BUCHAREST (Reuters) - Romania’s Constitutional Court on Wednesday ruled against a parliament bill to set up a sovereign wealth fund, a key policy goal of the ruling Social Democrats that the party’s critics see as a potential avenue for corruption.
Parliament, where the Social Democrats and their junior coalition partner ALDE hold a majority, approved the $2.3 billion fund in June saying it would stimulate growth and provide financing for new roads and hospitals.
Opposition politicians, concerned that its funds risked being misappropriated and its board appointment process politicized, challenged its creation at the country’s top court.
The fund is designed to hold a mix of cash and equity in some of Romania’s most profitable state companies, generating income and helping finance domestic investment.
In its ruling invalidating the bill the Court said that, based on current legislation, government could reorganize state-owned companies but parliament could not.
Norway and several Gulf states run successful sovereign wealth funds, and investors have said a Romanian variant could potentially make the companies more efficient.
But critics, citing the example of Malaysia’s 1MDB - the subject of money-laundering probes in at least six countries - have expressed concern that a Romanian fund, and domestically focused funds in general, might be vulnerable to misallocation of resources.
The Social Democrats, who have said appointments to the fund’s board will be entirely transparent, can still set it up through a government decree.
However the European Commission and Eurostat, which have yet to comment on it, must also approve its creation as it could have an impact on the country’s budget deficit.
Transparency International ranks Romania as one of the European Union’s most corrupt states and Brussels keeps its justice system under special monitoring.
Reporting by Luiza Ilie; editing by John Stonestreet