Bulgarian Telegraph Agency (BTA), 96-11-18

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From: Embassy of Bulgaria <bulgaria@access1.digex.net>

EMBASSY OF BULGARIA - WASHINGTON D.C.

BTA - BULGARIAN TELEGRAPH AGENCY

18 November, 1996

CONTENTS

[01] TRADE AND FOREIGN ECONOMIC COOPERATION MINISTER

[02] HUNGARIAN MILITARY DELEGATION DISCUSSES DEFENCE COOPERATION PROSPECTS

[03] PRESIDENT ZHELEV SEEKS FINANCIAL SUPPORT FOR BULGARIA

[04] LETTER OF PRESIDENT ZHELEV TO LEADERS OF PARLIAMENTARY FORCES

[05] PM ZHAN VIDENOV: REFORM MUST GO ON

[06] PM ZHAN VIDENOV: CURRENCY BOARD MEANS SUPPORT FOR BULGARIA

[07] BANK OFFICIALS ON CURRENCY BOARD

[01] TRADE AND FOREIGN ECONOMIC COOPERATION MINISTER

Responding to press allegations that he might be the second minister to resign after Foreign Minister Georgi Pirinski, Paparizov said he does not intend to do so because he has a lot of immediate tasks to fulfil. Commenting on Pirinski's resignation on Wednesday, Paparizov said that in these things one is led not only by his attitude to the Government but by his personal will and views.

In Paparizov's opinion, the new policy which the country is in need of should be considered very carefully in the time that remains until the Socialist Party congress in December. "If a government wants to be efficient, it should pursue a clear-cut policy. I hope that the public dialogue on all serious and difficult measures we have been speaking about should take place now," Paparizov said.

[02] HUNGARIAN MILITARY DELEGATION DISCUSSES DEFENCE COOPERATION PROSPECTS

The sides decided to discuss the issue on the expert level, with a view to reaching a final agreement during Videnov's visit to Hungary in early 1997. Keleti arrived in Sofia late last night on a short official visit at the invitation of his Bulgarian counterpart Dimiter Pavlov.

The two countries are considering the possibility of Hungarian army units carrying out exercises on the air force training ground near Shabla (northeastern Bulgaria), Pavlov told journalists after meeting with his Hungarian counterpart. Hungary has received similar proposals from Poland and Ukraine, and a decision will be made on the basis of economics, Keleti said.

The two ministries and the armies of Bulgaria and Hungary have maintained steady contacts after the signing of a military cooperation agreement in 1991, Keleti told an impromptu news briefing at the Ministry of Defence. The sides develop specific cooperation plans yearly.

[03] PRESIDENT ZHELEV SEEKS FINANCIAL SUPPORT FOR BULGARIA

President Zhelev asked for expert, financial, moral and political support from the G-7 countries and Russia in case "the currency board is recommended to Bulgaria as the only possible solution to the economic and financial problems".

Dr. Zhelev said that the possible introduction of a currency board is fraught with risks requiring direct external financial assistance. The President also urged the finding of a formula for financial concessions, including rescheduling of Bulgaria's debt to the Paris Club.

"In the conditions of political instability the presidential institution is the only one with clear future in this country and therefore the only one able to provide guarantees that efforts will be brought together in search of a solution that is best for Bulgaria," said President Zhelev. He also said he stakes his prestige as Head of State till the expiry of his mandate, and after that, for the future of Bulgaria.

The Ambassadors voiced understanding for the problems facing Bulgaria and promised to bring them to the knowledge of their governments, President Zhelev told journalists after the breakfast. Most of them reportedly agreed that the International Monetary Fund (IMF) takes a big responsibility recommending a currency board in Bulgaria, because, more or less, it involves their countries.

The G-7 countries have a strong influence at the IMF, the World Bank and other financial institutions and only they are in a capacity to guarantee financial assistance to Bulgaria to further the reform, with or without a currency board, President Zhelev said explaining how he chose whom to invite.

Dr. Zhelev's invitation for a working breakfast was accepted by five of the G-7 Ambassadors and Russian Ambassador Aleksandr Avdeyev. The Ambassadors of Canada and Japan did not attend because the former is not based in Bulgaria and the latter was absent from the country.

Later today, President Zhelev met with European Union Ambassador Thomas O'Sullivan. The EU will be ready to render financial assistance to Bulgaria, after the country reaches an agreement with the IMF, O'Sullivan said. He was invited by the head of state to take part in consultations on the adoption of a currency board.

