klaus Iohannis announced that, after June 15, malls will be allowed to reopen, except for restaurants and playgrounds. The head of state also informed us about the other relaxation measures that would be implemented by the government, such as the hosting of private events with 20 people for indoors events and 50 people for outdoor ones.

Among the measures listed by the president were the reopening of "after-schools", kindergartens and private nurseries, fitness rooms and outdoor pools.

Although citizens would have expected for the measures announced by Klaus Iohannis to be enacted in the first government meeting, of June 11, Prime Minister Ludovic Orban and the other members of the Cabinet chose to postpone their enacting until the time when they would announce the extension of the state of alert. Thus, in the June 11 meeting, the prime minister only informed the ministers about future easing measures, including, for the first time, the resumption of gambling activities, namely lottery and bookmaking, which sparked a lots of controversy in the political environment.

The day before, on June 10, the Government received a blow from the Romanian Constitutional Court, which abolished both the law on the extension of the terms of local public administration authorities and GEO 44/2020 on the same subject. The RCC has established that the extension of the mandates of the local public administration authorities may only be done via an organic law, passed by the Parliament, and not via Government Emergency Ordinances. The RCC also ruled that the Parliament is the one that will regulate, via the law concerning the extension of the mandates of the local public administration authorities, whether the setting of the election date is made via organic law or via Government decision. In order to avoid a deadlock in the local public administration, on June 15th, the Parliament passed a law concerning the extension of terms of the local elected officials until November 1st.

The state of alert, extended by another 30 days

Political disputes have continued over the easing of the state of alert and its extension. Following the pressure from the Parliament, as well as from some of its political allies, - the USR and the UDMR - the prime-minister was forced to make some concessions, so that, in the June 16th session, together with the passing of the decision to extend the state of alert by 30 days, starting with June 17th, the measures taken by the National Committee For Emergency Situations (Comitetul Naţional pentru Situaţii de Urgenţă - CNSU) were also approved. The two administrative acts allowed commercial activities in malls, with the exception of cinemas, restaurants and children's playgrounds. Gyms and aerobics rooms, afterschools, kindergartens and nurseries, and bookmakers were also allowed to reopen. Also allowed to resume were indoors religious services, as long as social distancing rules are followed.

Through the Government's decision to extend the state of alert, it has scrapped the procedure for direct procurement of medical, sanitary and protective equipment, which it fully used both during the 60 days of the state of emergency and in the first 30 days of the state of alert.

The extension of the alert state did not have to go through the approval of the Parliament, like it happened when it was first enacted, according to the provisions of law 55/2020, provisions that would later be declared unconstitutional by the Romanian Constitutional Court, through its decision of June 25, which established that a Government decision may not be approved or amended by the Parliament. Also on June 25, the RCC decided that the isolation and quarantining of persons may only be done through a law and not through an order of the Health Minister.

In the same June 16 meeting, the Government passed an emergency ordinance exempting HoReCa companies from the payment of their specific tax for a period of 90 days. The tax will be payable on October 25, 2020 instead of July 25th.

Based on the same act, HoReCa companies, especially those in the tourism and hospitality segments, restaurants, cafes that own beach side locations, have been exempted from one of the three payment tranches they were required to pay in 2020.

With the first day of the extension of the alert state, on June 17, the Chamber of Deputies enacted, as a decision-making body, a 10% tax on special pensions, for amounts ranging between 2001 lei and 7000 lei, and an 85% tax for any amount above 7001 lei.

The next day, June 18, the joint meeting of the Parliament also approved the taxation of the pensions of senators and deputies according to the same scheme established on June 17. The law of June 17 was challenged at the Constitutional Court by the Ombudsman and the leadership of the High Court of Cassation and Justice. Following this approach, the PNL parliamentarians initiated a project to replace Mrs. Renate Weber as Ombudsman.

New chairman at the ASF and a new indictment of Liviu Dragnea

With the first day of the extension of the alert state, on June 17, the Chamber of Deputies adopted, as a decision-making body, the taxation of special pensions with 10% for pensions between 2001 lei and 7000 lei and with 85% for what exceeds 7001 lei.

