Банкеръ Weekly



There is no one to sign the payment order for USD150MN-plus, which Bulgaria has to pay in interest and principal to the creditor banks from the London Club, officials of the Ministry of Finance alarmed in the beginning of the week. According to them, the ex Finance Minister Mouravey Radev had the right of a first signiture, and his successor Milen Velchev, who assumed office on July 24, should hurry up to register his specimen at the Bulgarian National Bank.
The Finance Ministry had to order the payment of USD134MN on July 25 in order to settle the current interest on the three kinds of Brady bonds, whose owners are the creditors from the London Club. A day later, on July 26, the Ministry of Finance had to pay USD16.1MN - the first installment on the prinicpal of the interest arrears bonds (IABs). The total nominal value of these securities is USD1,610.1MN and their repayment should be settled on July 28, 2011.
Bulgaria will start servicing the principal of USD1,657.46MN on the front loaded interest reduction bonds (FLIRBs) on July 28, 2002. On that date the Finance Ministry should remit the first installment of USD78.93MN, and the repayment is to be completed 10 years later.
Under the agreement with the London Club, signed on July 29, 1994, the collateralized discount bonds (DISCs), with a total nominal value of USD1,850.36MN, will be paid off a single time on July 28, 2024. The 30-year American security bonds, which Bulgaria purchased in 1994 and collateralized on the discount bonds, will mature on the same date. Their aggregate nominal value is also USD1,850.36MN. The scheme of the agreement with Bulgaria's creditors projects that the money from the American bonds should cover the DISCs' principal.
Currently, however, the State's financiers are not worried about the servicing of DISCs' and FLIRBs' principal. Their attention is focused on the payment of interest on the Brady bonds and the servicing the IABs' principal. The amount which is necessary for that purpose is ordered to an account 3 days prior the date of the remittance and the money go to Citibank, which is Bulgaria's agent for the servicing the country's foreign debt. Citibank is obliged to distribute the money to the accounts of the owners of Bulgarian Brady bonds.
Any delay of payment through Bulgaria's fault (no such thing has happened since 1994) would have an extremely negative effect on the country's image on the international financial markets.
Paradoxical as it might seem, as soon as the Cabinet of Simeon Saxe-Coburg-Gotha took over the government of the country, it was in danger of delaying the payment. The reason, as we already said, was that the new Minister of Finance Milen Velchev did not have a specimen and there was no way he could have it before having assumed office.
Anyway, the blunder was not made, as the former deputy finance minister Plamen Oresharski is also authorized to sign orders for payment of the foreign debt. So, his autograph stands prominently under the documents for the remittance of USD134MN in interest on the 3 kinds of Brady bonds and of USD16.1MN - the first repayment installment on IABs' prinicpal. Practically, the Finance Minister Velchev has only approved the payments. He also received the support of his predecessor Mouravey Radev, who sent special letters to all financial institutions with which Bulgaria has relations to notify them that as of July 24, 2001 the Finance Ministry would be headed and represented by Mr. Velchev.
The remittance of due amounts in interest on the Bradies will place the new Minister of Finance in quite a delicate situation. Thanks to that operation in end-July the budget will have a deficit of almost BGL174MN. Just a month ago - in the end of June - the Treasury had a surplus of BGL129MN and the fact was widely advertized by Mouravey Radev. But suddenly a deficit shows up with the coming of the new Finance Minister. This thinning of the State budget is of course foreseen and expected by experts and statisticians. But if the United Democratic Forces (UDF) opposition decides to, it could take advantage of the situation to bite the new Government. The new ruling force, on its part, also has an opportunity to use the deficit for political purposes by accusing Mouravey Radev of deluding the public by the figures he announced regarding the Treasury's revenues and expenditures. Such allegations, however, would be purely political insinuations, which unfortunately the Bulgarians have been witnessing at each change of power over the last 12 years.
The truth in this case is as follows: the foreign currency that is paid in interest for the servicing of Bulgaria's foreign debt, including that to the London Club, accounts for a considerable part - over 14.8% (BGL1,058MN) - of the republician budget's expenditures. The BGL equivalent of the July interest payments on Bradies is about BGL305MN. If that amount is deducted from the budget surplus for the first six months of 2001, which totals BGL129MN, then the Treasury will be BGL174MN in the red, that is 20% of the planned (BGL857MN) 2001 deficit in the republican budget. Thus, the deficit that will show up in the accounts of the Finance Ministry shall not be unexpected. The question is who and how will use it for political purposes.

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