TO BE EXCLUSIVELY ACQUIRED BY THE GOVERNMENT "A government program for the companies listed that uses the issuing of bonds - a solution for supporting the business sector"

Reporter: What is your view on the current economic situation?

Dan Schwartz: If the question concerns Romania, then all I can say is that, at the moment, we do not have enough data to make an accurate analysis of the Romanian economy and the current economic situation, in the context of the Covid-19 crisis. There can be no talk about accurate data and, in its absence, I think it is risky to draw hasty and definitive conclusions.

What is certain is that Romania's decision to apply relatively harsh measures of social and personal isolation cannot be beneficial to the economy. Totally or partially shutting down the economic and even social activity represent measures that hinder growth, which firstly and quickly result in:

- reduced output and even the reorganization, insolvency and bankruptcy proceedings of some companies operating in the most affected sectors (hospitality industry, public catering of all kinds, tourism, personal hygiene and beauty services industry, gambling, international passenger transportation, via roads, railways and especially by air, etc.)

- if reorganization, insolvency and bankruptcy can be avoided, we will see a decrease in the volume of activity in almost all categories of companies, but especially so in small- and medium- enterprises operating in industries whose activity has been completely halted, or only limited;

- furloughs, the reduction of the number of hours worked and other forms of unemployment will cause the population's purchasing power to shrink, due to the decrease of individual incomes, with immediate consequences in the decrease of individual consumption - it is well known that encouraging consumption was a factor which stimulated the growth of the Romanian economy in recent years;

- the increase in the number of unemployed and furloughed people;

- the increase of the indebtedness risk of the state, generated by the immediate need for resources that can fund unemployment and other social benefits, measures to support the business sector, and, last but not least the healthcare system in general and especially the protection against and the fight against the medical effects of the pandemic;

- the increase in the level of social and economic risk generated by the appearance of so-called "profiteers", people who identify and use human weaknesses and those of the legislative, political and governmental system for their own personal interest, without taking into account the negative effects their attitude and actions can have on economic and social life.

- in the context of the digital economy, the increase in the number of attempts at electronic and banking fraud and the intensification of hacking activities of all kinds.

These consequences are not exhaustive, but rather a succinct presentation of the most obvious negative effects which the state of emergency accompanied by the slowdown or shutdown of the economic activity can have on the population, as well as on the business sector.

I want to believe that the risks and negative effects identified here were known, carefully weighed and accepted by the Romanian authorities when they made the decision to impose the state of emergency and other ancillary measures by presidential decree and military ordinances.

The political decision was certainly an extremely difficult one, as the politicians currently in power are exposed to possible - even probable - negative consequences.

On a humanitarian level, it would seem that at least for the time being, and initially, the harsh measures of social isolation and suspension of some economic activities had a relatively positive effect, as Romania, is being counted among the EU countries with a relatively low number of deaths or medical complications caused by Covid-19.

On an economic level, it is too early to do anything other than identify possible risks and negative consequences, materialized in assumptions, estimates and, at best, judgments in terms of probability. I cannot, however, fail to mention my deep conviction that, their drawbacks aside, such economic and social crises represent strong incentives for those who show entrepreneurial ability, inventiveness, innovation and flexibility in thinking and use these qualities within -a strictly legal and moral framework to identify opportunities and turn them into tangible realities.

In general, and history proves that, people were more inventive precisely when economic and social conditions were more difficult, so I think that even in the current situation we will see companies and individuals that will endure these momentary woes, they will survive and emerge from the crisis even stronger than they were before it occurred.

Reporter: What is your opinion on the fact that a small number of employees from most companies are working from home? What are the effects of this measure on the financial results of companies?

Dan Schwartz: Under these circumstances, this means running in "failure mode". The decrease in the number of employees was imposed by the rapid contraction of business, and "work from home" became necessary as isolation and social distancing became mandatory.

