Vasil Velev, Chairman of the Bulgarian Industrial Capital Association: The burden of the crisis should be evenly distributed

Margarita Dimitrova

Mr. Velev, is indeed the economic situation in Bulgaria so complicated that it needs quick and unpopular measures to be introduced?
 - Yes, the current situation looks anything but rosy. The budget revenues in the first two months are lower than those for the same period last year, but the expenditures are higher. If we continue with that pace, the accumulated deficit will reach inadmissible levels and will jeopardize the financial stability. Obviously, vigorous measures must be adopted to increase the revenues and to restrict the costs.

An increase in the domestic and external debt was the first in the list of measures, upon which the social partners reached a consensus. 
 - You know that the ratio of foreign debt to gross domestic product for the country is less than 15% correlated to 60% eligible rate under the Maastricht criteria for the Eurozone. That is, we have potential. The risk premium currently is at good levels because the public finances are in a relatively decent state. This measure is a simple way to ease the situation, but we should not limit our efforts to it. These debts will have to be reimbursed one day with the interest. That is why we offer an accelerated privatization of state-owned property through the Bulgarian Stock Exchange and its transparent procedures. There will also be a positive effect on the capital market. If the energy companies, which have good present and future perspectives, are listed on the Exchange and sell 15 to 33 percentage shares and if both the investment regime for the Silver Fund and the pension funds are liberalized, then the Bulgarian resources, currently operating in the foreign capital markets, will finance the Bulgarian economy.

Does the increase of foreign debt mean that you will seek a loan from the IMF?
 - No, we have eurobonds in mind. It is also possible to release an emission on the internal market, but there is a risk of pulling out funds from the banks. Thus, they might not be able to finance the real sector, even though banks have excess capital, which does not serve for lending and could be used for purchasing government bonds.

Another measure pertains to adopting a package of measures by the Government jointly with the BNB (Bulgarian National Bank) to facilitate the access to credit. How, in particular, the credit market could be stirred?
 - One option refers to the capitalization of the Bulgarian Bank for Development by transferring the servicing of the state-owned firms and the budgetary sector to it. Then it will be able to provide target loans. This market mechanism will actually lead to lowering the interest rate. Currently, there are interest rates on deposits of about 10% although the inflation is close to zero. This is totally inexplicable. In this way, the interest on loans, especially for small and medium-sized firms, rise up to around 15%. No company or business is able to withstand these conditions for a long time.

How will the problem of non-refunded VAT be settled? 
 - There is misunderstanding on this issue. The Finance Ministry reports some reduction of non-refunded VAT to BGN 400 mln. But taking into consideration the turnover which has decreased by a third, there is in fact an increase of the due VAT refund. According to us, this amount is still considerably high. 

You, employers, have made a compromise and have agreed to delay the reduction of social security contributions until the end of 2011.
 - Indeed, this is a compromise. We had to make some reasonable concessions in order to win syndicate support for our demands. The real sector, the industry, suffers heavy losses - sales have declined by a third, and so have the proceeds. Therefore, we cannot understand why a 10% reduction of the incomes of civil servants is so largely discussed. The incomes of those who actually earn their salaries have already fallen by one third. The severity of the crisis must be distributed evenly. We will support the Government in cutting down the expenditures in the budget sphere in order to avoid an excessive deficit.