/ world today news/ The past week was marked by sharp verbal fights between the supporters and the opponents of the proposal that Bulgaria commits itself in the next three years to an external loan of an astronomical amount. What is he like? The number indicated by Minister Vladislav Goranov on Friday (20.2) is BGN 16 billion. I take it as the penultimate because we are facing the phenomenon of “volatile/runaway financial statistics”.
Initially, another amount was due: 15.7 billion BGN. In the report published on the website of the Ministry of Finance, BGN 18.2 billion is fixed, necessary for refinancing the state debt and financing the budget deficit for the period 2015-2017. Before the coalition partners, the Minister of Finance mentioned that it is possible to withdraw 6 billion less.
Where does the truth lie? In any case, not in political disputes. Public debates between political speakers have so far bred populism, partisanship and blatant incompetence. So let’s take a look at the debate going on between financial experts – knowledgeable about the history of debt, knowledgeable about the state of the capital markets, proficient in the methods of statistical analysis.
Miscalculations
I begin by saying that a group of experts dispute with their own calculations the basic thesis of the government that the total amount of the new external loan proposed for ratification by the National Assembly corresponds to the upcoming payments on the maturities of old debts and the financing of the budget deficit for the period 2015-2017 .
The initial statistics and precise comments should be provided by the Ministry of Finance and the BNB (the national treasury, however, is understandably silent!). A group of experts, enlisted in civil service or engaged by lobbying networks, fiercely defends the government’s offer and the contracts signed on February 6 with foreign dealers on the upcoming issue. But according to the calculations published by Ivanina Mancheva, the Ministry of Finance has increased the amount of the requested extraordinary resource by about BGN 5 billion (see the articles in Economix.bg). Julian Voinov (FfNews-20.2.2015) sees inconsistencies in the government statistics in several areas: the payments on maturities for the foreign and domestic debt (about BGN 3 billion); the financing of the budget deficit (with BGN 2.4 billion). Prof. Hristina Vucheva and other leading financiers expressed doubts about the reliability of the official information about the maturities of the old debt.
What is the statistical truth? The positive point in the expert discussion is that it is conducted with pencil in hand – without corporate and party bias. This educates the interested public, uneducated in the field of debt statistics. I point out this fact with regret, because in the end, taxpayers will pay the price if those managing the national debt got it wrong – unintentionally or on purpose – when presenting the quantitative justifications to Parliament. As for the deputies, we should not feel sorry for them – as long as they are supposed to know at least the beginnings of the science of “Public Finance”. That is why they are paid, and quite generously, for the Bulgarian conditions!
We can only hope (and watch closely) that next Wednesday’s parliamentary debate will clear up the fog surrounding the actual amount and cost of the emergency loan being prepared. In any case, the Union of Economists in Bulgaria is committed to an expert opinion, which we will send to the parliamentary groups and make public before the sacred date.
New debt: for what and through whom?
From a procedural point of view, the intention of the proponents of the draft law on foreign debt looks like this: we have prepared a medium-term program; we have calculated the needs; we have found consultants and dealers; we have written a proposal for ratification. We are expecting permission from the National Assembly.
But in practice a big mess got involved:
Firstly, due to weak communication of the Ministry of Finance with the legislators (even with the coalition allies), the idea was created that some completely new, additional money (16 billion BGN) is being requested – in addition to the already voted 8.1 billion BGN for the 2015 Budget. Accusations were made of an illegitimate act: the National Assembly agreed to sign a blank check, and then the cabinet, dominated by GERB, decided how much and to whom to give from the loan.
When a whole group of lawyers and financiers warned that there could be no “unblock” ratification because it would be a violation of the law on the state budget, respectively – and the constitution, the importers changed their tactics: since two days it has been recognized that the ratification will be framework and indicative; subsequently, every year the parliament will vote separately on the ceiling of the necessary emissions in line with the external and internal debt! Thus, one of the controversial points is dropped; the question will remain, who and how allowed the impression of an anti-constitutional act to be created in the commotion!
