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Bulgaria: Political Delay Games Apparent As Debt Deadline Approaches

Sofia, 14 January 1997 (RFE/RL) -- With demonstrations in Sofia erupting into violence during the past week, the country's Socialist leaders now appear ready to hold onto power through a tried-and-true Bulgarian political strategy -- the delay game. At the same time, a financial disaster is brewing that could, once and for all, end hopes for the emergence of a Bulgarian middle class until next century.

In two weeks time, a $170 million payment comes due on Sofia's rescheduled foreign debt. With another payment due in July, and with central bank reserves at the end of 1996 totaling a mere $518 million, default appears inevitable unless a new government is named to negotiate fresh credits from the International Monetary Fund (IMF).

An IMF representative in Sofia, Franek Rozwadowski, is quoted this week as saying that the Fund won't resume talks until a new government is appointed. Financial analysts warn that another debt moratorium will economically isolate Bulgaria and probably result in hyper-inflation. Ultimately, any benefits from yet-to-be implemented market reforms could be set back by decades.

Matters are further complicated by the position of Bulgaria's outgoing president, the anti-communist Zhelyu Zhelev. He says that he won't give Socialist Prime Minister designate Nikolai Dobrev a mandate to form a new government until early parliamentary elections are agreed upon and social tensions subside.

Socialist parliamentary chief Blagovest Sendov admits that opposition demands for early elections are a good idea. But the new Socialist Party leader, Georgi Parvanov, says the former Communists should stay in power for at least another year in order to "stabilize" the country. Parvanov insists that President Zhelev will issue a mandate for a new Socialist government in the coming days and that talks with the IMF will restart by the end of this week.

New loans totaling about $900 million reportedly to have been earmarked for Bulgaria by the IMF and World Bank. But the multi-lateral institutions say they will not pump any more money into Sofia's bottomless black hole until corruption and rampant nomenklatura cronyism are cleaned up. At this juncture, political delay games become a crippling prospect.

The IMF is calling for an end to central bank exchange rate manipulation by replacing the bank's currency operations with a strict fixed exchange-rate regime -- a so-called "currency board." The IMF and World Bank also want to see a real start on privatization in order to halt years of plundering by secretive private financial groups that are closely linked to the Socialists.

Stuart Parkinson, an economist specializing in emerging markets for Deutsche Morgan Grenfell, says the biggest worry on the international debt bond market is that the political delays will go on too long. Without a new government, Parkinson says, the IMF has got nobody to talk to.

David Boren, the vice president for emerging markets research at Salomon Brothers, agrees that the crucial question for Bulgaria is how to get a currency board implemented and how to get the support of the IMF and World Bank during this time of political complexity.

Boren suggests that an interim government might negotiate a currency board while political parties prepare for an election in about six months time. He notes that interim governments since 1990 have made some of the most important decisions for Bulgaria -- such as the redrafting of the Constitution and the creation of Bulgaria's debt instruments, the so-called Brady bonds.

The Wall Street Journal today quotes other financial analysts as saying that foreign investors would prefer the ruling former communists to be replaced by a government that is more willing to reform the economy.

But trading on the international debt bond market since the weekend reveals that few international investors are betting on a new government anytime soon.

Prices for Bulgarian debt bonds are falling sharply as thousands of people continue their protests on the streets of Sofia.

Parvoleta Shtereva, an analyst with the Dutch-based ING Barings, says the announcement of an early election would improve investors views about Bulgaria. She says a handful of investors are buying up the Bulgarian bonds in hopes that there will be early elections and that the opposition Union of Democratic Forces (UDF) will win. In her words, the UDF "will have a popular mandate, and it will be less corrupt in the initial stages."

Andrew Kenningham, a senior economist with Merrill Lynch in London, says he personally thinks the Socialists can not properly run the proposed currency board. He says the opposition UDF would be, in his words, "slightly more likely to be successful."