The next day, June 18, the plenary of the Parliament also adopted the taxation of the pensions of senators and deputies according to the same scheme established on June 17. The normative act of June 17 was challenged at the Constitutional Court by the People's Advocate and the leadership of the High Court of Cassation and Justice. Following this approach, the PNL parliamentarians initiated a project by which they want the change from the position of Chief of the People's Advocate to Mrs. Renate Weber.

New president of ASF and a new indictment of Liviu Dragnea

On June 24, the Parliament settled the thorny issue of the management of the Financial Oversight Authority (ASF), a public institution that has been rocked by several scandals lately, both on the stock market side, as well as on the insurance side. Senators and deputies have elected on the position of chairman of the ASF Nicu Marcu, former vice-president of the Court of Auditors, former USL MP, proposed by the PNL, considered a close friend of ALDE president, Călin Popescu Tăriceanu.

Also on June 24, the PNL obtained the position of vice-president of the ANRE, which went to Mircea Man, and Marian Neacşu and Valeriu Steriu were appointed on the Regulatory Committee of the institution. In the same meeting, the parliamentarians approved the two nominations for the positions of presidents of the two sections of the Legislative Council, with the positions to be taken over by the former Constitutional Court judge, Toni Greblă and Mariana Moţ, former secretary of state in the Ministry of Justice.

Politically, it should be noted that on June 30, Parliament voted to appoint the new vice-presidents of the Court of Auditors. They are Ilie Sârbu, former PSD MP and Victor Ponta's father-in-law, and Niculae Bădălău, president of the PSD Giurgiu organization, better known for the insults addressed to Romanians in the diaspora.

It should also be noted that on June 16th, the Parliament passed the legislative project of the USR, which establishes the Directorate for the Investigation of Environmental Crimes - the so-called national Anti-Corruption Department of the forests - a project that was contested by the Ministry of Justice and the Supreme Council of Magistrates.

In order to show that the Government is concerned about that aspect, on June 25 the Executive approved a decision by which it made operational the Timber Tracking System - (Sistemul de Urmărire a Materialului Lemnos - SUMAL). Environment Minister, Costel Alexe, specified that, following the initialization of this wood tracking system, the authorities will have the ability to track timber in real time, 24 hours a day, to know at any time how much wood has been cut from Romania's forests, where that timber is set to go, to which warehouse, and obviously, especially to which third parties it is intended to go. By making SUMAL operational, all state institutions - forestry departments, rangers or institutions subordinated to the Ministry of Internal Affairs - will collaborate to protect Romania's forests.

Regarding anti-corruption activity, two important aspects took the front page in the second half of June. On June 23, the National Anti-corruption Department (DNA) announced the initiation of criminal proceedings and the taking of the measure of judicial supervision for a period of 60 days, starting with June 23, 2020, of defendant Eugen Adrian Ionel, general director of Compania Naţională Unifarm SA, on charges bribery, abuse of office resulting in undue benefits, complicity in influence peddling, abetting intellectual forgery and using their office to favor specific individuals. Anti-corruption prosecutors claim that the former director general of Unifarm allegedly demanded a bribe of 760,000 euros for the awarding of a contract for the purchase of protective equipment against COVID-19 infection (250,000 suits and 3 million surgical masks).

On June 26, the DNA announced that it had decided to bring criminal proceedings against Liviu Nicolae Dragnea, on several charges, including that of forming an organized criminal group and that of abuse of office, which they - would have committed from the position of president of the Teleorman County Council. It is about the famous case of Tel Drum, a company with bearer shares, which the media alleged it was owned by the former head of PSD, Liviu Dragnea and who, during the period when he was in charge of Teleorman County, siphoned off 20 million euros through asphalting works. The investigations in this case were started by DNA three years ago, following the report and the notification drawn up by the officials of the European Anti-Fraud Office (OLAF).

