ECONOMY

Velchev sticks to his guns, says fiscal laxity unnecessary to win popularity

SOFIA – Bulgaria’s finance minister, who last week withdrew his resignation, said yesterday he wanted a second term in office after the government’s mandate expires in 2005. But in an interview with Reuters, Milen Velchev indicated he would rather quit if a retreat from fiscal prudence looms again. Velchev, a leading reformer in Simeon Saxe-Coburg’s two-year-old government, agreed to stay on last week after winning a new commitment from the factious ruling coalition to belt-tightening budget policies. The 37-year-old former investment banker offered to step down on August 6, saying he feared the ex-king’s ruling coalition, suffering plunging popularity, would loosen reforms. Velchev said his main goal was to safeguard conservative fiscal policy, which he believed the government would stick to over the remaining two years of its mandate. «I think I have received enough support to continue implementing the policies we’ve been following so far and for which we’ve been constantly praised. That was the main reason for withdrawing my resignation,» Velchev said. «(Fiscal prudence) is the most important principle in my work, so I would not hesitate to state my views in a similar way again if I consider it’s necessary. But I don’t think it would happen after all the talks with my colleagues from the ruling coalition,» he added. The resignation move, which some local analysts and opposition parties called a «bluff» aimed at strengthening Velchev’s power, shook investors’ confidence in Bulgaria and pushed down its bond prices. Velchev and other young Western-educated Cabinet members enjoy high respect abroad for maintaining macroeconomic stability, reducing the debt burden and winning a series of credit rating upgrades. But Bulgarians, whose monthly salaries still average only $140, say they have not yet felt the benefits in their pockets. Convincing voters Velchev, however, said a tight budget would not hinder the government’s efforts to win the next general elections in 2005. «I see my future in a second mandate. I like politics and I see enough challenges in it,» said Velchev, who keeps a pair of red boxing gloves on his desk. «My job over the next two years is to convince voters that this is the winning policy for Bulgaria and… there is no alternative.» Saxe-Coburg’s National Movement for Simeon II (NMS) – a motley group with rival lobbies promoting conflicting policies – has been hit by damaging walkouts and plummeting popularity for failing to deliver on a 2001 election pledge to bring quick affluence. Local commentators have warned that infighting within the ruling party might resume after October local elections in which it faces big losses. Velchev has been under growing pressure from lobbies within the NMS and its junior coalition partner, the ethnic Turkish MRF party to sharply soften fiscal policy at a time when budget revenues were declining due to slow structural reforms. Velchev, who worked for Merrill Lynch before entering politics in 2001, said he had decided to raise next year’s budget deficit target to 0.7 percent of gross domestic product from initially planned 0.5 percent. He said the mild loosening aimed at spurring growth was unable to reach its full potential because of a slower-than-expected recovery in the EU, Bulgaria’s main trading partner. Velchev forecast the Bulgarian economy to grow 5.3 percent next year, up from an expected 5 percent this year and 4.8 percent last year. He said delayed reforms in education, healthcare, the state railway company and heating companies had to be speeded up to cut budget subsidies and meet next year’s deficit target. Derivatives Bulgaria may enter into the international derivatives markets for the first time next year to reduce currency and interest rate risks to its debt, Velchev said. The two-year-old government of ex-king Simeon Saxe-Coburg has put cutting the debt burden and its active management among it economic priorities as it strives to meet European Union standards and bring the Balkan country into the bloc in 2007. «If we look for some options for active debt operations next year, they would be linked to managing currency and interest rate risks by entering into the derivatives market. It is just an option, we haven’t decided yet,» Velchev said. He declined to give more details on debt operations. A long-term debt management strategy, approved by the government earlier this year, says the ministry may use currency swaps, options or forwards to avoid negative impacts from sharp movements in the euro and the US dollar. Over half of the government’s foreign debt is denominated in dollars and Bulgaria plans to reduce its share to around 30 percent by 2009 at the expense of raising euro-denominated debt. Active debt operations might also be applied to fix payments, which average some $1 billion a year, in coming years and optimize debt maturity, the strategy said. Swapping existing fixed-rate Eurobonds into floating rate debt in case of a sharp rise in long-term rates and rate swaps is also among the options envisaged in the strategy. Velchev and his deputy Krassimir Katev, in charge of debt management, have won respect abroad and a series of credit-rating upgrades for carrying out two Brady bond swaps last year.