The decrease in the number of active employees imposed by the contraction/cessation of business and their furloughing certainly contributes to the shrinking economic results of companies. The active employees together with the management and shareholders of the companies are the ones who generate income that allow the activity to continue. When the activity decreases in volume, and the staff is either dismissed or furloughed, earnings implicitly decrease and, consequently, the economic results are negatively affected.

As for teleworking, depending on the level of adaptation and computerization of each enterprise, it can either contribute to the contraction of the economic results of the enterprise, or to positive ones.

Working in isolation is relatively new to most people, and the novelty of it, combined with the rapidity of change imposed by anti-pandemic measures can lead, at least in the first instance, to difficulties in managing time and everybody's ability to separate the actual work time from that necessary for rest, recreation and dealing with day-to-day household problems (shopping, caring for children, cleaning, etc.), which can implicitly lead to lower efficiency.

On the other hand, interpersonal communication is essential for every human activity, and even more so for efficient economic activity. Even amid the information revolution and computerization, when more and more people started to spend their time working or even being entertained alone and in front of the computer or cellphones, the need to socialize was strong. All the more so now, when we are not staying and working exclusively "from home" at our discretion, but because we are ordered to, the lack of human interaction can generate inefficiency and frustration.

Many studies show that the isolation of individuals can have negative psychological and psychological consequences, with similar immediate influences on everything that pertains to economic activity.

For all these reasons, I am not a supporter of indefinite isolation, on the contrary, I believe that the sooner we return to a social life at least as varied and rich as that before the Covid-19 crisis, the better off we will be, not only from an economic and social point of view, but even from a ... medical point of view!

Despite all the difficulties and as people adapt to the new conditions, where entrepreneurs or managers identify new business opportunities materialized into new products or services and/or into a better organization and computerization of the activity, it is possible, likely even, that we will witness the reverse phenomenon, that is, the increase in revenues and profits, beginning even during the time of crisis. In any case, I believe that companies that adapt most quickly to the new work and business conditions, which show the maximum organizational flexibility and which understand more the advantages of computerization, will be the ones that not only come out better off from the crisis, but will show good results after it's over, as well.

Reporter: Which economic sector is currently the most affected by the crisis caused by Covid-19?

Dan Schwartz: We cannot talk about a single field, we must consider the economic activity as a whole. However, those that have been affected right away and heavily are the HoReCa industries, air transportation, domestic and international tourism, gambling, the entertainment and sporting events industry, the automobile manufacturing industry (to a certain extent and in close connection with the slowdown in global and European economic activity), the retail industry, and in the medium and long term we may see significant negative effects in the financial and banking services industry.

Reporter: What strategy do you think companies should adopt in order to survive this crisis?

Dan Schwartz: It is very difficult to talk about a generally valid and applicable strategy. I believe that every company must, in such moments, adapt as quickly as possible to the new restrictions of the system and find its own solutions to deal with them.

There are companies that are considering resorting to bank loans or intra-group financing or borrowing from private shareholders and / or investors or even from customers. There are companies that are reviewing their staff and compensation policies. Other companies are looking to identify new products and services, that can be made at the lowest possible cost, in the current context. Others went so far as quickly changing their line of business, at least temporarily.

Finally, I think there would be many other ideas that could be incorporated into such a global strategy, but until they are identified, since we're talking about strategies, we must consider two main ideas: limiting the negative effects of the Covid-19 pandemic and the response of public authorities to this must be done through tactics of adapting to the digital economy. Then, on the other hand, these tactics must supplemented by the identification of business opportunities that can be used both during the crisis and after we exit from it, and the permanent or temporary layoffs of employees must be temporary and limited.

