Банкеръ Weekly

Briefs

THE GREATEST RISK IS OF OVERTURNING THE CURRENT TREND OF REDUCING THE STATE'S DEBT

Plamen Oresharski - Deputy Minister of Finance to the BANKER weekly

Mr. Oresharski, which are the greatest risks in the management of Bulgaria's foreign debt?
- The greatest risk is of overturning the current trend, that is that the State's debt is not reduced. Borrowing money in order to cover the temporary financial needs of the country would lead to the debt's accumulation and would eventually increase the government's expenditures. If transitory interests outweigh the long-term interests, Bulgaria's foreign indebtedness might start rising. But public finances cannot endure a new increase of the State's debt.

Which operations concerning Bulgaria's external debt do you appaise as experiments?
- The swaps of one foreign debt for another as an end in itself, for instance, especially if techniques which are advantageous for investors only are used. But let's consider the problem from a broader point of view. Let's assume that at every moment the international debt market appraises impartially a state or one of its instruments. If we accept that thesis, we'll come to the fundamental question: Could we outwit the market? I believe that the market cannot be outwitted as a rule. There could be some ad hoc exceptions, but they only confirm the rule and do not eliminate it.

The question is if Bulgaria could outwit the market at a certain moment?
- You would certainly agree that the management of the government's debt and of the State's finances by definition subordinates to more conservative rules as compared to the investment funds. In that aspect, outwitting the market cannot be a target in the State debt's management; it is only a potential possibily.

Do you accept the recent reproaches to the Finance Ministry for not having managed the external debt actively enough?

- I do not agree that Bulgaria's foreign debt has been managed passively so far. In the last four years we succeeded to repay liabilities to the International Investment Bank and to the International Bank for Investments and Cooperation, amounting to almost USD948MN, in addition to the accrued punitive interest. We also settled liabilities of some USD500MN to creditors, which used to cause problems.
If anyone claims that these operations, worth more than USD1.4BN, with the aggregate State debt staying at USD8.6BN, is a passive debt management, I would say that deals of larger amount verge on gambling-like management.
Moreover, I don't think that the structure of Bulgaria's liabilities needs a fundamental change. In the mid 90s agreements for reschedulement and reduction of the debt were signed with the creditor states from the Paris Club and with the creditor banks from the London Club. Bulgaria's liabilities to them were transformed under comparatively advantageous terms for our country. The average redemption term is 13 years now. This is a fairly notable achievement if compared to the terms, agreed by other developing countries, and I do not believe that the foreign debt structure should be drastically changed. The main principle here is to regard the debt portfolio in its integrity and appraise it according to a complex of indicators, and not in terms of separate ones.

Why did Bulgaria fail to agree a reduction of its debt to the creditor states from the Paris Club?
- We rescheduled our liabilities to creditor countries. Nobody has set their reduction as a task. The Paris Club members are not inclined to reduce their receivables from debtors, as they protect the intersts of their own tax-payers. History remembers just a few instances when, at advantageous poilitical conditions, certain countries have gained reduction of their liablities to the Paris Club. For example, Poland succeeded to do this in the beginning of the 90s. Previously, the state debt of Egypt was reduced as an award for its fair political government, at that in an indirect form: a significant part of the debt was swapped for a commitment to invest the saved funds in economic development and environmental protection.

In the beginning of 1997 Svetoslav Gavrijsky, then finance minister in the care-taker cabinet of Stefan Sofiansky, said he would ask for reschedulement of Bulgaria's payments to the Paris Club. Were any such negotiations held?
- Quite a few people know that in 1997 the country levied a partial moratorium on its payments to the Paris Club. In the beginning of the year we had stopped repaying the non-deferred liabilities to the creditor countries, but we renewed payments in the summer of the same year, and we also settled the arrears. No negotiations for reschedulement were needed, as we soon succeeded to close a stablization agreement with the International Monetary Fund (IMF).

In 1999 Ivan Kostov's Government proposed that part of Bulgaria's payments to the Paris Club should be swapped for a commitment for investments. Why wasn't that proposal approved by any of Bulgaria's creditor countries?
- In international finances, and in debt relations in particular, everybody tries to avoid precedents, fearing that if once yields to a debtor all others will begin pressing for a similar preferential treatment.

Are there any unsettled liabilities of Bulgaria to foreign creditors?
- Within the past four years we managed to sign agreements with all creditors, who had well-grounded claims to our country. In addition to settling a huge USD948MN debt to the International Investment Bank and to the International Bank for Investments and Cooperation (both financial institutions belonged to the former Council for Economic Cooperation), we also paid back liabilities exceeding USD500MN to Germany, Austria, Italy, Poland, the Netherlands, and Spain. The most important achievemnt, however, is that the GDP/foreign debt ratio which was 114% in 1997, is presently a little over 72 per cent. In other words, we are constantly approaching the EU's requirement that this ratio
should not exceed 60 per cent.

However, Bulgaria borrowed a significant amount of new credits over the last ten years?
- Yes, but these loans were much cheaper than the credits we could get from private creditors at that moment. The loans from the IMF are for a 10-year period, and the interest paid on them is around the London interbank offered rate (LIBOR). The credits from the World Bank are for 20 years, including a 5-year grace period for the repayment of principal. The interest charged on them is also around the LIBOR.

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