Books on Bulgaria
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
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
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
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