The national grid and the government greed

The reason behind Teodorovici’s fight with the interbank ROBOR interest rates is simple. The ROBOR index also sets the cost of borrowing for the banks’ most VIP client, the state. In plain words, the interest is the cost of borrowing and a tax on risk. The higher the risk for a bank not to see its money back, the higher the interest rate. As PSD-ALDE government’s non-productive expenditure on special pensions and on wages in the public sector that were not linked to a certain increase in productivity rocketed, so did the borrowing risks, hence the rise in ROBOR rates. But, unfortunately, the PSD-ALDE government is in denial and cannot accept that its populist policies increased the costs of its own borrowings, so it decreed that it has to have access to cheap money or else. So, here you have it, the tax on greed is, in fact, the tax of the greedy.

The trouble is not the tax in itself, as it the government’s inalienable right to decide on such matters. But if you set a new tax while artificially raising the minimum wage in the private sector, doubling the salaries in the public sector, capping gas selling price for certain classes of consumers and prohibiting the free movement of goods, then there is a problem. It is an economic problem as well as a political one.

No more than two months ago, the government emptied the state-owned energy companies’ accounts, demanding dividends. All of them. Nobody seemed to care about the companies’ investment plans for development, maintenance works or expanding production plans. However, the downside of cashing in dividends is obvious: they are like Father Christmas, who only comes once a year, while the current government needs far more and far quicker. The national grid can wait, while the government’s greed cannot.

From a strictly economic standpoint, fixing prices is a bad idea. Fifty years of socialist planning and price fixing ended in bankruptcy in every corner of the planet where it was imposed. From a political point of view, fixing prices is also a reflex of totalitarian regimes. For those that do not want to go that far on the memory lane, Venezuela is a fair example. Back home, in Romania, a quarter of a century ago, the main concern of then Prime Minister Nicolae Vacaroiu was how to cap the price of gasoline/petrol. The end result was that all Romanian refineries went all but bankrupt, and the only thing that kept them technically alive was the odd batch of crude the state was able to import from time to time. The recipe is the same while the history lesson seems to be forgotten.

There is no wonder that such a fiscal tsunami flattened the Romanian stock exchange and sent the said energy companies and banks in a nose-dive. As a result, someone had the chance to buy in Romania’s critical infrastructure, paying 20% or so less than the day before, while the capital market’s ombudsman sat and looked idle.

After capping the gas price and contemplating capping the gasoline/petrol price too, the same bizarre economic logic wants the said companies to be brought together in a so-called Sovereign Investment Fund under the supervision of – hold your breath - the National Commission for Strategies and Prognosis. The obvious, honest and transparent way of getting the so-badly-needed money would have been to sell stakes in the same companies on the Stock Exchange. As it looks now, the Sovereign Investment Fund is no more than a larger TelDrum replica where the ones holding the bearer bonds can do whatever they want, spend on whatever they want, how much they want, no questions asked.

As for the Pillar II of the pension system, the greedy, cash-strapped government is looking with envy at people’s money going into the private funds. So, wouldn’t it be a good idea to limit even further their private contribution to the private funds and divert the rest into the state-owned Pilar I, or even nationalize it altogether? Of course, on the grounds that the greedy private administrators have way too high administration costs at the expense of the poor Romanian contributor.