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BULGARIA


  
  

 

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Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 19,859 15,608 13,600 69
         
GNI per capita
 US $ 2,130 1,790 1,650 106
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 136 - (29/09/08)

One of the leading bankers in Bulgaria – a foreigner, as it happens, said the other day, “This is a turning point in history. Remember where you were when it happened”. He was referring to the preceding days’ events on Wall Street.

Apart from the money meltdown, the political ramifications not only in the US but also in a large number of countries around the world are huge. In the US, the pundits were weighing up the impact on the US elections. The crisis took the headlines away from Sarah Palin (and posed for all candidates the tough question of how they would respond should they be occupying the Oval Office, with none coming up with very satisfactory answers) and helped to diminish her gloss as she headed towards the debate scheduled for September 20, against Joe Biden.

In Bulgaria, a grasp of the scale of the crisis seemed to percolate rather slowly. The Government, some economists and several in the media seemed to treat it as a story of the day, to be commented on, damped down and left to evaporate by itself.

A television report on one of Bulgaria’s main private commercial television stations set a new standard for superficiality by portraying loaves of bread and a bag of tomatoes in a Sofia market while a voiceover intoned “these may become more expensive” which was the equivalent of saying a few years after medical science had come to understand HIV, that sex could be considered a slightly risky business.

Some media reports retold the story of what was happening on Wall Street and in other financial capitals without coming up with any angle on the implications for Bulgaria’s own bourse or, for that matter, its property market. The volcano could be seen to be erupting on the horizon, but for the people living around Vesuvius, there seemed to only the minor worry that some ash might fall.

Private conversations about the implications of Wall Street were somewhat more stimulating than trying to find anything interesting to say about the dreary and frustrating sagas of Bulgarian politic s. On that subject, however, duly noted: Four hundred and seventy-five thousand – the number of signatures that three opposition parties claim to have collected to call on the Government to resign and hold early elections; 10 per cent – the number by which President Georgi Purvanov’s popularity was said by weekend polls to have fallen; 94 million leva – the amount of money spent by security services in Bulgaria in the past two years on eavesdropping; and Far Too Many – the number of bitter words exchanged between Purvanov, Sofia mayor Boiko Borrisov and others about the continuing problem of what to do about Sofia’s refuse, without anyone actually doing anything much about it.

For what it is worth, here is what various commentators, economists and “experts” in Bulgaria had to say about the implications of Wall Street for this country.

Finance “expert” Emil Harsev, on September 17: “The only effect that a global recession can be expected to have on Bulgaria is more difficult, more expensive and more restricted borrowing”. Interest rates would go up, he said, but foreign investments would improve and not decrease. 

The same day, Krassimir Katev, who was a deputy finance minister in the Simeon Saxe-Coburg government that was in power from 2001 to 2005, said that “the tremor” would be felt for 12 months at most, and only weakly in Bulgaria. “Luckily, the Bulgarian economy is still growing at a robust pace. The Bulgarian banking system, too, is in a stable condition. Still, it will be affected to a certain extent by the financial collapse.” Katev, according to mass-circulation daily 24 Chassa, said that credit growth would slow, the economy would cool down and GDP growth would fall.

Foreign Minister Ivailo Kalfin, who also is one of Bulgaria’s four deputy prime ministers, acknowledged that the world financial crisis would influence Bulgaria and South Eastern Europe. “Financial and capital markets are still over-fragmented not only in this country but throughout South Eastern Europe,” Kalfin said, albeit in the context of a message that seemed to suggest that we need not be worrying too much. Kalfin said that Bulgaria intended merging the commodity exchange commission with the Financial Supervision Commission, “to ensure the property operation of commodity exchanges”.

On September 2018, mass-circulation daily Trud told Bulgaria that the interest on loans would go up by 0.5 per cent, an assertion it made on the basis of having interviewed various bankers. It quoted Prime Minister Sergei Stanishev as saying that “so far” the financial crisis had not hit Bulgaria, and this was “a confirmation of the correct financial policy pursued by Bulgaria”.  Stanishev, whose Bulgarian Socialist Party trails a long second in opinion polls and was said by one to have an approval rating of only 10 per cent, took the opportunity to say that the Government had been criticised for running up a large Budget surplus, but now this very surplus would be a reserve to ensure stability. In noting Stanishev’s reported comments, this was the very same surplus that his Government had earmarked for spending a large part of for “social spending” including the ill-fated plan to send pensioners on seaside and mountain holidays. His ruling coalition also wanted to spend quite a lot on infrastructure, a good thing really, although we soon learnt that we should not plan to borrow money to fuel our cars to travel on these highways-to-be.

Because Sega, the same day, got the opinion of Bulgarian economists and bankers that now was not a good time to be taking loans. “Experts advise that although the crisis on the US financial market will not have a direct or that strong an impact on the Bulgarian financial system, Bulgarians should refrain from taking out loans because interest rates are expected to grow,” Sega said.

Financial daily Pari quoted what it described as “experts” as saying that the US crisis would be felt by the Bulgarian economy after a year and a half. Although the Bulgarian economy was not that dependent on that of the US, Bulgaria’s was closely related to the European economy and the signs of recession were visible precisely in the countries of Europe, Pari said.

We heard some sense from Bulgarian National Bank governor Ivan Iskrov, as reported by daily Dnevnik on September 18. The central bank chief said that Bulgarian banks had no direct exposure to low-rated mortgage-backed securities, and Bulgarian lenders applied practices totally different to their US peers, keeping to the classical model. Iskrov said that the major effect of the global market downturn was higher risk premiums and the larger cost of funding because of the smaller appetite for risk. He said that the large European banks that hold 81 per cent of the assets of the Bulgarian banking sector also had no direct exposure and so had incurred no losses because of the US mortgage market meltdown. Therefore, Iskrov said, these banks continued to inject liquidity into their Bulgarian divisions.

Avidly reading wire stories – written by reputable US and UK journalists and quoting reliable, meaning real, experts – there is a feeling that many in Bulgaria are underestimating just what the crisis means for this country’s small and not especially robust economy. On its own, the fact that money will become more expensive must have serious implications here. There are sound reasons that Bulgaria’s central bank has been so concerned about, and has intervened to calm, credit growth. Presumably, even if it has not been said publicly, one is precisely pressure on the economy from a Europe-wide recession. To say nothing of the fact that salaries are rising fast while productivity is not. 

But perhaps most of all, is it true that Bulgarian banks are lending using “the classical model” rather than handing out cash against inadequate or inaccurate documentation, or simply to households that are over-extending themselves, especially given the absence of an adequate individual credit record system in Bulgaria? 

Also Bulgaria has earned a notoriety for dishonest transactions. Could it be that the banking industry is untouched by that? 

If Bulgaria, as we are assured, will not be too seriously hit, given the scepticism building about Bulgaria and the way it is run, how many White Knights are there are out there prepared to ride to the rescue.

That banker was correct. This week was a turning point indeed, and here in Bulgaria, as all over the world, it will take us a long time to see in precisely which direction.

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