Alternation in power and black holes in banks

In just a week, we will officially know whether Banca Agricola can be sold. Chances were already minimal on August 8, when the previous privatisation deadline expired. It was obvious then that the only bidder would not want the bank as it is, but preferably cleaner and better capitalised. The message being that if the Government wants to sell it – for little money, of course – it must pay first.

What else is new? Not only was there just one bidder, now we learn that the Agricultural Bank of Greece, one of the three consortium members and, in all likelihood, the one who was to pay the bulk of the money, is pulling out completely.

With this in mind, what can we expect on September 8? What else but a new failure, though “sweetened” by a new deferral.

The facts about Banca Agricola are well-known already, and disputes over “who is responsible” could not have evolved any differently than they did with the defunct Bancorex: the guilty are nowhere to be found; in any case, the holes and losses are, if not inherited from the “others,” caused by “circumstances.”

Since figures don’t lie, don’t have political flavour or emotions, let us recall some of them. The reality of the figures tells that, so far, Banca Agricola has cost the budget at least $800 million, spent in the first “cleansing” operation back in 1997 and by writing off a string of bad loans to AVAB; that the Bancorex affair cost the same budget around $2 billion.

Those who say the state should pump another $150 million into Banca Agricola argue that its liquidation would cost twice as much. Anywhere in the world, restructuring the banking system has cost heaps of money, all the way to half the GDP, as was the case in Argentina.

Just days ago, the Japanese government said it would allocate $28 billion to rescue and sell a single bank. There are plenty of arguments and examples.

When it comes to money, there is only one question: whether you have it or not. And if you don’t, whether someone can give it to you. Can the budget afford another $150 million to trim up Banca Agricola before a hypothetical marriage?

No, in any case, not if the government, the present or the future one, wants to raise budget salaries and pensions, too, along with patching up hospitals, pay off the domestic debt, and make some investments. One direction or another must be assumed and pursued through to the end, granted that other expenditures are sacrificed.

Therefore, if it is to rely on domestic resources, the Government has but one variant: admit it has no money and say, “take it as it is, even for as little as a dollar, just take it.” If the potential buyer still doesn’t want it, the same Government can do nothing but squarely declare bankruptcy and support the liquidation costs.

Perhaps it could attempt to limit the scale of the disaster by “attaching” part of the bank to another state bank, according to the Bancorex model.

The variant of a fresh capital injection has, besides the effective cost, one major drawback, in that it becomes a dangerous precedent. Why wouldn’t any loss-making company ask for money from the state, claiming that no one would buy it otherwise? Why wouldn’t potential buyers expect the state to level a company’s finances before buying it?

Do foreign resources exist to clean up the Romanian banking system and industry? Hardly so, since even a “structural adjustment” loan from the World Bank has not exceeded $300 million.

Then, what should we rely on when we keep projecting ever more capital injections? On the fact that the dead cat is passed on to the next Government?

One of the benefits of democracy is alternation in power, wherein, after some time, whoever comes to power pays not only for others’ mistakes, but for his own mistakes he made the last time he was in power.

In our case, if a string of miscalculated economic decisions made by the PDSR government brought Banca Agricola to the edge, we can expect that, if its hopes come true and it seizes power again this autumn, PDSR will suffer some of the bank restructuring costs.

That’s a nice moral. Too bad it doesn’t do any good. Because the state budget is not an abstract notion, it is an amount of money collected from each taxpayer, whether a private citizen or a company, which the state spends right or wrong. And, unfortunately, taxpayers don’t pay by rotation, every four years. They pay all the time.