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FINANCIAL MARCHMarch, under the sign of Covid-19

EMILIA OLESCU, GEORGE MARINESCU (translated by Cosmin Ghidoveanu)
English Section /

March, under the sign of Covid-19

March 2020 has seen several firsts, the effects of which are already being felt in the economic environment. The coronavirus epidemic has already started being felt in the first days of March, when a large number of companies decided that their employees should work from home, and subsequently many companies even decided to lay off their employees or to place them on unpaid leave. The authorities also took measures to prevent Covid-19 almost daily.

Last month's political scene was dominated by the decisions made by president Klaus Iohannis and the reappointed government of Ludovic Orban intended to prevent the spread the virus and to support the companies and the citizens that have been financially harmed during this time.

March had a stormy beginning for the decision-makers. Florin Cîţu, the minister of Public Finance, announced on March 4 that the European Commission had launched the excessive deficit procedure against Romania, as at the end of last year the budget deficit was 4.6%, up 1.6% over the maximum budget deficit established by the Brussels Commission.

The same Florin Cîţu, who in the beginning of the month was the appointed prime-minister and in charge of forming the new government, chose, on March 12, 2020, when Parliament had met for the appointment vote and when there was basically every chance Cîţu government would be accepted, to turn down his mandate, before the vote on the proposed Cabinet.

As Covid-19 had already entered Romania, the political forces abandoned their daily disputes and have quickly appointed the same Orban government which they had sent packing following the motion of no-confidence. Because of the fact that the parliamentarians of the National Liberal Party were suspected of contracting the new coronavirus, and even prime-minister Ludovic Orban was in isolation at Vila Lac, because of having met with Vergil Chiţac, who had tested positive, we have witnessed a parliamentary premiere.

On March 14th, almost every member of the cabinet was fast-forwarded through their hearings, online, by the specialized Parliamentary commissions, and the appointment vote took place on the same day, over the course of six hours, not in the joint session room, but in one of the rooms were the parliamentary commissions work.

The PNL government was voted by 286 parliamentarians. 23 deputies and senators voted against and one parliamentarian abstained from voting. The Orban Cabinet was only voted by 37 Liberal MPs present at the new Executive's appointment.

On the same day, after the new government took the oath, president Klaus Iohannis announced that, as a result of the Sars-Cov-2 epidemic, he would declare a state of emergency, and the decree making it official was issued on March 16th.

Just two days later, on March 18, with the agreement of PM Ludovic Orban and of the National Committee for Special Emergency Situations, internal affairs minister Marcel Vela issued Military Ordinance no.1 which suspended the activity of restaurants, coffee shops, clubs and hotels, prohibited the organizing of events that involve more than 100 people and also suspended flights to Spain and Italy.

After that, on the pretense of people not complying with the measures enacted by the authorities, the military ordinances started gradually coming, restricting drastically the rights and freedoms stipulated in the Constitution.

On March 21st, Marcel Vela issued Military Ordinance no. 2, which suspended the activity of dentist offices, shut down malls and prohibited people from traveling after 22:00, and advised that during the day, between 6:00 and 22:00, citizens should avoid forming groups of more than three people. The same ordinance established that religious services would be performed without believers, and funerals, baptisms and wedding religious services would only be performed in the presence of up to eight people.

As citizens were allegedly not complying with the recommendations in Military Ordinance no. 2, on March 24, the minister of internal affairs issued military ordinance no. 3, prohibiting the circulation of people during the day, with the exception of traveling to work, to the doctor, to the drugstore or to buy strictly necessary products. The same ordinance established that retirees aged 65 or more would be allowed to go shopping between 11:00 and 13:00.

Because some provisions of that ordinance were unclear, they were explained in Military Ordinance no. 4, issued on March 29. According to the document, the elderly are allowed to leave the house at any time if they do so in order to deal with their medical problems. Energy, gas, water and fuel prices would also be capped. The normative act stipulated that persons who leave their home isolation or quarantine will be placed under quarantine for 14 days, at their expense.

The spread of the Covid-19 epidemic in the city of Suceava, because of the flawed management from the county hospital in the city, led to two new military ordinances being issued, the next day (March 30).

Military ordinance no. 5 extended the suspension of flights to Italy and Spain, and people illegally leaving quarantine could become criminally liable. In the case of people in home-isolation, they would be sanctioned for minor offenses, when illegally leaving isolation, unless their action qualified as being punishable under the criminal code.

Military Ordinance no. 6 instituted general quarantine in the city of Suceava and in the 8 adjacent communes.

On March 26th, amid the spread of the Covid-19 pandemic in Suceava, Victor Costache resigned as health minister, and was replaced with state secretary Nelu Tătaru.

On the last day of March we have entered the 4th scenario, after 2245 cases of people infected with COVID - 19 were confirmed. Of those who tested positive, 69 died and 220 were declared healed.

Furlough for employees

Aside from these military orders, the Orban government held weekly at least one meeting, approving several emergency ordinances.

