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The Romanian Investment Fund and the National Development Bank, Romania's hopes of economic relaunch

George Marinescu and Mihai Gongoroi (Translated by Cosmin Ghidoveanu)
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The Romanian Investment Fund and the National Development Bank, Romania's hopes of economic relaunch

The financial instruments proposed by the Orban government through the National Investment and Economic Turnaround Plan could constitute a lifeline for Romanian entrepreneurs and for the investment projects in every economic sector. Nevertheless, the two instruments proposed by the Orban government have flaws which should be dealt with, according to specialists and the MPs, by the time these financial institutions are inaugurated.

The Romanian Investment Fund (FRI), which would have an initial capitalization of 300 million Euros (200 million Euros contribution from the state budget and 100 million Euros identified as part of the European Investment Fund), will be a private equity fund which would further gather around it other institutions for the support of the Romanian economy, which would act in a unified manner in aspects of economic interest based on a national strategy agreed upon by all political parties. The FRI will be allowed to invest in private companies, in areas with potential for growth and competitive advantage to support companies in these areas such as IT, energy, agriculture, etc.. The activity of the FRI will be conducted via:

a) its direct participation in the share capital of some enterprises, or, as a financing source for a holding fund, through private equity investment funds, independently or together with other investors;

b) the direct management of investments or the granting of management mandates to entities that manage private equity investment funds with a demonstrable experience and with a good reputation in the execution of such mandates.

c) financial education, the promotion and publicizing of private equity investment activity, on its own or in collaboration with other legal entities under public or private law, in Romania or abroad, including European or international organizations.

When it comes to the National Development Bank, which is set to be capitalized with one billion Euros, its objectives are:

1) the promotion of economic development and of competitiveness;

2) access to financing for economically viable infrastructure projects, including during periods of financial deleveraging;

3) access to funding, in particular for SMEs;

4) improving the absorption of European funds and the pertaining levers, as well as the functioning as a holding fund manager, according to the relevant European stipulations;

5) to act as a financial intermediary with a role of attracting other private sources (crowding-in);

6) to provide consulting and technical support services (perhaps in partnership with relevant EU institutions).

The bank will be created because of the median financing gaps identified by the Government and which are estimated at about 26 billion Euros. Between 2022-2026, the BND would cover 23% of the amount in question. The BND would be created as a development institution with full rights, organized in the form of a joint stock company, based on a distinct piece of legislation. The BND will be a bank fully owned by the state, through the Ministry of Public Finance, and will conduct financial activities, in particular in its name and on its own behalf, within the boundaries of its line of business authorized by the NBR, as well as with a mandate from the state, for activities such as the one of Holding Fund Manager and those of the Fund of the Three Seas Initiative, according to the provisions of the Government Emergency Ordinance no. 99/2006 concerning lending institutions and capital adequacy.

Regarding the governance structure, a dual management system is being proposed so that the NBD is an independent and credible financial institution classified outside the public administration sector. Following the analyses in the financial model, the Orban government estimates a value of the share capital of 2.1 billion lei, of which the initial share capital of the bank of 1 billion lei will be available at the time of registration with the Trade Registry and will be used to cover expenses for the establishment of the bank.

The National Development Bank would be set to start its operation with a number of 37 employees in 2021, with the number set to increase to as much as 193 by 2026.

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