NEW EUROPE
16-24 NOV 2007
ALEXANDER BOSHKOV:
Bulgaria needs more dynamic reforms
From now on there should not be activities which are connected with painful reforms, said Alexander Boshkov
Alexander Boshkov is co-chairman
of the Executive board of
the Centre for Economic Development.
His professional realisation
passed through the Ministry of Territorial
Development, Housing Policy and
Construction. He is founder and first
executive director of the Privatization
Agency, as well as an MP in the 37th
People’s assembly – deputy chairman of
the Economic commission, chairman of
the Sub-commission for Privatization.
He has been elected deputy prime minister
and Minister of Industry, a chief
negotiator with the European Union,
and deputy chairman of SDS. He is
founder of the Unified Christian
Democratic Centre.
by INA NIKOLOVA
Mr. Boshkov, the economists from
the International Monetary Fund (IMF)
drafted a pessimistic scenario for Southeast
Europe, including Bulgaria and predicted
an economic breakdown, similar
to the one in Asia 10 years ago. What is
your analysis of the situation?
One always has to be careful when
IMF warns about something, because
the experience of their experts is big
and comprises the whole world. At the
same time, however, we cannot regard
Southeast Europe as a unified economic
subject. Southeast Europe includes
also Greece, Bulgaria, Romania and
the West Balkans. What has been happening
in these regions is so diverse,
that anyone can get away from such a
prediction, if they carefully monitor and
try to direct the processes in the economy
and politics.
What will happen in Bulgaria if such
a scenario comes about?
It will be relatively unpleasant for
Bulgaria. For the EU as a whole, almost
nothing will change. That is the reason
why very bad things won’t happen in
Bulgaria. What could happen in case of
an unsuccessful move of the economic
reforms is to delay the convergence, to
delay the process of Bulgaria approaching
the average levels of incomes, productivity,
and living standard in the EU
that is to end up being the last in line.
However, Bulgaria will not drop out of
the EU, in any case, as the mechanisms
that will pull the country forward within
the bounds of the Union, are just too
strong and reliable. So there isn’t any
danger of a tragedy. The real danger is
for the incomes to go up slowly, rather
than quickly, as we all want it.
How bad is that?
It is very bad because these parameters
go up quickly, including also the
newly-accepted members – the Baltic
Republics, Slovenia, Slovakia, the
Czech Republic, and Poland. And if
Bulgaria or Romania, or only we, Bulgarians,
remain at the end of the line,
the distance in-between will be too big,
and the process of catching up with the
rest will be hard and painful in terms of
measures. From now on there should
not be activities which are connected
with painful reforms. The reforms must
be conscious, which above all, means
that they should not be slow. Whatever
has to be done must be done before it
starts hurting.
During their last visit to Bulgaria,
IMF officials advised the government to
keep up a strict fiscal policy in the budget
for next year, as well as the accumulation
of a huge budget surplus. What happens
to such a surplus that has been kept up in
the state budget for several years?
The budget surplus is a guarantee
against the probability for our economic
growth not to be sustainable. The
Bulgarian economy and state must
have money, should a crisis hit the
country, because of the stupid things
that have been done. If some trouble
hits Bulgaria and the state goes bankrupt,
this surplus is necessary so that the
country could survive for a few months
with this money. This is a reserve for
rainy days. This is the surplus – a guarantee
that, thanks to our stupidity, the
state will not go bankrupt.
Let us imagine what could have
happened during the teachers’ strike, if
Plamen Oresharski had not been
finance minister. Somebody else would
have immediately raised the salaries of
the teachers, after that pay rises would
have been claimed from other sectors,
the state would have been hit by hyperinflation,
which would have aggravated
the economic indicators, which would
have made investors run away. Then
the surplus comes only to say: I am here
to guard you from stupid ministers.
The European Bank for Reconstruction
and Development (EBRD) has
warned Bulgaria of a danger of a mortgage
crisis which is mainly associated
with credits. Is there any danger for the
people who have already been granted
credits?
Yes, there is. These are fluctuations
of the education of people in
market economy. It is totally possible
for some people, who think that they
don’t have to return the credits, to
have to do it. But the remarks of
EBRD are to a large extent theoretical
and based on foreign experience. If we
look at the data, provided by the Bulgarian
National Bank and the bank
supervision, we will see that there is no
increase of bad credits. That means
that Bulgarian people , who are
strongly attached to the notion of
property by tradition, unlike people
from the other East European countries,
where there is no history of such
a great property ownership, find it very
hard to put their property at risk in
order to borrow money , if they do not
intend to return it. Bulgaria most
probably occupies the first place in the
world in number of house owners. It is
in our traditions that the house is the
most important thing and when a person
puts his house at stake in order to
get a loan, he thinks a lot more of how
he will return this loan.
Is it normal for people to borrow
money even when they want to purchase
mobile phones?
This is the normal course of things.
The whole world is living on credit.
Things are in accordance with the
respective economic conditions in the
country. That is the reason why in Bulgaria
people rarely take loans to build a
three-storey house, but would rather
take loans to buy a mobile phone. They
act according to their financial possibilities.