The IMF-sponsored measure is one possible solution, according to O'Sullivan. He said its main element is financial discipline which should ensure economic stability. Rather than details, the sides discussed the principles of what should be done to ensure the stability of the economy, the Ambassador told journalists after the meeting.

There is no easy way out of the problems, but one can feel a willingness to face the seriousness of the situation, said Ambassador O'Sullivan. In answer to a question he said possible financial assistance from the EU would be an instrument (a political decision) of the European Commission rather than the European Investment Bank.

The meeting also discussed assistance requested by Bulgaria to offset grain shortages. According to presidential adviser Kiril Velev, the EU does not think this government has shown any signs of pursuing an adequate policy of reform in agriculture and for this reason cannot be supported. The problem is very acute for the EU, too, according to Velev. On the one hand, the EU cannot decline to support its associate members, and on the other, it worries the funds may be misused and will not make a difference until decisive steps are taken to reform agriculture.

[04] LETTER OF PRESIDENT ZHELEV TO LEADERS OF PARLIAMENTARY FORCES

At the beginning of this week President Zhelev started a series of consultations on the suggestion about a currency board.

The current political behaviour and management approach do not promote the interests of Bulgaria. Bulgaria has lost the international confidence. Currency board introduced or not, we need strong international support. To get such support we should make serious changes, ones that would result in new attitude towards Bulgaria, the letter says.

According to President Zhelev, in the current extraordinary situation, there is no time for more demagogy and for new political machinations.

Dr Zhelev insists that the main political forces come up with their concrete stands on the following problems:

- The government of the country during the following months or until the possible introduction of a currency board

- What Government can introduce the currency board and successfully apply this mechanism?

- Is the BSP in position to rule?

- Are the United Opposition Forces ready to take over the government?

According to President Zhelev the following outcomes from the crisis in the government are possible:

The BSP to urgently introduce radical changes in the government formula in terms of behaviour in parliament and government line-up. If this is impossible, the BSP should admit its incapability and yield the power.

The United Democratic Forces to state clearly if they are ready to take on the power, coming up with a concrete programme and decisive actions for overcoming the crisis.

If no political force is in position to take the country out of the crisis on its own, the national interests and the survival of the nation require the political forces to mandate a "programme" government which will have the guaranteed support of the Parliament.

If it is impossible to realize any of these alternatives, this would mean not only outright failure of the current political model, but also catastrophe for Bulgaria, President Zhelev's letter says.

[05] PM ZHAN VIDENOV: REFORM MUST GO ON

On the basis of the BSP election platform adopted two years ago, 1995 saw some, be it fragile, economic stabilization, the Prime Minister said. According to him, the BSP platform does not contain lies or delusions, but only omissions. In the first place, this is an omission in the banking system; it was intentionally made by professionals which is only now being partially discovered. As other omissions, Videnov quoted Bulgaria's relations with the IMF after 1994, when they were temporarily severed, and the difficulties in the country's balance of payments after 1994.

"I see no reasons for the BSP policy to be altered at the forthcoming extraordinary congress this December, because this policy is not inconsistent with a policy of change," the Prime Minister said. He said it would be a mistake to stop the reforms or make a policy turn. Zhan Videnov explained that if he convinced the delegates of the congress that he was right, he would assume he has the necessary support to remain at the helm of the party and government.

To run away from the most important tasks in 1997 and 1998 by handing a resignation, is equal to deserting an army, the Prime Minister stressed. According to him, a resignation is not the most courageous move in the present situation. He repeatedly stated that the place to assess the work of party and government leaders is the forthcoming congress, which he described as "the time of truth". According to the Prime Minister, personnel changes in the Cabinet are neither the main problem, nor the best chance for success. Change for the sake of change would do more harm than good, Zhan Videnov emphasized.

It is totally unacceptable to speak of Bulgaria's international isolation, Prime Minister Zhan Videnov said. He recalled this country is an associate member of the European Union and a full member of the World Trade Organization and the Central European Initiative. Bulgaria has had a key role in the Balkan process after the war in former Yugoslavia and is expected to join the Central European Free Trade Agreement. The Prime Minister stressed that the IMF proposal to introduce a currency board in no way discredited Bulgaria in terms of international economic relations.

[06] PM ZHAN VIDENOV: CURRENCY BOARD MEANS SUPPORT FOR BULGARIA

The proposal to introduce a currency board was made by the Deputy Director of the European I Department of the International Monetary Fund (IMF) Michael Deppler during a ten-day visit here that ended early last week. Deppler argued this was the best option in the present financial and economic circumstances. The scheme caused heated discussion in political and financial circles.