Budget deficit of 3.59% of the GDP in the first five months of the year

The Ministry of Public Finance (MFP) announced a budget deficit after the first five months of 2020 of 3.59% of GDP (38.84 billion lei), much higher than in the same period in 2019, when it had reached 1.4%.

The budget execution published by the Ministry of Public Finance shows that almost half of the budget deficit for the first five months of 2020 is generated by "the amounts left in the economy through tax breaks and exceptional expenditures adopted to combat the effects of the COVID-19 epidemic".

The ministry states: "The increase in the budget deficit for the first five months of this year, compared to the same period last year, is explained, on the revenue side, (i) by the unfavorable evolution of budget revenues in March-May, as a result of the deferred payment of some tax liabilities by the economic agents during the state of emergency and alert (11.7 billion lei), (ii) by the increase by 2.26 billion lei of the VAT refunds, compared to the level related to the January period -May 2019, in order to support liquidity in the private sector, (iii) as well as the bonuses granted for the payment at maturity of the profit tax and the income tax of micro-enterprises, amounting to 0.25 billion lei. Also, on the expenditure side, compared to the budget increase via laws, there was an increase in investment expenditures by 3.43 billion lei compared to the same period of the previous year, as well as payments of an exceptional nature generated by the COVID-19 epidemic of approximately 3.83 billion lei".

The revenues of the general consolidated budget amounted to 119.59 billion lei, in the analyzed period, down 3.4% YOY. The expenditures of the general consolidated budget, of 158.43 billion lei, increased in nominal terms by 14.4% YOY, according to the quoted source.

1.79 billion lei - the profit of the NBR last year, up 132% compared to the forecast

The National Bank of Romania (BNR) has recorded a net profit of about 1.79 billion lei last year, 52% higher than in 2018 and 132% higher than planned, according to the NBR's annual report published towards the end of June. The amount transferred to the state budget by the NBR amounted to 1.43 billion lei, up 51.8% over 2018 - a share of 80% of the bank's net income, according to the law. The remaining amount, of 143.9 million lei, is to be paid out in 2020.

The central bank's report states: "The financial result achieved on December 31, 2019 was a profit in the amount of 1,797,292 thousand lei, 52% (+613,929 thousand lei) higher than the one recorded in the previous year (1,183,363 thousand lei), mainly due to the following developments:

$ the recording of expenses with unfavorable revaluation differences pertaining to assets and liabilities denominated in foreign currency in the amount of 108,510 thousand lei, down 65% (-205 285 thousand lei) compared to the level recorded on December 31, 2018 (313,795 thousand lei) ".

$ the obtaining of an operating profit in the amount of 1,905,802 thousand lei, up 27% (+410,104 thousand lei) over the operational profit of the previous year (1,495,698 thousand lei);

$ the recording of expenses with unfavorable revaluation differences related to assets and liabilities in foreign currency in the amount of 108,510 thousand lei, by 65% (-205 285 thousand lei) below the level recorded on December 31, 2018 (313,795 thousand lei)".

The CNSAS has asked the courts to confirm the collaboration of Isărescu with the "Securitate"

The National Council for the Studying of the Archives of the Former Securitate (Consiliul Naţional Pentru Studierea Arhivelor Securităţii - CNSAS) has asked, on June 15th, the Bucharest Court of Appeal to acknowledge the role of collaborator of the Securitate, for Mugur Isărescu, the governor of the NBR. The CNSAS previously approved the note which records the position of collaborator with the former Securitate of the NBR governor.

CNSAS claims, in the document sent to the court, that Isărescu was recruited by the Securitate while he was a researcher at the Institute of World Economy. The documents from the Securitate files referred to by the CNSAS show that Isărescu had been used by the Securitate as a support asset / source since 1979. He allegedly provided reports under the nickname "Manole", according to g4media.ro.