Regarding the latter idea, I would like to give a concrete example of what it means to identify opportunities in the midst of an almost general state of despair and / or apathy:

One of our customers in the HoReCa industry, seeing his activity suspended due to the state of emergency, did not start complaining and did not fire his employees, but convinced them to accept a temporary salary cut, and furloughed only a limited number of people. Concurrently, in the very first week of the state of emergency, he identified a business opportunity he presented to another food and non-food retailer and managed to persuade them to enter a working partnership which is already functional and will continue to function indefinitely. After another two weeks, he responded positively to a request from an online sales company to combine their available resources to create long-distance delivery system for mass-produced products during this period (staple food products): flour, oil, sugar, etc.). The two new additional activities in which our client has gotten involved help him to run and manage his business quite well, also allow him to preserve the qualified staff which he spent years training. It also gives him the opportunity to run profitable businesses after the state of emergency and even during the crisis.

Reporter: What is your opinion on the measures taken by the Government to support the business sector?

Dan Schwartz: I want to believe that the Government is just getting started when it comes to supporting the business sector. Measures such as the payment of furlough benefits from the unemployment fund or postponing the payment of fiscal liabilities without the charging of interest and delayed payment penalties, or the creation of an incipient system of state aid consisting of guarantees for bank loans and subsidizing interest on loans taken on by small and medium enterprises are, in my opinion, only a bare minimum right now, when we are only at the beginning of the difficulties likely to be experienced by the business sector.

I believe that so far the Government has focused more on identifying measures to limit the spread of the virus and to provide human and material support to the public health system. What the Government has done so far are, in my view, merely timid attempts to keep in check some of the negative effects that the state of emergency has caused in the economy.

Even at the risk of being considered an optimist, I express my hope that very soon the Executive will adapt to reality and, as information is collected, will understand the gravity and scale of the crisis we are likely to face and will take decisive action, within the of possibilities, of course, to support those who create value in this country.

Reporter: What is your opinion on the measures taken by the NBR and what implications do you think they will have on the banking system?

Dan Schwartz: The measures already taken, as well as the ones being planned, seem well thought out to me, for the moment, the cut of the policy interest rate and the buying of government securities on the secondary market are meant to create additional financing resources for the private sector, as well as for the government. Encouraging financial institutions to lend money is welcome and I believe that, in addition, the NBR should act as a mediator between commercial banks and the Romanian government when it comes to granting loans with interest subsidized via state aid.

I want to believe that the NBR will continue to adapt its monetary policies to the situation of economic crisis we are likely to go through, due to the negative effects of the pandemic and the subsequent recovery period, and will succeed in ensuring the liquidity and financial discipline needed to resume the economic growth process, by stimulating lending, by controlling the money supply and by pursuing strict observance of financial discipline, in order to avoid a possible financial crisis.

Reporter: What do you think about the passing of a law to postpone loan installments rates and utility bills?

Dan Schwartz: Personally, I am not a supporter of the unjustified and brutal intervention of the state in the economic activity of a country. If social protection measures are needed, then they should be implemented by using the levers that the state has at its disposal (granting unemployment benefits, social benefits, etc., borne by the state budget or via loans taken out cautiously and reasonably), without harming the economic balances which are already fragile in a time of crisis.

If it is necessary to support the business environment so that it can more easily cope with the difficulties posed by the crisis and resume the process of value creation quickly, then measures should be identified which would facilitate access to loans and fiscal measures should be used sparingly.

Furthermore, it should not be forgotten that deferring the repayment of loan installments involves, at least in theory, the recalculation of interest and possibly the fees, and preventing banks and other financial institutions, through administrative measures, from ensuring their necessary income and liquidity through the development of profitable lending can have serious negative consequences on the entire economic balance, both at macro and micro level.

If the goal is to help debtors who have been affected by the crisis and are in financial distress, meaning they are unable to make their debt payments, then the state should encourage, via actual legislation, without directly intervening in economic relations established between private individuals, the renegotiation and rescheduling of loan repayments and not the deferral or suspension of the repayment of loan installments and the non-compliance or the unilateral amendment of the contractual clauses initially accepted by both the creditor and the debtor.

