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Bulgaria: Brokers Watch Opposition Leader For Position On IMF Plan

Prague, 5 December 1996 (RFE/RL) -- International investment brokers are closely following the comments of Bulgarian opposition leader Ivan Kostov in Washington today. The brokers are looking for hints from Kostov about whether his Union of Democratic Forces (UDF) will support an International Monetary Fund (IMF)-proposed currency board that would take over foreign exchange operations of Bulgaria's troubled central bank.

The brokers are concerned about the situation because it will effect the value of Bulgarian Brady bonds -- the U.S. government-backed paper that forms a key part of Sofia's foreign debt-reduction plan. In the past two days, the Bulgarian Brady bonds have gained 4.6 percent since Monday amid speculation that the currency board would be approved. According to J.P. Morgan, the Bulgarian bonds are up 15.4 percent since November 1.

The IMF has said that it would resume loans to Bulgaria if the country adopts the plan, which would would peg the domestic currency supply to the level of foreign exchange reserves. But the IMF has said that there must be a strong political consensus from both the governing Socialist Party (BSP) and the opposition UDF.

That's why international brokers will be following Kostov's press conference at the National Press Club in Washington today. Still, political analysts say Kostov is unlikely to announce UDF support for the currency board today because he must first consult with other opposition leaders in Sofia about his talks in Washington.

Following meetings with Kostov yesterday, IMF deputy executive director Stanley Fischer told RFE/RL that he foresaw many new ideas for economic development in Bulgaria. But neither Kostov nor the IMF would comment on whether the UDF now intends to support the currency board.

The UDF has previously said that it would oppose the plan unless the governing Socialist Party (BSP) agrees to early parliamentary elections. Kostov has said that opposition support for the IMF plan might be misconstrued as support for Socialist Zhan Videnov's government, which favors the proposal.

But Andrew Kenningham, a senior economist with the international brokerage firm Merrill Lynch, says the IMF has been pressuring Kostov during his visit to Washington this week. Kenningham said there are rumors among international brokers that Kostov would make a statement today changing his position.

Not all investment analysts agree with Kenningham. The French-based Paribas Capital Market International Research reported on Tuesday that Kostov is unlikely to throw his support behind the currency board. It says the IMF would then be faced with the question of whether to push for the board despite the lack of political consensus.

Though Kenningham says it is likely that the currency board will eventually be approved, others say the future of the plan remains uncertain without the UDF's backing. The Socialists controls a majority in the parliament, but there is now a deep split in the BSP -- and some Socialists also oppose the board plan.

Kenningham says Videnov could be replaced at a party convention scheduled later this month. But he said it is unlikely that a successor would oppose the plan. In Kenningham's view: "The BSP has no choice between hyperinflation and default on one hand and a currency board on the other."

Bulgaria needs to borrow money from the IMF in order to make two payments to its international creditors next month. On January 17, a payment of $39 million to foreign governments in the Paris Club of creditors will be due. A payment of $129 million to private banks in the London Club is due on January 28. Altogether, Bulgaria's foreign debt totals more than $10 billion.

The IMF's Sofia representative, Frank Rozvadovski, has said that the Fund wants to see the currency board adopted by the end of the year. Deputy Prime Minister Roumen Gechev says the government is pushing to have the board adopted before the January 17 payment to the Paris Club comes due.

In September, the IMF suspended monthly disbursements of a $580 million loan to Bulgaria.