Bulgarian poll result seen to help economy

SOFIA (Reuters) – Investors are viewing Bulgaria’s inconclusive weekend election with caution, but the lack of a clear majority for the winning Socialists should help preserve the country’s prudent economic path, analysts said on Sunday. Markets see the Socialists – reformed communists whose mismanagement sparked a disastrous 1996-1997 economic meltdown – as more risky for the economy than the defeated party of ex-king and current Prime Minister Simeon Saxe-Coburg. But after garnering a less-than-expected 30 percent of Saturday’s vote, the leftists are expected to seek support from the center-right, and possibly from Saxe-Coburg’s National Movement for Simeon II. That should temper their plans to hike state wages and social spending, and other potentially risky policies in favor of an approach more similar to that of Saxe-Coburg’s budget-balancing, debt-slashing government, analysts said. «If they manage to strike a coalition, they will have to go for a common denominator between the different parties, meaning no radical moves, a similar fiscal stance, and a conservative policy on foreign debt,» said Krassen Stanchev, head of the Institute for Market Economics. Investors have hailed the former king’s government as Bulgaria’s best administration since the fall of communism. It oversaw economic growth of 5.6 percent last year, slashed foreign debt to under 27 percent of GDP from 70 when it swept to power in 2001 elections, and has helped to boost Bulgaria’s sovereign debt rating to investment grade. And – mainly due to the currency board straightjacket pinning Bulgaria’s lev to the euro – it has run three years of budget surpluses for one of Europe’s tightest fiscal policies. The Socialists have pledged to aim for small budget gaps and keep the currency board in place, but analysts are not fully convinced of the party’s commitment to cautious fiscal policy. Prolonged coalition talks could also ruin Sofia’s chances of fixing its lumbering judiciary and passing other key measures before end-September, when the EU is expected to judge whether or not to allow Bulgaria to join in 2007 or postpone its entry by a year. But as long as Bulgaria’s next government keeps on with EU-prescribed reforms and protects its currency board – the country’s main pillar of economic stability – analysts said the picture is still acceptable. «Although it is a big risk if there are protracted talks, I think common sense should prevail in order for them to create some kind of coalition,» said HVB analyst Simon Quijano-Evans. «But if there is a one-year delay on EU entry, it won’t be a complete catastrophe for markets… The most important thing is continued EU reforms and keeping the stability of the currency board. It may not be as bad as it seems at first sight.»

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