Банкеръ Weekly



The novices of the International Monetary Fund (IMF) made haste to meet the novices of the Council of Ministers. Jerald Shiff, who succeeded Juha Kahkonen as IMF mission leader for Bulgaria, and Piritta Sorsa, who will replace Peter Stella as resident representative of IMF in Sofia, paid a 2-day visit to get acquainted with the Bulgarian isntitutions that will be under their guardianship for at least two years. In the morning on July 25 Peter Stella introduced the two IMF officials to Bulgarian National Bank Governor Svetoslav Gavrijsky, and afterwards they met the former deputy finance ministers and the new Minister of Finance Milev Velchev. During the talks and at the business lunch that followed, Jerald Shiff and Piritta Sorsa were acquinted with the macroeconomic situation in the country and with the fulfillment of the 2001 budget. On the next day both of them enriched their information at the Ministry of Labour and Social Affairs and at the Ministry of Agriculture. The syndicates also added something to their files with their demands for payment of an extra 13th pension and a 13th salary. The tour of Mr. Shiff and Ms. Sorsa ended by a meeting with the new Bulgarian Premier Simeon Saxe-Coburg-Gotha. However, details about that meeting will become known to the public... when the time comes.
The real work of the two IMF officials will begin in September when they will arrive in Bulgaria to discuss the terms at which Simeon's Government could close a new agreement with the IMF. During its second visit, the IMF mission is expected to get acquainted with the 2002 draft budget and with the projected amendments to taxation legislation.
According to Mr. Shiff, who is a straightforward monetarist, the Government should be following a policy that would guarantee the achieved financial stability in the country, and should draft a budget with the minimum possible deficit. He emphasized that the Cabinet of Simeon Saxe-Coburg-Gothat should continue the structural reform, which means that the promised privatisation of top state-run companies, such as Bulgartabac, the Bulgarian Telecommunications Company, Biochim commercial bank, and DSK State Savings Bank, should be effected.
Financiers who know Jerald Shiff claim that by nature he very much resembles the unforgettable for Bulgarians former IMF mission leader Anne McGuirk, and he would not allow the Government to go astray from IMF's requirements. He is neither like to tolerate an aggressive reduction of taxes or rash increase of budget expenditures on pensions and salaraies if he has even the slightest doubt that such a policy would lead to a higher budget deficit and pose danger of higher inflation.
We we expecting Bulgaria's economy to achieve some 5% growth this year and the processes have been more or less developing along these lines so far, Jerald Shiff was pleased to say.
However, Mr. Shiff did not miss to point out that despite the achieved stable basis of Bulgarian economy, it is still exposed to risks. According to him, these risks are presently connected with processes outside this country, such as the slowing down of economic growth in the European Union and the crisis in Turkey, which means they should not be ingnored. He stressed that the ministers in Simeon's Cabinet should even double their attention and pull themselves together if they are resolved to succeed.
In that context, the Finance Minister Milen Velchev shared with the IMF new mission leader the Government's intentions for changes in the sphere of tax reforms and in the budget. Mr. Velchev said the accent was laid on individual tax reforms, proposed by the National Movement Simeon II and the real importance of each of them. The most important among them are the proposed tax-exemption of reinvested companies' profit and reduction of the natural persons' incomes tax. The Government will also insist on postponing the introduction of VAT for tourist services by one more year, the Finance Minister added.
Jerald Shiff said he did not have any preferences regarding the new agreement between Bulgaria and the IMF. It could be for one year or for a shorter period. This is something we should discuss in September. In any case, it will not be for 3 years as the previous agreement was, Mr. Shiff was adamant. This is due to the much better economic situation in Bulgaria, he explained.
It will become known in the autumn if it will be a stand-by or a precautionary agreement. To the BANKER weekly's question what kind of agreement the IMF would prefer Mr. Shiff replied that precautionary agangements are also a kind of stand-by agreements. The only difference is in whether your country intends to draw credits from the IMF or will do that just in case it needs funds urgently to cover deficit in the payment balance, Mr. Shiff explained.
The significant payments - exceeding USD1.3NB - which Bulgaria should make next year presuppose that the Government will prefer to close an agreement that would gurantee regular financial injections from the IMF. For that purpose, however, the Cabinet should within a very short term draft a strict budget, a programme for privatisation and for restructuring of the energy sector. Moreover, the Government of Simeon Saxe-Coburg-Gotha should abstain from making extravagant decisions in the sphere of taxation policy and should not make haste to loosen the purse-strings of the budget for large expenses. Otherwise, the Government's negotiantions with the IMF will be difficult.

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