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Bulgaria: IMF Directors Praise Favorable Economic Developments

Washington, 11 March 1999 (RFE/RL) -- Bulgaria has received new praise for its economic and financial policies.

The executive directors of the International Monetary Fund (IMF), in their annual review of Bulgaria's economy, said that in 1998 Sofia continued to follow prudent policies which underpinned generally favorable economic developments and kept the worst effects of the Russian and Asian financial crises from hitting too hard.

The review was conducted February 19th and released Wednesday.

In a background report, prepared by the IMF staff, it was noted that Bulgaria has suffered from reduced foreign demand and prices for key exports, such as chemicals, fertilizers, and metals, and from waning investor interest in emerging markets generally. However, it said, Bulgaria's "highly open economy" has benefited from lower import prices, particularly for energy, and lower interest rates on external debt.

The IMF noted that even with the problems, Bulgaria's economy is expected to have grown by four to five percent in 1998, although foreign investment inflows declined during the year because of slowed privatization.

Unemployment in Bulgaria declined steadily through last September, the fund noted, but began edging up toward the end of the year reflecting seasonal factors and a quicker pace of restructuring. It noted that wages in state-owned enterprises recouped much of the ground lost since 1995.

All of these developments are the result of "prudent fiscal policies, continuing structural reform and the beneficial effects of Bulgaria's reorientation toward Western Europe," said the fund report.

The 24-Executive Directors, who represent the fund's entire 182 member nations either individually or in groups in running the daily operations of the fund, agreed with the IMF staff assessment.

The directors added, however, that for Bulgaria to achieve its goals of establishing a full-fledged market economy and gaining accession to the European Union (EU), it will require "continued efforts" to preserve the benefits of the current financial stabilization and a "steadfast" implementation of broad structural reforms.

The IMF directors said that to reduce the risks from Bulgaria's still limited access to international private capital and reduced investor interest, the government should accelerate and deepen its broad program of structural reforms.

The directors urged Sofia to especially speed up privatization of public enterprises, to further strengthen the financial sector, to improve the efficiency and equity of the tax system and to push ahead with reform of the pension and health care systems.

The IMF directors said overall, the government must work to create a more favorable environment for new private firms.

They said they were concerned by the slow pace of privatization, which they said could further delay much-needed foreign investment. They warned that with still-weak enterprise financial discipline among those yet to be privatized enterprises and soft budget constraints, there could be excessive wage increases which would erode enterprise profitability and competitiveness.

They urged Sofia to complete it's enterprise isolation program (removing state enterprises from direct connection with the government's budget) by June or July while improving the quality and process of privatizing those enterprises. The directors called continuation of the currency board "critical" and urged Sofia to push ahead on civil service and legal reforms, improved bankruptcy procedures, and fighting corruption.

Bulgaria has a three-year extended loan arrangement with the fund and just last month received a drawing of about $72 million from the loan. The total credit, of around $867 million, was approved last September. Bulgaria has drawn around $216 million so far.