The power of options

The power of options

An economy cannot call itself competitive if it doesn’t provide alternatives to the banking sector, considers Greg Konieczny, Executive Vice-President, Templeton Emerging Markets Group and Manager Fondul Proprietatea

One field that is pretty well developed in Romania is the financing through the banking sector. Still, besides the financing instruments offered by this sector, an economy cannot call itself competitive if it doesn’t provide alternatives to the banking sector. And these alternatives can be provided through the stock exchange. Locally, the stock exchange is under-developed but there are other countries in the region proving that this institution may be functioning properly and it can provide a good financing alternative. In order to achieve this also in Romania, the first steps have to be taken by the Government.


The stock exchange gives the best feeling as indicator for an economy’s evolution, from the capital market point of view. Also, Romania is not a small country on the European map and there are strategic sectors as energy, agriculture where there is serious potential for growth. In the same time though, everything relates to the implementation of reforms assumed following the agreements signed with the IMF.


Success of the fund depends very much on reforming process of state companies. We are disappointed by the lack of progress of listings schedule for state companies and the program of establishment of a professional management and independent Boards to state companies, according to the GO 109/ 2011. We hope the Government to speed these reforms. We believe that the delay of properly applying the corporate governance standards in state-owned companies so far are negatively impacting the companies’ value and convey a strong negative signal.


When we started to manage the Fund, two years ago, our next focus was to change the state companies' approach of management. The process was not free of challenges but we tried hard to lobby and bring to the public eyes some major aspects as corporative governance, privatizations by listings and professional management.



Also, from our reports, Romania has significant foreign money reserves as it managed to keep the budget deficit and the current account deficit under control. Also, there are also other reasons stated by the market of credit default swaps (CDS) where Romania had, at the end of January, a spread of only 190, compared with 383 stated by Portugal, 276 by Hungary, 251 by Spain and 228 by Italy. Also, another competitive advantage for Romania is represented by the relatively low tax levels.


My estimation is that Romanian economy will increase by 1 percent this year, while the local currency should become stronger against Euro. The fund’s representatives expect to see a positive change in the next 12 months in the local economy, as the internal consumption and investments should replace the growth drivers of last year: exports and industrial production. These two triggers cannot anymore sustain the economy in 2013. 




Nevertheless, the pathway to a future  growth is not riskless as Romania’s agreements with IMF, WB and EC end this year and Romania has to repay EUR 5 billion to these financial institutions.


The signing of a new standby agreement for Romania, as such agreements represent a safe net against the growth of international financial risks and ensure the required reforms in key sectors, including energy and transports. A major downturn for the Romanian economy would be to not fulfil the terms of the agreement assumed by the Government with the IMF.