During the collaboration with the Securitate, he provided information denouncing activities of opposition to the totalitarian communist regime, such as negative comments on the standard of living in Romania under the communist regime compared to other countries, says the CNSAS, which indicates two reports: one of December 16, 1987 and one of March 5, 1985. The CNSAS states that the information provided by Isărescu concern the restriction of the right to privacy and the right to freedom of speech. Lawyer Gheorghe Piperea notified the European banking authorities and the international press about Mugur Isărescu's situation.

The CNSAS action comes as, about a year ago, lawyer Gheorghe Piperea notified the Council about the collaboration of the NBR governor with the "Securitate".

Adrian Vasilescu, strategy consultant at the NBR, claims, quoted by Libertatea, that Mugur Isărescu did not collaborate with the Romanian "Securitate" and that he has documents from the CNSAS to confirm it.

The Central Bank Governor's response to these allegations was given in an interview published in "Jurnalul Naţional". Among other things, he stated the following: "My pre-1989 activity is well known. I worked for 17 years in one place, at the Institute of World Economy (ed. note: "Institutul de Economie Mondială - IEM). (...); The Institute really had a special position at the time. For example, it had direct access to the Reuters news flux, it could access prices, exchange rate developments, news on the world economy, etc. Through specialized channels, researchers' analyses based on that data reached the competent institutions, the Ministry of Commerce, the Government, including on Ceauşescu's desk. Given their importance and destination, the names of all those involved in writing the materials, from analyst to typist, were specified in initials. That is why question have appeared about the activity of the IEM and they still generate interest today".

Raiffeisen Bank has lost the lawsuit with the ANPC in Raiffeisen Leaks case

Raiffeisen Bank has definitively lost the lawsuit against the National Authority for Consumer Protection (ANPC), filed by the lender in 2017, whereby it challenged a report issued in 2017 by the ANPC. It was the basis of the Order by which ANPC required Raiffeisen Bank to return to the interest rate in effect at the time of granting, for loans granted between 2006-2009, regardless of their denomination.

The bank challenged in court both the minutes and the Order issued by ANPC. The case in which the bank challenged the ANPC Order was won on the merits by the Authority for Consumer Protection, but Raiffeisen Bank appealed to the High Court of Cassation and Justice. The court has set a hearing for the case at the end of 2021.

In October 2017, ANPC issued the Order for the cessation of unfair practices in the case of Raiffeisen Bank, which required the bank to remake all of its loan agreements denominated in Swiss francs, lei and euros, bringing them back to the terms they contained in 2006-2008, at the time of their signing. That involves, among other things, the application of the interest rate in effect at that time, as well as the rebuilding of the repayment schedule.

The decision was made following requests from the Tudose Government and the Presidential Administration, which asked the institution to settle a memorandum of the CHF Borowers Group (GCCC - Grupul Clienţilor cu Credite în CHF). It refers to the appearance in the public space, in July 2017, of some internal documents attributed to Raiffeisen Bank, which show the bank's strategy for granting loans denominated in Swiss francs.

Nuclearelectrica has eliminated the Chinese from the project for the construction of reactors 3 and 4 of Cernavodă

In the first part of June, the shareholders of Nuclearelectrica approved, at the request of the Ministry of Economy, the cessation of negotiations with China General Nuclear Power Corporation for the construction of reactors 3 and 4 of Cernavodă. Thus, the shareholders of the state company abrogated the "Strategy for the continuation of the project of Cernavodă Units 3 and 4 by organizing an investor selection procedure" (2014), as well as the "Revised Strategy for the continuation of the Cernavodă Units 3 and 4 Project by organizing an investor selection procedure (2018)".

The SNN Board of Directors was also mandated to initiate the procedures / steps / actions regarding the termination of negotiations with CGN, as well as the termination of the legal effects (by agreement of the parties, denunciation, etc.) of the following documents: "Memorandum of Understanding on the development, construction, operation and decommissioning of Units 3 and 4 of the Cernavodă NPP (MoU)" and the "Investor Agreement in preliminary form" In the June General Shareholder Meeting, the SNN Board of Directors was also mandated to initiate the necessary steps to analyze and crystallize the strategic options for the building of new electricity-generating capabilities using nuclear sources.


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