Банкеръ Weekly



Bulgaria has gradually begun to shake free from the legacy of painful transition to a market economy and financial crises. That period is marked by several emblems. One of them is the Act on the Settlement of Non-Performing Credits, Contracted Prior to December 31, 1990 (better known by its Bulgarian acronym ZUNK), by which in the beginning of 1994 the government undertook the bad debts of the then state-owned companies to banks. The second one are the Brady bonds worth USD5.2BN, issued by the State in favour of the private foreign creditors to Bulgaria under the agreement for reduction and rescheduling of the country's foreign debt, signed in June 1994. The banks that went bankrupt in 1996-1997 symbolized the collapse of the Bulgarian financial system, and the stand-by agreement with the International Monetary Fund (IMF) - the instability of the country's economy. Concurrently, 3-year programmes of the World Bank for restructuring of the corporate and public sector in Bulgaria were going on. All these symbols are gradually being wiped out from the Bulgarian business daily round. From the foreign currency ZUNK bonds with an aggregate par value of USD1,808MN and securities of almost BGN678MN, issued under the same act, debt instruments of par value equivalent to BGN228.7MN at the most are currently traded on the market. All remaining ZUNKs were used in privatisation, for paying-off liabilities to the State and for recapitalization of Bulgarian banks, or were swapped for euro-denominated bonds. Bradies melted away after Finance Minister Milen Velchev effected four operations for their exchange against global securities and their pre-term purchase. From the three kinds of bonds with a total par value of USD5.2BN only front loaded interest reduction bonds (FLIRBs) with an aggregate par value of almost USD600MN have presently remained in circulation.Only memories have remained of the banks that went bankrupt in 1996-1997 as the assets of all of them were purchased either by private structures or were transferred in favour of the State Receivables Agency. IMF's supervision over the Bulgarian government and our economy is coming to an end, too. In the end of 2004 the Cabinet of Premier Simeon Saxe-Coburg-Gotha closed a two year stand-by agreement with the IMF and if the next government does not go into a financial adventure, that will be the last agreement by which Bulgaria undertakes commitments to the international financial institution. The second three-year agreement between the Bulgarian Government and the World Bank called Strategy for Country Support is coming to an end, too (the first one covered the period from the early 1999 till the end of 2001). The second agreement was signed in the beginning of 2002 and stipulated that the State receive three PAL programme loans in support of its balance of payment totalling USD450MN, as well as other USD300MN under state investment projects. On June 2, 2005, the World Bank Board of Governors approved the PAL 3 loan and on June 6 the Finance Minister Milen Velchev and the World Bank Director for Bulgaria, Anand Seth, signed the agreement. The loan will amount to EUR116.11MN (USD150MN) and will be payable in 17 years. Only interests will be paid off in the first five of them.According to Milen Velchev, the money from PAL 3 will be used to support reforms in the social sphere - healthcare, education, pension system and fight against unemployment.The conclusion of the third PAL loan comes as a clear acknowledgement of the progress Bulgaria has achieved towards its integration into the EU, Mr. Seth said. He underlined that in the years when the Strategy for Country Support operated, the average annual growth of the gross domestic product (GDP) reached 5.1% and the unemployment rate fell from 18.1% to 12.7%, and that the private sector already produces 75% of the GDP. At the same time, Mr. Seth did not miss the chance to mention the problems which Bulgarians are about to face. He said that the judicial system needs to be reformed, the corruption - reduced, and the restructuring in the education and healthcare - completed.The reform in the social sphere is a task which will be financed by PAL 3. But both the World Bank and the Government are aware of the fact that the solution of the problems in the education and healthcare will need a lot of time and resources. That's why they will be the goals of a new programme which is to be settled by the Bulgarian Government and the international financial institution. The programme will be called Partnership Strategy and will last four years. Talks about its concrete parametres have already begun. The programme is expected to be prepared by October and after coordination with the new Bulgarian Government it will be signed by the end of 2005. The World Bank is one of Bulgaria's largest creditors. Since the early 1990 it has launched 32 loans to Bulgaria, totalling USD2.1BN and six grants from the Global Ecological Fund and the Carbon Emissions Fund which total USD35.7MN. A great part of the credits launched by the Bank have already been paid off. According to statistical figures provided by the Bulgarian National Bank, Bulgaria's total liabilities to the World Bank amounted to USD1.1BN as of March 31, 2005. Its Finance Minister Milen Velchev claims that one day not so distant in the future the country will transform from a World Bank borrower into one of its shareholders who finance it through acquisition of its bonds. Only when that happens will one be able to say that transition in Bulgaria is over.

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