The currency board is good for a period of crisis

The currency board is one of the best things that we had in Bulgaria during the transition, he was able to ensure financial discipline and does not require politicians to spend more than planned. BTA said that the Director of the Economic Institute of Bulgarian Academy of Sciences Senior Research Fellow Dr. Mitko Dimitrov asked to express its opinion on the role of the board and its future in the context of economic crisis.

Mitko Dimitrov said that the current and future government should take all necessary steps to maintain the currency board.

It’s good that at this point there is consensus in the society, said the director of the Economic Institute of Bulgarian Academy of Sciences.

In recent months the talks zachestiha whether it is possible to keep the board in terms of economic crisis and people have negative attitude towards the board, took the opportunity to express it again, said Mitko Dimitrov. According to him, however, our country has to comply with conditions set by the board and then there will be no need for the application of more radical measures such as changing the currency regime.

If revenues decrease, must be reduced and costs, this is done by each household, business, time to do it and the state, said economist. According to Dimitrov Crop of public expenditure in some areas may have health effects to public expenditure more effectively used.

Dimitrov pointed out that cheaper Bulgarian lev often points to the advantage of having problems with foreign trade deficit. However, there is no guarantee that cheaper Bulgarian Lev will have a lasting effect on improving the foreign trade balance, said the expert.

Mitko Dimitrov, according to the readiness of the country and conducting talks with the World Bank and IMF for the conclusion of the protective arrangement is useful at this time. If the crisis is deepening, it will be more bad signal to investors than if they signed an agreement with the IMF, says economist.

In a possible agreement to fund the country will at least ensure that it is not abandoned and will rely on external assistance and, except only its own resources, said Dimitrov. Conclusion of an agreement with the fund is always associated with requirements for greater control, but this is not bad, Bulgarian governments need to be controlled, he said.

According to economic experts from NGOs danger to the currency board in Bulgaria is a political rather than economic.

Alternative to the currency board in Bulgaria is the devaluation and inflation, and the agreement with IMF will be a bad signal to Europe, economists pointed out in the mark 12 years since the introduction of the currency board in Bulgaria.

A study of MacroWatch, presented by Georgi Ganev, program director of the Center for Liberal Strategies, the currency board has met one of its main tasks – to regain confidence in the Bulgarian lev, which is currently the highest levels in recent years. An important consequence of the high level of confidence to the Bulgarian financial system is that unless the Board shall not cause collapse of the economy, its credibility will remain high, said Ganev.

The expert noted that the present danger of economic collapse because board itself is not visible, so the only possibility for Bulgaria to remain out of the board to take a political decision to do so. Under such a regime change, trust will have to build again significantly lower levels, it is categorical.

Besides political solution to exit the board, theoretically there are two possible reasons – a sharp appreciation of the currency due to the fixed rate when the currencies to depreciate about that crash the competitiveness of exports, or severe and long recession because the economy needs to adapt to crisis, without being able to pursue an active monetary policy, said Georgi Ganev. The second reason is more likely to happen, but the question is whether these potential difficulties can be compared with the problems that will cause the change of currency regime, said Ganev.

According to a senior-economy in the Open Society Institute George Angelov has several options for economic development of the country who depend on the implementation of the planned budget revenues.

Currently Bulgaria is moving in the version in which there is a decline in tax revenue within 15-20 percent. This means that will be needed between 1.1 – 2.2 billion euro to cover the budget deficit by the end of the year, says economic expert. Decline in tax revenues by 25 percent, will require almost 3 billion euro to cover government spending, said Angelov. He said it is better to balance the budget now rather than awaiting.

Must not only say that it will maintain the currency board, but also to balance the budget to maintain budgetary stability, said Georgi Angelov. According to him, if several consecutive years the country out of deficit, the Board can not be maintained, as politicians to say they want it.

A lot of people say that the Board will ustoyava only if the economy grows, but in 1997 he worked and in a much worse economic times, history shows that it works very well in a crisis, said Lachezar Bogdanov, managing partner in the Industry Watch. Sound money working in all conditions, he added. Bogdanov said that before the elections make any radical statements, but who claimed that the Board should be removed, and must indicate the alternative, which in his words is devaluation and inflation. Earnings will be impaired, this will not benefit workers and businesses, but only those who want to live in a foreign-backed, Bogdanov said.

According to economists from the Open Society Institute and the Center for Liberal Strategies application of protective agreement and a loan from the IMF is not the best option to remedy the situation by increasing the budget deficit will be worse because the signal for investors. According to Georgi Angelov conclusion of an agreement with the IMF would mean that our country is to bankruptcy and can not cope alone with the difficult situation.

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BTA

Finance