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RBL: Pension funds finance significant part of budget deficit


Pension funds finance a significant part of the budget deficit, by purchasing state bonds next to other major local institutional investors, and any public declaration about the change of the pension system must be made with responsibility, in a balanced way, because they risk depriving local entrepreneurs of a source with which they can finance their growth and may make Romania vulnerable, a press release of Romanian Business Leaders (RBL) shows.

“In 2008, when the crisis began, private pension funds were still in a project stage, therefore they could not play the beneficial role local institutional investors have in limit situations,” the document shows.

According to it, many foreign institutional investors hurried then to sell at any price Romania’s sovereign bonds, expecting an economic downfall.

“It would have been great if today’s pension funds had been functional then, because we could have bought bonds sold with discounts of over 20% by panicked foreigners. Their prices would have been more stable and efficient in the market, bringing incomes to millions of contributing Romanians,” said Dragos Neacsu, a member in the Board of directors  of RBL and CEO of Erste Asset Management.

According to the press release, the present pension system is the only structural reform in Romania which resisted for a decade to all power changes.

“It is a system which contributes to the development of economy- on one hand through investments made in the stock market and, on the other hand, through the fact that it offers Romanian entrepreneurs and local public authorities an alternate financing solution. It is, at the same time, part of the immune system which Romania could activate in a new financial crisis: in case foreign investors decide to withdraw from the market, as it happens in times of instability, pension funds could purchase Romanian state bonds sold by them,”the source mentioned.

After ten years since the beginning of crisis, pension funds are financing a significant part of the budget deficit, by purchasing state bonds next to other local major institutional investors.

“A balance is thus ensured versus foreign investors. Local institutional investors hold today a share which can be compared with that of foreign financiers - about 18% of the public debt financed with sovereign bonds. The tendency expected by the evolution of the pension sector is that investments be extended to debt instruments and participants in Romanian entrepreneurial companies,” the organization informs.

RBL considers the government can deal with the topic of modifying the pension system by renouncing statements which test public opinion and consulting social partners with impact studies and written suggestions, instead of messages sent through the media.

“We think it is important that rulers should not make vulnerable the whole economy and the country’s capacity to get protected in front of foreign imbalances in order to solve, short term emergencies. RBL is ready to offer points of view, assistance, know how and suggestions for healthy solutions for Romania,” the source mentioned.