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Bulgarians preparing to tighten their belts

Date: 27.10.2008

While Bulgaria's leaders continue to issue assurances that the country's steps so far to cope with the fallout of the global financial crisis are adequate, a survey has indicated that 60 per cent of Bulgarians intend reducing spending while trade unions are demanding a substantial hike in the minimum wage in 2009.

A poll by local agency Mediana found that 40 per cent of Bulgarians believe that the global financial crisis will worsen the lives of their families, while 26 per cent were certain that it would have no effect, Bulgarian-language mass-circulation daily Trud reported on October 24 2008. The poll's findings coincided with reports that banks were taking a tougher approach to loans to individuals and businesses.

The same day as the report, Parliament approved the first reading of amendments to the Bank Deposits Guarantee Act which increase the guarantee on private savings deposits to the lev equivalent of just more than 50 000 euro.

Under the adopted legislative changes, the Government will also guarantee debt instruments issued by the local commercial banks, Bulgarian daily Dnevnik reported. The deposit insurance fund will borrow from the state budget if short of cash and guarantee interbank loans for a year, under the proposal.

Prime Minister Sergei Stanishev told news agency Reuters that the Bulgarian Government was ready to guarantee inter-bank loans and buy back government securities to help banks overcome the credit crunch and reduced liquidity.

Speaking during debate on the amendments, Stanishev issued the latest in a series of assurances that Bulgaria's banking system was stable.

The Government intends taking various steps in the face of the global crisis, including measures to promote exports, reduce social insurance contributions and identify companies deemed to be at risk higher than the norm. These companies will be inspected on a regular basis.

Bulgarian National Radio (BNR) reported on October 26 2008 that the global financial crisis had forced Bulgarian banks, which are more than 90 per cent European-owned, to tighten up on loans for businesses and individuals. Higher rates were making loans more expensive.

In future, Bulgarian commercial banks would have to rely on fresh funding from the state, and they would have to compete with one another for the deposits from individuals.

In the business week ending October 24, central Bulgarian National Bank's (BNB) managing board made decisions that would act as a "breath of fresh air" for commercial banks in the context of the global financial crisis.

These decisions affect the reserve assets that banks keep deposited at the BNB. These will now be calculated on the basis of 50 per cent of cash availability, which will release resources for lending to businesses because until now the reserves were calculated on the entire cash availability of the banks.

In the same parliamentary debate on the bank guarantee amendments, Ivan Kostov, leader of right-wing minority opposition party the Democrats for a Strong Bulgaria, accused the Government of inaction and said that it was culpable for allowing the collapse of Bulgaria's stock exchange.

Bulgarian weekly Kapital, in a commentary article, said that the state was at a loss how to react to the coming crisis.

Something new was happening on global markets. But at the same time, the Bulgarian political machine was moving with its typical sluggishness, according to the article.

While something was being done about the most urgent problems facing Bulgaria's financial and banking system, by copying Europe's decisions, the Government was like "an ostrich with its head in the sand" regarding the real economy, the newspaper said.

Meanwhile, the country's two largest labour confederations, CITUB and Podkrepa, have said that the minimum wage should be increased to 300 leva in 2009 to cushion the effects of the financial crisis on Bulgaria's lowest income-earners.

Bulgaria has denied media reports that it is in talks with the International Monetary Fund to get special assistance in the face of the global crisis, Dnevnik reported on October 27 2008.

The state stuck to its message that adequate measures were being taken.

Speaking on October 25 in Beijing during the seventh Asia-Europe Meeting Summit, President Georgi Purvanov said that the Government had taken adequate steps and no further actions were needed for the time being.

"We should not yield to panic because of the global financial crisis," Purvanov said.

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