Stopescu 2015

Oprescu's arrest means a massive drop of the rating of the Mayoralty of Bucharest, in other words an increase in the cost of debt, which was already high, given its already modest rating (Fitch - BBB-).

That debt should have been audited a long time ago. Perhaps this will happen now.

Here's why:

The General Mayoralty of Bucharest currently has an ongoing massive bonds issue - amounting to 2.23 billion lei (500 million Euros) - and a massive loan from banks outside Romania - amounting to 861.3 million lei (191 million Euros). These numbers are not just enormous in themselves, but compared to the annual budget of the Mayoralty (1 billion Euros), they represent more than 70%. Given such an overexposure to risk, no private borrower would have been able to borrow money, because they wouldn't have passed their ratings assessment.

The mayoralty did, because it had "good" consultants, so good that they may end up making some unwanted, but necessary trips to the National Anticorruption Department. And if we add those other commitments of the Mayoralty, including the subsidies to the public corporations or the companies it controls, the total debts exceed 100% of the budget.

For now, the mayoralty doesn't have a budget deficit. Fans of the global robber baron capitalism will immediately say that in fact, the Mayoralty of Bucharest had a surplus in 2014. The existence of a budget deficit in a public institution is a failure in management anyway, but that is absolutely aberrant when public corporations like RADET and RATB or companies such as REBU are de facto in default. And anyway, the surplus exists only because the liabilities and the foreign loans have not yet come due. So the fans in question should not fool themselves.

Some of these bond issues are coming due soon, and the amount will have to be repaid all at once. A budget surplus in 2014 will translate into a huge budget deficit in 2018 - 2025. It is a huge task for all the mayors who will follow Oprescu over the next ten years.

The first bonds issue is coming due in 2018, the next in 2020, the next in 2022 and the last in 2025. The amounts of the four bonds issues are approximately equal - 550 million lei each. What isn't equal: the interest rate. The first issue has an interest rate of 2.8%, the second - 3.58%, the third - 4.43% and the fourth - 5.1%. All of those interest payments are made annually, starting in June 2015, but only the amount borrowed gets repaid on maturity.

The interest rate increase algorithm means a bonus of approximately 0.7% for each of the issues with a maturity greater than 3 years. As the maturity increases, the fixed interest rate, paid every year - is higher. Not only do those that hold bonds with a higher maturity earn more in interest in relation to the number of years they have to wait on until maturity, but they also earn more interest than the holders of bonds with a shorter maturity. Had the "logic" of this increased interest rate depending on the progressive length of the maturity been to stimulate investment in long term liabilities, then the issues would have been successive, or the interest rate would have increased for every maturity of the four issues. Except these issues are not successive, they are simultaneous. And the "deed" was done in 2015, in June. So the bondholders were simply gifted with interest rates that are as high as three percentage points higher than the biggest interest rate on deposits in lei on the banking market (under 2% currently). It's obvious to anybody who is honest that this arrangement has been a renegotiation with the creditors to avoid a huge financial crisis. That is why this hike of the fixed interest rate which seems like a gift to creditors happened. An "achievement" for which, of course, the consultants of Mr. Oprescu's mayoralty have received "success" fees (just as the three law firms that are subscribers to contracts with the mayoralty did).

No one knows exactly who the creditors who hold the bonds issued by the mayoralty are. Maybe it's a state secret. It may be for us, the mere taxpayers who gave Oprescu a budget of 1 billion Euros to play with by paying our taxes year after year. But it can't be such a secret for the Court of Accounts, the Supreme Defense Council and the DNA.

I can only suspect that we are talking about the same shadowy bankers who are increasingly creeping into the Romanian financial market, even removing the classic bankers from the head of the table (of course, I have no reasons to worry for the latter but soon, they will be "deprived" of their father Isărescu, who will soon be replaced by the shadow bankers' man).

On the other hand, all of the public services managed or owned by the General Mayoralty of Bucharest are bankrupt: RADET, REBU, RATB, the street administration, the sanitary system ("the specialty" of Mr. Oprescu). Most of the public services that are concessioned to private companies are also in shambles. One such example is the sewage-water service, one that does such a good job that every time heavy rains comes down it changes the Tineretului area into Canale Grande (e Sporco). To say nothing about the mayoralty lawsuit related liabilities. The one with Costanda and with the Sf Iosif Cathedral (and more recently, with Papalekas) are just two out of many. In fact, lawsuits of millions of Euros, which the mayoralty is losing while at the same time paying failure fees to its own lawyers. Extremely strained and - predictably costly - is the issue of the compensations for the nationalized properties, which involves tens of thousands of people, literally.

I am convinced that there are assets and many debts that are "insured" with Astra Asigurări. For such insurance policies, there is no guarantee that they would be paid, only for the registration as part of the body of creditors in the bankruptcy of Astra Asigurări. And out of that bankruptcy it could take 7-8 years to recoup only a portion of those claims.

Public companies and even public authorities which are involved in economic activities are like huge bags of money. What should happen is for the bag to be tight at the seams, to stop the bleeding of public money, and for their caretakers to keep them tightly shut, so that the only money that comes out is that needed for the day-to-day expenses of the institutions in question. Oprescu and the system who put him there they did not have that on their agenda.

To avoid the financial crisis or even the insolvency of the General Mayoralty of Bucharest a crisis manager is urgently needed. The competence to appoint such a manager and to set their targets lies with the General Council of the Mayoralty. I hope that the wise advisors will meet as soon as possible with this item on their agenda and that they will avoid "solutions" like the special administration at Astra Asigurări (which was a big and probably engineered, failure). I hope that the two deputy mayors, Mr. Darabont and Mr. Pieptea, will notice the awfulness of the situation and they will take measures. Otherwise they will cause people to take to the streets. Winter is coming, though. And Mr. Oprescu served the citizens of Bucharest one hot potato.

Otherwise, Oprescu's name will be changed by historians into Stopescu, and the citizens of Bucharest will be called for years from now on the "the ones who got burned".