The unilateral and undiscriminating granting of benefits to debtors without identifying mechanisms for compensating creditors for potential losses can create significant macroeconomic imbalances that are difficult to manage and subsequently correct.

I am convinced that no one wants a financial crisis to succeed the economic one only to protect a relatively limited number of debtors harmed by the crisis, or who have been unrealistic in estimating their ability to repay the loans they took out or who are actually in default. Instead of supporting them, the state should encourage direct negotiation between banks, non-bank financial institutions, etc. and their debtors and request and facilitate amicable agreements between them based on them jointly bearing the negative effects of the crisis.

Ultimately, I think that, it is actually the NBR that should be involved in resolving such situations, and not the Parliament or the Government.

Reporter: How do you see the fact that we are in a position to have two pieces of legislation with the same object - postponing the repayment of loan installments - and that the political forces seem to be fighting over this issue?

Dan Schwartz: In my opinion, the passing of GEO 37/2020, in the form published in the Official Gazette of Romania, is part of a relatively long series of legislative acts that have protected defaulters or unrealistic debtors in their relationship with various lending institutions (see "the law on giving in payment"), or bad payers in their relationship with the state budget (see the various so-called "tax amnesties", which placed honest taxpayers at a disadvantage).

The ordinance represents a brutal intervention of the state in the commercial relations established between private entities and sets what I would call a dangerous precedent. Although I am not a lawyer, I express my doubts about its constitutionality, and as an economist I express serious reservations about its efficiency in the context of the Covid-19 crisis.

As for the amendments submitted in the Parliament so far, they are even more invasive than the original provisions of the ordinance.

As a principle, I believe that both normative acts are the result of political and electoral disputes, have probably been promoted as a result of great pressure from all areas of the political arena, have a strong populist and partisan flavor (they favor unrealistic or malicious debtors in their relationship with the lenders), are disconnected from any applicable principle in a market economy and create potential dangers for creditors and disadvantages and frustrations for honest and realistic debtors.

Reporter: What effects will all these measures have on the economy, the business environment and the state budget?

Dan Schwartz: Although GEO 37/2020 currently produces legal and economic effects (which are hard to identify via a quick analysis), I believe that in order to fully understand its implications on the Romanian economy and society we should to wait for the first attempts to actual implement its provisions and then to see what the final version of the law being debated in the Parliament looks like. However, until then, we may even see lawsuits if creditors are unable to honor the debtors' claims due to economic reasons.

Reporter: What other measures do you think would be necessary for the business environment to continue to function? What measures do you think will be needed to rectify the situation, after the period of force majeure has passed?

Dan Schwartz: The measures taken by the Government to helping the business sector continue to operate must be closely correlated with those that will be taken to stimulate the exit from the crisis and the return to normal economic and social activity. Some of the measures I have identified could be made ongoing - they apply even in a stable economic context, not vitiated by the crisis.

-Here are some of the measures that, in my opinion, would have a significant impact on the business environment:

- postponement / extension of the term for submitting the financial statements to the fiscal authorities and preparation of the transfer pricing documentation (in the case of large taxpayers);

- creating the option for rescheduling the fiscal debts accrued during the crisis period by those whose business was shut down, limited or just slowed down by the crisis caused by the pandemic, with exemptions from interest and delayed payment penalties during the rescheduling period;

- maintaining and extending the bonuses granted to taxpayers who pay their fiscal debts on time;

- extension of the emergency VAT reimbursement, with subsequent audits;

- ensuring the necessary financing of the unemployment fund and the timely payment of furlough and unemployment benefits, in accordance with the law;

- observance by the government of the terms of payment of other debts to the taxpayers;

- the expansion of the state aids granted in the form of loan guarantees and the subsidization of the pertaining interest payments, from SMEs to large distressed companies;

- the establishment by law of a system for listed companies, with joint or private capital, to issue bonds which would be acquired exclusively by the government, in order to facilitate their financing needs during the crisis and in the next one.

