December 20 (SeeNews) - Investment fund Fondul Proprietatea [BSE:FP] said that the Romanian government's draft emergency decree envisaging a massive fiscal overhaul is a ticking bomb for the country's economy and should be withdrawn.
On Tuesday evening finance minister Eugen Teodorovici said the government plans to pass an emergency decree introducing major fiscal changes that include a 'greed tax' for banks, capping gas prices, as well as new rules for the operation of private pension funds.
Commenting on one of the planned measures which stipulates that Romanians will be able to opt out of the mandatory private pension funds after contributing for five years, Fondul Proprietatea said that this could undermine the sustainability of the future pensions.
"This specific measure can have significant impact on the Romanian capital market, whose growth has been steadily supported by the private pensions funds in the last years," Fondul Proprietatea said in a press release on Wednesday evening. If passed, it would indefinitely delay Romania’s upgrade to the Emerging Market status, it added.
In the fund's view, another of the planned steps - capping gas prices at 68 lei per MWh - blatantly contradicts already approved Romanian legislation, as well as Romania’s obligations as European Union member state to observe the free market principles and liberalise the gas market. "Romania’s energy independence will be put at significant risk and the country may have to rely on external sources of gas at higher prices that the Government will have no control over," it added.
Also, the proposed tax of 3% of the turnover for energy companies risks to lead to the insolvency of a number of these companies and subsequent layoffs, which would seriously endanger the security of the entire energy system in Romania, it commented.
"If adopted, the proposed measures will have significant negative effects that will cascade over the entire Romanian economy, will jeopardize future growth and will isolate Romania from the international business environment. Moreover, many of the proposed measures will be borne by end consumers, due to increased energy prices and costs of credit," Franklin Templeton Investments Limited and Portfolio Manager of Fondul Proprietatea CEO Johan Meyer said. "For measures that have so far-reaching effects, the predictibility and transparency of the legislative process is vital, as well as considering very carefully their financial and economic impact. We are practically sitting on a ticking bomb."
On Wednesday morning, following the announcement of the planned changes, the blue chip index BET of the Bucharest bourse lost 7.5% to its lowest level in more than six months.
"If we consider the massive value destruction on the Bucharest Stock Exchange following the publication of the draft , this certainly raises the question whether the government will lose more in the value of its own listed companies compared to the taxes it stands to get. The state will also get lower dividends from these companies, which further indicates that these proposed measures are a double-edged sword," Meyer said.
On Wednesday evening, Romania's president Klaus Iohannis too slammed the Social Democrat government for the planned fiscal overhaul.
"This emergency decree was not discussed with partners from the economic environment, not even with actors from the institutional environment of the state. This project is not based on a serious analysis. This project comes with ideas unheard-of so far. This project will provoke chaos in the economy!," Iohannis said in a televised news conference following a meeting of the Supreme Council of National Defence (CSAT).
(1 euro=4.6478 lei)