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Bulgaria: IMF Loans Still Weeks Away

Washington, 19 March 1997 (RFE/RL) - International Monetary Fund (IMF) officials are looking forward to meetings in Washington this week with interim Bulgarian Prime Minister Stefan Sofiansky, but are cautioning that final approval of the hoped-for loans is still some weeks away.

An IMF team announced in Sofia Monday night that they had reached a basic agreement "ad referendum" -- pending review and approval -- of an economic reform program for Bulgaria that the team believes can be supported by an IMF loan program.

"Bulgaria has taken a decisive step towards sound budgetary and monetary policies, immediately and in the future by committing to the adoption of a currency board arrangement, probably in June," said the team in a prepared statement.

The team said the commitment to a currency board by the interim government is a "clear break with the past and can be expected to bring a rapid stabilization of prices and the exchange rate."

Under a currency board type of central bank, the lev will have a fixed rate to the U.S. dollar and the amount of money the government can allow in circulation will be strictly limited to the amount of foreign reserves the country holds.

This removes the government's ability to print money to cover its costs or to use subsidies and cheap credit policies to pay the costs of state enterprises and operations.

Fund team members said the financial program worked out will be complemented by measures to strengthen the banking system, a far reaching privatization of banks and enterprises, and enterprise reform to reduce state subsidies and liquidate inviable enterprises. Other structural reforms agreed include land reform and price and market liberalization.

For the immediate future, said the IMF team, "the program provides for increases in budgetary wages and pensions and contains a social safety net to cushion the effects of the present recession on the poor."

It said that once implemented, the policies should begin to "relieve the many hardships experienced by the population in recent months." The team noted, however, that while these measures should restore confidence in Bulgaria's economic and financial policies and help play a catalytic role in attracting additional financial resources, including private foreign investment, no one in Bulgaria should underestimate the difficulties yet ahead.

"The authorities will need to be exceptionally vigilant in implementing the program," the IMF team said.

To support the program, the team has recommended that the IMF management and board of executive directors approve a financing package that could total around $659 million over the next 14 months. If approved, the package would include a stand-by loan of about $510 million and a second loan of around $148 million from a special IMF facility called "Compensatory and Contingency Financing" to help less-wealthy members cover short falls caused by excess cereal import costs.

The fund's board of executive directors is expected to take up the package in the second week of April. If they approve, a first tranche or drawing of about $180 million would be made available almost immediately following the parliamentary elections. A second tranche of around $138 million would become available in June once the new government had confirmed its commitment to the policies under the reform program and completed preparations for establishing the currency board.

Later drawings would be based on progress in the program. At the same time, loans from the World Bank and the European Union are integral to the program and Sofiansky will be meeting with World Bank officials while in Washington as well.