This special type of bond should be exempt from interest for one year, or benefit from a grace period of one year from the date of purchase, including a right of first refusal for the issuer to buy them back from the government upon the expiration of the grace period or the period of exemption from interest payment. If they are not bought back at that time, said bonds would become interest-bearing, calculated based on the average interest rate on commercial loans published by the NBR.

For prudential reasons, the value of these bond issues could be limited by law to, for example, up to 30% of the total net assets of each issuing company, and the maximum redemption period could be three years, including the grace period. If the issuer did not use the right of first refusal at the end of the grace period, the state would have the right to sell those bonds on the regulated capital markets.

After entering the private financial circuit, those bonds could be converted to shares, under the terms of law no. 31/1990, republished and updated.

The system could be expanded (also by legislation, which would also create the necessary technical mechanisms) to privately owned joint stock companies not listed on the stock exchange, and in doing so the Romanian government would meet the financing needs of all the major companies, without significantly influencing market mechanisms. Moreover, that limited influence could be beneficial for the whole economy, as the state's presence on the credit market would force commercial banks to practice reasonable interest rates.

The funds needed to support this credit system could be secured via loans from the IMF and / or the World Bank, should have favorable repayment terms (grace periods longer than one year, interest rates below the average commercial interest rate, maturities long enough not to create significant budgetary problems) and should be prudently limited in order to keep Romania's debt at a reasonable level.

Finally, the design and control of the financing systems proposed here should be done with the direct involvement of the National Bank of Romania;

- in the case of companies of national and / or strategic interest, with private capital, listed on the stock exchange and in need of urgent financing, the state could proceed to the initiation of temporary stakes in their equity. These temporary holdings should be achieved through the acquisition of stock newly issued by these companies, which, once the crisis has abated, or within at most one year from the first signs of macroeconomic recovery, should be listed on the regulated capital markets. In doing so, the government would recoup its investment and might even make a profit from those investments (capital gains), should those holdings increase in value over the time they were held by the government. Making such measures temporary by law is necessary to avoid any negative interpretation which could result in a potential concealed nationalization;

- increasing investments in infrastructure of any kind (roads, railways, air, rivers, telecommunications, electricity transportation, etc.) and finalizing in an emergency the public investment objectives already started;

- encouraging and expanding public-private partnerships, possibly by resorting to European funds;

- reorganization, resizing and rapid computerization of government institutions, especially those that through the specifics of their activity come into direct contact with taxpayers; implementation of such measures at the ANAF should be given priority;

- reducing bureaucracy and downsizing the civil service apparatus, accompanied by computerization, in the local public administration;

- cooperation with the National Bank in order to ensure the needed additional monetary liquidity during this period, while keeping inflation under control over and maintaining strict financial discipline, both among commercial banks and among private and state debtors;

- constant consultation with the business sector, employers 'and trade unions' organizations and with civil society in order to achieve the establishment of relations of cooperation and social solidarity, which are absolutely necessary in times of crisis;

- placing national economic and social policies in a European context and extending cooperation at the level of the European Union.

In order to ensure the resources needed to support the business sector, both during and after the crisis and in order to complete the investment objectives already started, the Romanian Government should resort (reasonably and based on the use of mathematical models and impact studies) to domestic and foreign loans, in particular loans from established international financing institutions such as the World Bank, the EBRD, the IMF and to seek the most favorable repayment terms, preferably over maturities as long as possible; with as low interest rates as possible (I support loans from these institutions due to the macro-economic, financial and fiscal discipline that they require in the long run for borrowers who have resorted to borrowing from them).

I also believe that the Government should resist the populist temptation and not encourage the use of unjustified, unidirectional and partisan fiscal facilities, excessive currency printing or financial over-indebtedness, given that in the long run such government measures can create macroeconomic instability and that, ultimately, they can only be sustained through the irreversible increase in the general level of taxes and duties; both inflation and excessive taxation are factors of decline and not ones that encourage economic growth.

Reporter: Thank you!