BNB TO BE PREPARED FOR THE EUROPEAN TRACK
Amendments to the Bulgarian National Bank (BNB) Act have always been motivated by serious problems in the country's economic and financial system and have always had a considerable impact on them. Currently, the Council of Ministers and the central bank are again preparing changes to the law of BNB, but according to the circulated press release, this time the aim is to bring the relevant legislative framework in compliance with the requirements of the European Union (EU) and the European Central Bank. The pending amendments concern some very important spheres of BNB's activities, such as the independence of the central bank's Board of Governors, the ban on direct financing of the public sector (the State and the municipalities), the launching of measures for protecting the euro from counterfeiting, and improvement of the accountancy and transparency in BNB's operation.As far as the last requirement is concerned, the very fact that nobody in the central bank undertakes to explain the projected amendments in greater detail speaks for itself. The responsible people in BNB claim they do not have the right to legislative initiatives and cannot comment on the draft changes before they are moved to the Parliamentary Budget and Finance Commission. According to them, only the ministers taking part in the joint expert panel with the bank's representatives could do so. But the banking experts are in BNB, not in the Government. At the same time, the EU regulations regarding the central banks are extremely interesting and their application does not concern these institutions. For example, the completeguarantee for the independence of the Governor,vice-governors, and members of the Board of Governors, is an imperative requirement of both the EU and the European Central Bank. Article 108 of the Agreement for the establishment of the EU explicitly states that when fulfilling their responsibilities, the managerial teams of the central banks of EU member countries do not have the right to require and get instructions by the state authorities (government, national assembly, etc.) or by the EU institutions. According to information of the BANKER weekly, however, such a provision has not been stipulated in the draft bill on the BNB. This is strange, considering the fact that Bulgarian politicians have many times tried to exert pressure both on BNB's entire Board of Governors and on its individual members. But the draft bill will stipulate in detail how and on what conditions the central bank's Governor,vice-governors and the other three members of its managerial team shall be replaced. These changes have been motivated by the scandalous situation in mid-2003 when the central bank's new Governor had to be nominated. A strange situation resulted then due to the sluggishness and political shilly-shallying of the ruling majority. The mandate of the former governor Svetoslav Gavrijski elapsed on July 13 and his successor Ivan Iskrov was appointed to the position on October 9. Thus, BNB stayed without a governor for almost three months, and one of the vice-governors' seats (vacated by Martin Zaimov in end-February, 2003) remained unoccupied till the end of October of the same year. In order to avoid in the future such disgraceful political choreographies, the amended BNB Act will include provisions that the members of the managerial team should be appointed at least two months before the mandates of their predecessors elapse. If a new member is not elected until the mandate of the former one has expired, he will continue to perform his duties till a person is appointed to replace him. In other words, the central bank's executives will be exposed in the future too, to the whims of law-makers. The law will also explicitly stipulate that the Governor and vice-governors will sign contracts for management under the order, specified by BNB's board of governors. There are no such provisions in the currently effective act. Due to that an absurd situation arose last year and nobody could explain in what labour ralations Mr. Gavrijski was with the central bank. Of course, all these changes and additional provisions are necessary, but they cannot guarantee greater independence of BNB's managerial team, as per the requirements of the EU and the European Central Bank. It is obvious that the draft legislative amendments will not include a provision banning completely the financing of the State and municipalities on the part of BNBArticle 45 of the currently effective law does not allow such operations in whatever form. But it includes an exception, connected with financing from the International Monetary Fund (IMF). The loans are formally received by BNB, and the latter on its part allocates them to the State. That complicated scheme was worked out in mid-1997 in order to avoid Parliament's ratification of each tranche (released on a quarterly basis) from the IMF. The BANKER learned that the same exception will figure in the amended BNB Act. At least at first glance, there are no apparent reasons for that, as the Government plans to close a precautionary agreement with the IMF, under which the international financial institution will be extending loans to Bulgaria only if the country needs them badly, i.e. when due to a disadvantageous change of the international situation the effective currency board arrangement in the country is really endangered. However, some experts are not certain that when the mechanism for financing the State by money from the IMF changes, Parliament will react with the necessary promptness (especially during some of its long recesses). Moreover, there are no guarantees whatsoever that the MPs will be always able to realize the real situation and make an adequate decision. The fact that BNB services the repayment of the country's liabilities to the IMF (due to be paid off by end-2010) will be probably also pointed out as an argument in favour of maintaining the present scheme.The projected amendments also stipulate that during Bulgaria's accession to the EU our central bank will be observing the principles of article 4 in the Agreement for the establishment of the EU, regulating the setting up of the European system of central banks. It is another question if it would be better for us if the BNB goes onto the European track gradually or abruptly.