Thus, Emergency Ordinance no. 30 of March 21st and Emergency Ordinance no. 32 of March 26th set the procedure for the granting of state aid, which has consisted in the payment of technical unemployment amounting to 75% of the employees' wage, but no more than 75% of the median gross wage, by the government to the employees of companies affected by the economic downturn during the emergency period.

Through Emergency Government Ordinance 29 of March 21st, the government established the aid it will provide to SMEs for business operations and working capital loans. The guarantee provided by the government to banks could go as high as 90% of the loan.

Repeated hesitations around the postponement of the payment of loan installments

On March 26th, the Orban government passed the emergency ordinance which postponed the payment of loan installments by individuals and companies, because of the current emergency state caused by the Covid-19 virus. Because the version passed on March 26 caused a lot of debate because of the brief delays made available to debtors for submitting requests, the fact that it did not include leasing contracts and debtors who already had overdue loan payments, the ordinance was retracted and amended on March 30. It was then decided that debtors would have up to 45 days from the coming into effect of the EGO (meaning from the date of its publication in the Official Gazette - March 30) to request the postponement, that lessees would be eligible for postponement, and so would overdue debtors, provided that they made their payments current by the time of submitting their request for postponement.

The provisions of the ordinance would only apply to those directly or indirectly affected (individuals and legal entities) by the Covid-19 crisis. The interest pertaining to the postponed installments would be capitalized as part of the principal, with the exception of mortgage loans.

Separately, the social-democrats promoted a legislative initiative, submitted in the Parliament on March 19, which stipulated the postponement of loan installments by up to six months, for anyone making such a request.

The draft law promoted by the PSD was approved on Tuesday, April 2nd, in the plenum of the Senate, and was set to go through the Chamber of Deputies, Friday, April 10th.

The legislative act applied to both banks and non-financial institutions, as well as to debt collectors. The text states: "The moratorium on the obligation of repaying loan installments coming due, interests and commissions pertaining to the loans granted to debtors by creditors, also applies to loans granted prior to the coming into effect of the current law, and said repayment can be suspended, upon the debtors' request, until September 30, 2020, by extending loan maturities accordingly.

The interest owed by debtors, pertaining to the amounts coming due for which payment was suspended, would not be capitalized to the existing amount, at the end of the suspension period.

Any foreclosures, including the seizure of movable assets, the seizure of immovable assets and garnishments of any kind, initiated prior to the coming into effect of the current law will be subject to the moratorium law and will be suspended until September 30, 2020".

The stipulations of the legislation also apply to debtors which are in foreclosure, going through the giving in payment procedure or any other judicial or extrajudicial procedures which result in the suspension of loan agreements.

The suspension of the repayment of loan installments, interest and fees will also apply to SMEs, other individual professionals, legal entities, traders as well as liberal professionals, that satisfy a set of cumulative conditions.

Bankers do not agree to a law which would stipulate the postponement of the payment of loan installments under the same terms for every applicant. They feel instead that individual solutions, customized for each individual case, would be more beneficial for clients, as well as the banking system itself.

Unprecedented measures at the NBR

The foreign currency reserves of the National Bank of Romania (NBR) have dropped by 1.7 billion Euros, at the end of March, after the measures passed by the central bank amid the Coronavirus. On March 30, the reserves of the NBR amounted to 34.12 billion Euros, compared to 35.83 billion Euros in the previous month.

The Central Bank announced that in March the following operations have taken place:

"- Entries of 3252 million Euros, representing the change of the minimum foreign currency reserves set up by the lending institutions, the filling of the accounts of the Ministry of Public Finance, the filling of the account of the European Commission, and others;

- Outflows of 4959 million Euros, representing the reduction of the minimum required reserves, changes to the minimum reserves denominated in foreign currencies, the payment of loan installments and payments in service of the public debt denominated in foreign currencies and others".

In the 7th February meeting, the NBR has reduced the level of the minimum required reserves for banks' liabilities denominated in foreign currencies.

In the emergency meeting of the Board of Directors of the NBR which was held on March 20, the National Bank decided to pass several measures, in the context of the Covid-19 pandemic. Thus, starting with March 23rd, the Romanian central cut the policy rate from 2.5% to 2%. Other measures included:

- the narrowing of the symmetric corridor consisting of the interest rates for the permanent lending facility around the policy rate to ±0.5 percentage points from ±1 percentage points. Thus, starting with March 23rd, 2020, the policy rate for the deposit facility stays at 1.5%, and the Lombard rate falls to 2.5%, from 3.5%;

- the provision of liquidity to lenders through repo operations (reversible operations with government securities) in order to ensure the fluent operation of the monetary market and of other segments of the financial market;

- the purchasing of government securities denominated in lei from the secondary market in order to consolidate the structural liquidity in the banking system which would contribute to the optimal financing of the real economy and of the public sector.

The NBR advised banks not to pay dividends this year, as it was in the banks' interest to have enough capital and use it in the best manner possible.

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