The recent scandal involving the National Investment Fund (FNI) – the largest open investment fund in Romania, which collapsed after massive payback demands from investors – shows the necessity for radical change on local capital markets, most market observers agree. Quite how that change should or could be brought about is another matter.
“The best way to bring about the institutional changes we need is by promoting universal pension funds,” said Smaranda Dobrescu, the Romanian minister of labour. According to Dobrescu, the pension funds will be secure because they will be managed by important and professional financial institutions, with foreign capital, which will establish a partnership with their Romanian counterparts.
“Just because we have had to watch the FNI collapse, that doesn’t mean that credible Romanian investments don’t exist,” Dobrescu adds. “The international financial institutions that invest in Romania in the future will not tolerate the methods of deceit and forgery that led to the last scandal.”
Privately managed public pension funds will account for the largest sector of business over the next 20 years or so and, for this reason, the law regulating their establishment will have to be watertight, so that everything that has gone before (the collapse of mutual funds) does not happen again. Yet such a law stirs strong emotions in Romania’s parliament. Clashes of interest have meant that both houses of parliament have somewhat fudged the issue, and the most likely outcome is the passing of a bill containing far less stringent legislation than that which would be ideal to completely control the management of companies and investment funds.
However, domestic investors seem to support the idea of malleable legislation. Companies that manage private pension funds will have to deposit share capital of e10m, and will be able to invest up to 50% of those assets in unlisted stock, in line with amendments brought to the draft law on universal pension funds adopted by the budget-finance commission at the Chamber of Deputies last month.
The original draft, submitted by the government in February 1999, compelled investment companies to deposit a minimum share capital of $40m. Yet Gheorghe Ana, a member of Romania’s major opposition party, the Party of Social Democracy (PDSR) and of the budget commission, believes that such a level is far too high for the Romanian economy in its present state, and that “it would clearly lead to a monopoly of a few foreign companies, leaving domestic funds out in the cold”.

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