A currency board would provide a chance for a clean start of the reforms in the economy, the Prime Minister said. According to him, it would allow Bulgarians to break from the poor legacy left by their governments in the last seven, rather than fifty, years. He stressed the present economic environment was strongly polluted and compared it to a tumor for Bulgaria.

The adoption of a currency board is a key test for any Government, said Zhan Videnov. He stressed the Bulgarian government is taking the economic and political initiative for the introduction of a currency board as well as full responsibility for this move.

The IMF proposal is above all an incentive to reach a consensus in this country, said the Prime Minister. It is a well-intentioned move by the world financial community designed to ensure Bulgaria's success in the future, he went on to say.

[07] BANK OFFICIALS ON CURRENCY BOARD

A proposal for its introduction was made by Michael Deppler, Deputy Director of the IMF European I Department, during his recent ten-day visit here. He said it was the best option for helping the country out of its grave economic and financial crisis. Deppler said the currency board had produced extremely good results in all countries which introduced it.

Recalling the failure of the fourth standby agreement signed with the IMF in July, Filipov expressed a doubt that this policy would succeed. The reasons, he said, are the extreme instability of the banking system, in contrast to that of Argentina at the time it introduced a currency board, and the IMF requirement for full consensus.

Commenting on Deppler's forecast, Filipov also said a 10 to 20 per cent chance that the currency board may not improve the economic and financial situation is too high. He declined to comment a letter by the BNB Governing Board published in the Bulgarian press two days ago which said the IMF proposal was largely inappropriate.

Answering a question by Ivan Kostov, leader of the largest opposition force UDF, Filipov said that despite "the failure of Bulgarian monetary policy declared by the IMF" the BNB Governing Board will not resign and will carry on with its duties to protect the national currency.

Asked to cite projections for the foreign exchange reserves by 1 March 1997, the trade balance by end-1997 and the schedule of debt service payments in 1997-98, Filipov said these figures are confidential. He declined to name the commercial banks which may survive the introduction of a currency board. Filipov said that if this is done, Bulgaria will ask for a World Bank loan to guarantee commercial bank deposits.

Bulgaria can cover the current money supply with the available foreign exchange and gold reserves totalling USD 950 million, but, according to Filipov, this will mean suspending this country's foreign debt payments. Filipov said that if a currency board is introduced in Bulgaria, this country will rely on funds from the IMF to cover 200,000 million leva. The IMF officials did not provide concrete answers to this issue, Filipov stressed.

The fate of the government securities will depend on the 1997 budget, the BNB Governor said. According to him, provided that the IMF extends sufficient resources, after about six months interests rates will stabilize and the securities will produce high yields. Speaking about the structure of the interest rates, Filipov stressed that after the introduction of a currency board, the base interest rate will be fixed on the basis of the market conditions. This country's gold reserves will be either sold or pledged so that there will be no losses incurred as a result of leva/dollar exchange rate fluctuations. Filipov said that deciding about the fate of the gold reserves after the introduction of a currency board will be one of the many difficult tasks of the central bank.

State Savings Bank (SSB) Director Bistra Dimitrova said in Parliament that at the present moment, the SSB does not have the necessary information and that she cannot make projections about the fate of the SSB after an introduction of a currency board. Dimitrova confirmed that the SSB refinanced a number of commercial banks and that a great part of the its resources are in the nine banks which the BNB placed in receivership in late September.

Despite this, however, the SSB can bear the consequences of the possible introduction of the measure with its available resources standing at 15,000 million leva, Dimitrova said.

The IMF proposal is an international verdict for the way the Bulgarian finances have been managed, former BNB governor Todor Vulchev said at his meeting with President Zhelyu Zhelev yesterday. According to Vulchev, Bulgaria can have something like a currency board that meets all IMF requirements eliminating the need for a special law.

The chances to do without a currency board are slim. But there are other options, former BNB Governor Todor Vulchev said in a Friday show on national radio. According to him, before the introduction of a currency board, efforts can focus on restricting the refinancing of the budget and commercial banks and on collecting as much bad debts as possible by speeding up the respective court proceedings.

He said the proposal to introduce a currency board was not an idea of Mr Deppler and the IMF staff. Such big and extreme decisions are made on a very high level and are well thought over by the IMF. Vulchev said this reduced Bulgaria's room maneuvering. It is pressured to accept a currency board, although it still has some other options open.

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