Isărescu: The BSE can become a viable alternative for providing funding to the economy

Mugur Isărescu, the governor of the Central Bank, thinks that in the future, the Bucharest Stock Exchange could represent a viable alternative for the financing of the Romanian economy: "Maybe someday I will bring my winery to the Stock Exchange, maybe I will contribute to the development of the Stock Exchange and maybe I will find a partner for financing".

The governor of the Central Bank yesterday said in a conference: "I once again invite the Bucharest Stock Exchange to return to its old headquarters, across the street from the headquarters of the National Bank of Romania, in the NBR's Old Palace, to restore the old financial City which Bucharest had".

He reminded that in the beginning, when the Romanian stock market resumed its operation, it was hosted in the headquarters of the National Bank, in the autumn of 1995, after almost 50 years after its closing and that "the core of the BSE came from a Department of the National Bank".

• "Romania has become accustomed to a flood of money"

Mugur Isărescu considers that, even though Romania has gotten used to being financed through a "flood of money", still, at the present moment, it is the stock market which is becoming a viable alternative for a macroeconomic development of the country's economy, even without neglecting the absorption of European funds.

He said: "Romania has gotten used to a flood of money and it is very hard when you get used to something like this. After eight years of growth, we are seeing an ebb. This behavior is typical for the market economy, even though it may have been a bit amplified. After the deluge of money, we have avoided the massive outflows of money, but we didn't see any new inflows either. A negative delta (ed. note: a drop) of 10% of the GDP is hard to bear. Capital inflows decreased seven times between 2010 and 2011. This fluctuation caused us problems. We have also been faced with the major disappointment of finding that this negative delta was not compensated in any way through the absorption of European funds. We hope that this year will bring a better absorption of European funds, but under these circumstances, on a macroeconomic level, we need an alternative".

The official of the NBR said that on a macroeconomic level it is important to say that we need to finance ourselves using the stock market. He said that after the onset of the world financial crisis, the inflows of capital in Romania decreased significantly. The alternative seems to be the Romanian stock market, given the foreign situation. He said that he is not pleading in favor of a brutal expansion of the capital market, but he said that we have "a great window of opportunity to rebuild, in the true sense of the term, the Romanian stock market".

• The stock market and the banks are competitors

Mugur Isărescu considers that on a microeconomic level, the use of the stock market as a financing alternative will have a positive influence on the Romanian economy, perhaps leading to a possible increase in the competition between the stock market and banks. "The stock Exchange and the capital market need to constantly prove that they are viable financing alternatives, and in doing so they will contribute to economic growth and development. It is obvious that this kind of thing involves competition, but it is a healthy type of competition, even for the banks and the banking system. It is a good thing for banks to know that companies have a choice of where to go for financing. It would bring bankers with their feet back on the ground", Mugur Isărescu said.

• The need for the implementation of a "market based" system

Mugur Isărescu also said that Romania can't develop an Anglo-Saxon system, but the creation of a "market based" system can be encouraged. He said: "In order to achieve this goal, which is also the one which the management of the Bucharest Stock Exchange has set for itself, there is a need for a vision. I am trying to do my part in designing it. It does not necessarily have to be in someone's mind. It needs to be a matter of cultural critical mass. Then, it also requires expertise, and even though it seems simple, when you get to the details, you find that there are plenty of obstacles". Mugur Isărescu considers that in order for this objective to be achieved, investors need courage: "Romanian entrepreneurs need to abandon the paternalist culture, which is typically Romanian. They want to lead everything. This separation between investors and management is a matter of culture. I am not saying that we need a rupture, that's not the word I would use, because the man who invested money wants to be involved, wants to lead. It is part of the cultural evolution, of the new Romanian capitalism. But eventually, we have to overcome it, because otherwise no one will come to the stock market, because they will avoid having partners in their businesses".

• "Without investors' confidence, nothing works in the economy"

Another important aspect emphasized yesterday by Mugur Isărescu, aside from the importance of strengthening the entrepreneurial spirit, was the need to gain investors' confidence. He said: "Investors are fearful animals, and it takes a lot of effort to gain their confidence. Without investors' confidence, nothing works in the economy". He mentioned that the Stock Exchange can contribute to increasing investor confidence, and as a result, it can become a financing partner for the national economy.

Mugur Isărescu considers that one of the main benefits of the development of the capital market in Romania is to ensure transparency on the market. In his opinion transparency is a real problem, "a cultural matter", and because of the fiscal system, investors have no other choice than to break the law: "It is true that if we will continue with a burdensome fiscal system, that squeezes you until your eyes pop out of their sockets, and only leaves you with one choice - dodging taxes - we should not get our hopes up that the Bucharest Stock Exchange will grow".

However, Mugur Isărescu acknowledged that steps have been taken in the right direction, towards the simplification and stabilization of the fiscal system, but said that they are not enough, and an improvement of the fiscal system would create a virtuous circle, which would help the markets, including the capital market.

He said: "I can see journalists quoting me again, on how I criticized the fiscal system again, the Minister of Finance would probably get annoyed too, it's a good thing he's young (ed. note: Bogdan Drăgoi - the minister of Finance) and he won't have the guts to tell me that I am once again sticking my nose in his business. But it really would create a virtuous circle".

• Mugur Isărescu: "Analysts of the caliber of Lucian Anghel would help improve the quality of public debates"

Mr. Mugur Isărescu warned against the penchant for apocalyptic scenarios, which do nothing but destroy ideas. In his opinion "If the stock market wants to become a barometer of the economy, it needs decent and balanced analysts".

He said: "The public debates in Romania would be helped a lot by analysts of the caliber of Lucian Anghel, but of others of very good quality, it would lead the discussions about the Romanian down a decent and balanced direction".

In order to emphasize the wrong path down which the public debates in Romania are going, Mugur Isărescu presented the discussions on the contraction of the GDP in the last quarter of 2011: "They have abused the topic of the fourth quarter drop in the GDP so much, many even said that we have actually entered the recession, but anybody who knows statistics also knows what a recession means. A decent analyst would have clarified the situation and would have explained the cause".

Last year, the GDP increased 2.5% compared to 2010. In Q4 2011, the GDP fell 0.2% compared to the third quarter, but increased 2.1% compared to the similar period of 2010.