Банкеръ Weekly

Briefs

BORROWED MONEY CAN BOTH FEED AND RUIN

The economic team of the National Movement Simeon II, led by the newly appointed Deputy Premier and Minister of Economy Nikolai Vassilev and the Minister of Finance Milen Velchev announced their determination to float an issue of Bulgarian eurobonds on international financial markets. The initiative for such an issue was taken bach in 1998 by the cabinet of ex prime minister Ivan Kostov. His government, howeevr, did not resort to that kind of financing as it managed to ensure sufficient foreign investment and cheap long-term credits to service the State's foreign liabilities. According to the former deputy minister of finance Plamen Oresharski, the optimal parameters of such an issue are 10-year eurobonds of a nominal size of EUR250-300MN. Mr Oresharski believes that at these conditions Bulgaria could sell on the foreign markets securities, paying an acceptable annual interest on them - about 9 per cent.
However, the intentions of Deputy PM and Economic Minister Nikolai Vassilev and of his colleague - the financier Milen Velchev - are of much larger dimensions. They do not conceal that they are considering a restructuring of the foreign debt, which is connected with launching considerable amounts of eurobond issues on the international markets. The money from their sale will be spent on payment of some of Bulgaria's current liabilities to international financial institutions or to the Paris Club. The new ministers' plans also include repurchase of some of our Brady bonds. According to some financiers, however, such an operation is quite risky. In an interview for the BANKER weekly Plamen Oresharski said that the aggregate amount of the expenses for the purchase of the discount bonds would exceed USD900MN. That amount should be supplied by selling Bulgarian eurobonds on the international markets.
If the repayment term of the new securities is at least 10 years, the annual interest rate on them will not be less than 12 per cent. And, currently we are paying annually less than 5% on Bradies. There also purely strategic reasons for not recommending such a restructuring within the next one or two years, the former deputy finance minister notes.
According to him, a large-scale operation for restructuring Bulgaria's foreign debt might cost quite a lot to the country. Foreign banks, however, are eagerly expecting the new Government to follow a more aggressive policy on the international markets. It is not a secret that the bank which is entrusted to market the Bulgarian issue of eurobonds will get sizable commissions for for its services.
Mr Oresharski recommended the new Finance Minister to approach conservatively the management of the foreign debt and not allow gambling with it. How far Milen Velchev has listened to his advice will become clear from the policy, which he intends to follow. The Bulgarians will become aware of its success or failure by the money in their pockets, because if foreign debt operations are successful, the expenses for its servicing would decrease, and thus additional fianances will be available for pensions, children's allowances, health care, education, and investments in infrastructure. And if the foreign debt management policy suffers fiasco, the State will have to thrust still deeper in the pockets of citizens and companies in order to ensure finances for the increased liabilities to foreign creditors.

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