Pension Snafu That Killed Bond Tender Prompts Warning in Romania

(Bloomberg) -- Romania’s finance minister warned against politicians’ commenting about the country’s pension system after the government’s mistaken publishing of a draft law torpedoed a bond tender on Monday.

Following uproar from opposition politicians, Eugen Teodorovici said statements about contributions to the mandatory second-pillar had driven the European Union nation’s bond yields higher. The proposal, published in "error" on Sunday, advocated channeling taxpayers’ private retirement savings into state coffers to cover a hole in the budget, following other east European nations that have weakened their pension industries.

"All of these unchecked statements about the suspension or nationalization made by people who have no inkling about what is normal and fair have negative effects on the Finance Ministry’s borrowing costs," Teodorovici told journalists on Tuesday. He said the government was now assessing the situation and would reveal its findings by end-June or in July.

The yield on Romania’s 10-year bond was virtually unchanged near its highest level since 2014 Tuesday and the BET share index rose 1.8 percent, erasing Monday’s losses. Bucharest shares have gained 7.4 percent this year in dollar terms, compared with a 1.4 percent decline by the MSCI emerging-market stock index.

The ruling Social Democrats have clashed with companies and unions by changing its mind on economic policies, including pushing through a tax overhaul that the president has warned will widen the budget deficit. Facing an unexpected revenue shortfall, party leader Liviu Dragnea said Monday that the government might freeze payments to the second pillar, which business associations and pension funds say will deplete the long-term savings of more than 7 million people.

Following the draft law’s publication, the Finance Ministry failed to raise 600 million lei ($153 million) in an auction of local bonds -- the second cancellation of a tender this month. That highlights a dilemma for the government, after data showed last week that Romania’s economic expansion slowed to 4 percent in the first quarter from a year earlier, from 6.7 percent in the last three months of 2017, which could weigh on budget revenue targets.

Cash Grab

The debate follows the reversal of pension reforms in Romania’s peers Poland, Hungary and the Czech Republic, in which governments either snatched retirees’ savings held in private accounts to plug budget deficits or canceled second-pillar systems.

"Dragnea and his party aren’t admitting that they’re attempting to grab the money from the second pillar,” Ludovic Orban, head of the opposition Liberal Party, was quoted as saying by the Adevarul newspaper. "They’re shamelessly lying even though the draft law clearly states that."

Romania shifted to a three-pillar pension system in 2008, with the state pay-as-you-go scheme, the mandatory private pillar and an optional private system. The private funds paid into the second pillar have grown to about 35 billion lei in the 10 years since its inception, the association of private pension funds said.

Romanian President Klaus Iohannis urged the ruling coalition on Monday to make clearer statements about their proposal and avoid “touching second-pillar payments” as citizens are losing their trust in the entire pension system.

To contact the reporter on this story: Irina Vilcu in Bucharest at isavu@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Michael Winfrey, Wojciech Moskwa

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