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Bulgaria: World Bank Sees No Reason Country Can't Recover

Washington, 25 March 1997 (RFE/RL) - The World Bank's Senior Country Economist for Bulgaria says that if Sofia follows through on the reforms it has agreed to, there is "no reason" the country cannot come out of its present crisis.

In fact, says Eduardo Somensatto, prospects in some areas "are good" and the long-term Bulgarian economic outlook is "not bad."

In an interview with our economics correspondent in Washington, Somensatto said "there is really no reason to believe that the crisis will continue to spiral downward." If Bulgaria implements the reform package, the crisis should be arrested and there is "a good possibility of significantly lowering the rate of inflation and stabilizing the currency" relatively quickly.

Somensatto was among World Bank officials who met Friday with interim Bulgarian Prime Minister Stefan Sofiansky. World Bank Vice President for Europe and Central Asia Johannes Linn, and the director of the bank's department for Southern Europe, Kenneth Lay, headed the bank team.

At the start of the meeting, Linn said the bank was "very concerned with the deteriorating conditions in Bulgaria over the last year," and was "pleased to see the remarkable progress the (interim) government is making in tackling the most pressing problems."

Bank officials say Bulgaria's GDP (size of the economy measured as the Gross Domestic Product) fell between eight and ten percent in 1996 while inflation in February reached an "unprecedented peak" of 243 percent per month, pushing the yearly inflation rate for 1997 to 392 percent.

The Bulgarian lev has deteriorated by 247 percent as of mid-March while the country still faces foreign debt payments due this year totaling about $1 billion. At the same time, currency reserves shrank to about $445 million at the end of February.

Linn told Prime Minister Sofiansky that the program of stabilization and reforms is going to be very difficult, but that it does offer "an excellent chance for the turnaround of the economy."

The bank says it is preparing three loans totaling about $290 million, with the first one of about $40 million to be ready once the parliament to be elected April 9 is seated and ratifies the agreement.

That first loan will be used to import critically needed goods such as wheat, medicine and fuels which are in short supply.

The second and third loans the bank is preparing would provide $80 million for the country's social safety-net program and $170 million for an enterprise adjustment loan to expand the government's privatization program focusing on banks and large enterprises, such as the Bulgarian telecommunications company. The enterprise loan, expected to be considered by the bank's board in June, requires that Bulgaria implement a number of key elements of the reform plan before any money is disbursed.

Somensatto says one of the first things officials of the bank and the International Monetary Fund are aiming for is to allow room in the early reforms to increase workers wages.

"Real wages have really declined dramatically in the last few months," he says, but this situation "doesn't necessarily have to continue. Once there is a certain stabilization in place, and the right policies are being implemented, there will be room for a certain recovery of wages."

In the meantime, Bulgaria remains in a crisis situation and the bank, along with the European Union and the G-24 group of nations, is organizing an international donors conference in Brussels April 8-9, to discuss specific needs of the country and how each donor nation and organization could help.

Somensatto declines to put a total figure on the assistance to be sought at the donors meeting, but acknowledges it will have to be sizeable -- well over $1 billion according to some other sources.

Long term, Somensatto says Bulgaria must restructure its industrial base, which was "designed for a trading system that no longer exists." Some sectors of it will simply have to be closed and liquidated while the rest is restructured, he says. Sofia must also pay attention to its "enormous agricultural potential" which could help carry the country through by bringing in hard currency earnings.