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Bulgaria: Better Economic Times Ahead

Sofia, 8 October 1997 (RFE/RL) -- One hundred days after Bulgaria introduced a Currency Board as an emergency measure to restore discipline to monetary policy, officials in Sofia are evaluating the effects on the country's economy with cautious optimism.

Key improvements have been achieved, which explains why, in contrast to the gloom of three months ago, the prevailing mood now is that better times are coming. Even the International Monetary Fund, which maintains a notoriously austere profile, has expressed satisfaction: assistant executive director Stanley Fisher recently called Bulgaria's financial stabilization "impressive."

Lost confidence in the country's banks is returning, and private and company deposits in bank accounts are growing. The foreign currency reserve has tripled to almost 3.8 billion German marks.

At the end of last month, meetings took place in Sofia between representatives of the government and Moody's, one of the leading consulting companies which defines the credit rating of securities and countries. Moody's classification of Bulgaria last year was B-3 -- the lowest grade, which effectively means "payment first, then delivery".

Now, according to the French bank Paribas and the German investment bank Deutsche Morgan Grenfell, there are strong expectations that Moody's will raise Bulgaria's credit rating to B-1, thus listing it in front of countries like Turkey, Romania or Ukraine.

The positive developments strengthen perceptions in ordinary people that the Alliance of Democratic Forces, (ODS) which won a decisive victory over the former communists in the April 19 parliamentary elections, is leading the country in the right direction. Yet no one is fooled that the crisis is over. The wounds inflicted by the former Socialist Party government in its long neglect of reforms are too deep for that.

People are bracing for the hardships which are still to come in the reform process. One of them is Emil Harsev, a prominent financier who outspokenly opposed the Currency Board before its implementation. He told RFE/RL that the crucial period will be this coming winter. He says the Bulgarian economy runs in cycles: summer is the season of income, winter the season of expenses. He says that if the board endures the hardship of the cold months, its position as an instrument of policy will be strengthened for the years ahead.

The Currency Board was introduced on July 1 this year, amid high inflation and a deepening economic crisis. It essentially took currency matters out of the hands of the Central Bank.

Harsev, a former deputy governor of the National Bank, says inflation under the currency board has not dropped as low as hoped. Prices had been rising at a level near hyper-inflation in January. After the ODS government took power and the currency board was put in place, inflation was about 3.5 percent in July and 5.5 percent in August instead of a predicted rate of 2 percent.

Prices of consumer goods continue to rise. One reason for this is that privatization has not yet reached the big state monopolies in power supply: through them come the imports of oil, natural gas and coal, and they also own refineries and electrical plants, and distribute the product. The result is a "supplier's market" which pushes up inflation.

However, according to recent comments by the head of the Currency Board, Martin Zaimov, there's nothing to worry about. Zaimov, who is also vice president of the National Bank, said the situation regarding inflation is and will remain under control. He predicted that the inflation rate will soon fall drastically.

The World Bank apparently shares his optimism. Kenneth Lay, head of the bank's South-East Europe department, arrived in Sofia at the end of the month. His arrival followed the decision reported at the Hong Kong meetings of the IMF and World Bank to open negotiations with Bulgaria for a considerable loan.