Банкеръ Weekly



Neither the subtle diplomatic sense of Jerald Schiff, International Monetary Fund (IMF) Mission Leader for Bulgaria, nor the tactfulness of Svetoslav Gavrijsky, Governor of the Bulgarian National Bank (BNB), and of Milen Velchev, Minister of Finance, managed to clear the painful impression made by the first talks between the new Bulgarian Government and the Fund. The very fact that no agreement was reached is much disturbing by itself. According to the Regulation Act for the state budget by end of October the Government is supposed to submit next year's budgetary profit and loss account at the Parliament. And in case it is not approved by the IMF there is no guarantee it is realistic at all. Indeed, a month is far from enough for the 2002 budget to be prepared, coordinated with IMF's experts, and the next agreement with the international financial institution to be reached. So, no wonder the Government asks Parliament to postpone the voting of the budget. However, this will signal emerging problems.Shortly before leaving Bulgaria on Thursday, Mr. Schiff tried to demonstrate optimism by stating he was neither surprised, nor disappointed with the fact that this Mission had not ended with an agreement. He also underlined that from Washington IMF's experts would keep in touch with our ministers via the INTERNET, so that eventually they could reach a compromise. But before that the Government should follow a long list of recommendations, left by Mr. Schiff's Mission, and only then he would return to Bulgaria.The former minister of finance Muravey Radev warned that lack of an agreement with the IMF would threaten negotiations for accession to the European Union (EU), which might result in refusing the promised EU's financial aid, amounting to EUR300MN only for 2002. Yet, Milen Velchev kept level-headed and tried to imply to the medias there was no room for fatal conclusions. The Finance Minister claimed he had not expected any swift results from the visit of IMF's Mission, but underlined that the successful finalization of negotiations with the Fund is of vital importance for the country and added that the Government will take every possible pain to that end.According to Milen Velchev, the recommendations which the Mission expects the Government to fulfil, concern the fiscal policy and the reforms in the energetics sector, in transport and in the healthcare system, which have been neglected by Ivan Kostov's cabinet. The Fund insisted on taking measures for increasing budgetary income and for restructure of the centralized heating systems, BDZ (Bulgarian State Railroads) and the healthcare system in such a way so as the budgetary losses to be brought to a minimum. The Minister of Finance is confident that he will manage to fulfil the requirement for lower budget deficit in this year. Instead of the planned 1.5% of GDP it is expected to be 0.6% because of the lower expenditures on interests on the sovereign debt. Nevertheless, in order to pull the budget through, Mr. Velchev will have to make his colleagues reconsider their ideas about changes of the taxation laws. The BANKER weekly warned still in June that Jerald Schiff leads negotiations in quite the similar fashion as Ms. Anne McGuirk and the government would have to defend its positions with arguments.In order to come up with IMF's expectations the Government will be forced to give up many of its rush pre-election promises. Yet, better do that than threaten the stability of the currency board as by end of the year USD300MN on the foreign debt should be paid up, followed by USD150MN to be paid in January, 2002.Without an agreement with the IMF Bulgaria will not receive USD500MN low-interest credits promised by the World Bank, the European Bank for Reconstruction and Development and the European Investment Bank. Foreign investors, whose attention was attracted after the election, might also draw back. And this is not to be blamed on the expected global recession. BNB's Governor Svetoslav Gavrijsky offers a much different point of view: if present lower USD rate and oil price are kept, then the current account deficit will be much less than the expected by IMF one - 7% of GDP and so our country will have much less foreign currency expenditures. He adds that despite the cut down of Bulgarian export, there is no place to worry about the country's solvency. The Governor of BNB tactfully reminded that at present the fiscal reserve is USD1BN and is far enough to cover payments on the foreign debt. What he failed to mention was that fact that only USD500MN of the sum are on the government's account. If no agreement with IMF is signed then the government will quickly exhaust its funds and will have to pick up the Healthcare Fund's EUR300MN which are also part of the fiscal reserve. The quiestion is what will happen when all the money is spent.

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