Second, who will market the bonds? According to the contracts concluded on February 6, 2015, these are four foreign banks: HSBC, Societe Generale, Unicredit and Citi. To the question: why they were chosen, no reasoned answer has been given so far. Perhaps because attention is focused solely on the infamous HSBC – because of accusations of promoting tax fraud.
Several Bulgarian financiers, with experience in the dealer trade, hastened to gloss over the apparent blunder, stating that the violations concerned only the Swiss branch of the English bank; and the crimes were committed by middle- and low-level employees in the hierarchy – without the knowledge of high-ranking superiors. But the facts say otherwise. I have information and analyzes that show that the investigations against the scandalous bank are not from yesterday and are not only the work of vigilant journalists. The English Parliament has been dealing not since yesterday with the treasury convicted of day crimes committed with the knowledge of the top management and with the assistance of state institutions.
So the BG parliament is obliged to look more carefully into the Anglo-Swiss banking affair, to ask for information from its colleagues in the English parliament, before voting the requested approval. By the way, the financial intelligence of Bulgaria should have provided advance information about the risk being taken. Where has it been – once again?
Third, what should the 16 billion foreign money be spent on? After there is evidence from independent experts that a “hollow volume” is foreseen in the requested loan, it is appropriate either to reduce the total amount – by about 6 billion, as Minister Goranov suggested in passing; or to redirect them to other, productive activities. That is, where one leva invested will bring two and more. Which can only happen in the real sector, through businesses creating added value, offering sought-after products and services to the foreign and domestic markets.
How to do this, how to look like a medium-term strategy for the public debt, used rationally and not for buffers, redistribution between budget feathers (as appropriate and for non-transparent commissions) – this is the main challenge that the Bulgarian parliament has to deal with in the next year a week. If one acts in a principled and nationally responsible manner, the preliminary approval will be subject to the condition: “first a substantiated national medium-term program – then a new debt”. (I emphasize, a real program developed according to all the rules of strategic programming, not a forecast framework that is now being referred to). If this condition is met, I am in favor of even thinking about a higher ceiling of external debt until 2020, in order to move from depression and deflation to new growth.
Conclusion: further recommendations
The Bulgarian Parliament would fulfill its constitutional role if it fully resolved a few more components of the “Extraordinary External Debt” structure (especially in the “hollow volume”) part:
1. What are the permissible interest rates and who will take responsibility in the event of a significant exceedance of market standards. Talk of self-regulation in capital markets is for fools. Bulgaria has already swallowed the bitter bite with the “Velchev” loan, the servicing of which was artificially made more expensive (not by the invisible hand of the market, but by shady dealers) with 1.2 billion dollars owed at the expense of taxpayers. “Dyankov” has been silent on the cost of the loan since 2012. Why? Are we going to allow a repeat of affairs that showed that the dealer octopus has long since released its tentacles in our country – in the poorest country of the EU!
2. What happens to the domestic debt? Will our investors be active participants in servicing the old debt and financing the deficit, or will they be kept on the sidelines? In the last 2-3 years, it has been seen that there is always a resource in the Bulgarian banking and non-banking institutions for the purchase of government securities (even among those who need liquid support).
3. What happens to the money that the state gave to FIB and then extended the deadline for its return? Will the troubled vault return them or not? And more – why again the state and citizens, and not the banks, should pay the bill that has accumulated so far due to the payments from the Guarantee Fund to the depositors in KTB? Banks were in trouble, some say! But just a few days ago they reported an annual growth of profits of about 30%. So Bulgaria is once again in the European zone of the banking sector with high profit indices.
4. Which of the following hypotheses about the distribution of money from the foreign loan is true and which is not true:
a/ for arming;
b/ to inject more money for liquidity support of several stuck banks;
c/ for renovation of panel houses;
d/for compensating the losses of NEK;
e/ for buffers or something else we don’t know…
When we find out – through the parliament – to whom how much is given, we will also find out who is the interested lobbyist behind the unprecedented/explosive jump in the amount of foreign loans sought. Maybe we can wait for such a miracle in our country too: public disclosure of the financial backstage!
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Prof. Krastyo Petkov, economist.
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