But the main thing is that the presence
of a credit system allows people to
buy things that they want here and now,
rather than live well in the sunset of
their life, because they have saved a lot
during their active life. The idea is to
take a credit and live normally – to have
a flat, car, mobile phone, and all other
goodies, by working for them. This provides
discipline, because when you have
money to return, you must not idle your
time away, but work hard. This is the socalled
“sweat-sucking” system of capitalism,
as Karl Marx called it, and it is
wonderful, because first, you don’t need
to wait your whole life in order to buy
the things that you want. And secondly
– when you live well, you know why you
have to work – not in the name of a
hypothetical bright future, but rather
you live in the present. For instance,
when you buy a new car on a leasing
plan, you pay your monthly installments,
you drive it everyday and you
are afraid of being without work
because that means that you will be
without a car as well.
Yes, but it happens that sometimes
you end up without work and income, in
spite of everything….
This happens when you don’t work
well, or you have bad luck, or you have
landed in a company about to go bankrupt.
But it is not worse than the system
of being able to buy the desired things
at the end of your life.
Analysts of social processes and trends
have been claiming for quite a number of
years that the social layers have already
been formed in Bulgaria. What they most
talk about is the so-called middle class
which is the backbone of the western
economies. Do you agree with them?
Every attempt to draw such distinctions
is outdated. What is the social
layer of a long-haired, untidy, software
specialist, working in his flat, who happens
to have a few million dollars or
Euros in a Swiss bank? Where do we
put the lawyer who makes a lot more
money than a factory owner? Where do
we put the shareholder, the stock market
dealer, who doesn’t have anything
apart from the shares that he buys and
sells all the time? These are concepts of
the past. The globalisation, the free
movement of people, commodities and
capital, obliterate these distinctions and
I don’t think that we can talk about
whatever division there may be among
people, except on the basis of incomes.
The incomes, on the other hand,
are something quite relative, because
do we call rich or poor the old-age pensioner
with a monthly pension of 50
Euros, who lives in a four-room apartment
in the centre of Sofia? He is poor;
he is even starving, because he doesn’t
know what to do with this apartment,
because the real estate market is not
well developed, so that he can sell it or
stake it, and then buy a smaller one.
This is only a detail, but it shows
that Bulgaria is a country on the move.
Everyone who says that he is poor
would have to answer two questions:
how much money does he make, outside
the incomes on which he pays
taxes, and what is the market value of
his property.
Only then can it be said whether he
is rich or poor and whether he manages
his finances well.
A big part of the people who call
themselves poor, are actually incapable
of managing well what they have. This is
something that is learned with time –
their children will most probably be
able to manage their money. It will be
very bad if Bulgaria is still stabilising at
this moment.
Why would it be bad? Many people
at present want stability, because they
have been tired of 18 years of changes.
To be stabilising actually means not
to grow fast. What has to be stable,
what has to be really sustainable is the
growth. And we have to change as
much as we can. As a result of this stable
growth, everything must change as
fast as possible. The danger comes
when the growth is unstable, when the
economy, or as economists like to say,
starts to overheat. Then all of a sudden
a lot of money starts pouring into the
country because it is a modern destination
for investments and it turns out
that these investments don’t bring profits
and can’t be used well. Then whoever
has made them, begins to look for a
new place for investments, takes them
back and disappears. The country,
while making progress, ends up with no
money and the economy starts to slide
down. This is dangerous.
The world economic institutions
have been criticising Bulgaria for years
about the great share of twilight economy
in the country, and they are quoting data
that it is a lot smaller in percentages elsewhere
in the world. Is a twilight economy
really such a bad thing? Some of your
colleagues say that it is a way of survival
for people in transitional economies.
There are two opinions in this
respect. The first one is that if it can be
measured then it is not twilight. All
attempts to measure it are made on the
basis of some pseudo-economic calculations
and conclusions that try to find
out how little people spend compared
to how much they make. These are
things that only mark within certain
boundaries, but actually no one can say
how much the twilight economy is.
On the other hand, the other fact is
important and it is that the twilight
economy is a kind of economy, anyway.
Thanks to it some part of the Bulgarian
people makes money, spends, eats,
drinks, lives, and has a car and a place
to live.
If we accept the calls for the introduction
of a very strict legislation, a very
strict application of all measures of the
judicial power, and terminate the existence
of the twilight economy within
the framework of a dictatorship even
for one or two years, many people will
remain without work.
Here is a simple example of a really
existing twilight economy. For
instance in the food industry the white
economy starts from the dairy, where
cheese and yellow cheese, or from the
salami workshop and keeps moving
along the chain – goes into the retail
network, has labels, receipts, invoices, -
the personnel receives respective
salaries, and so on. If we start backwards,
however, we will see that it is not
clear who issues the invoice for the produced
milk, who knows where the
slaughtered pig comes from, what part
of the meat and milk in Bulgaria comes
from large farms with a normal
accounting system.
Some people are touring villages,
and collect the milk from the people in
a big milk container that they put in the
centre of the village. The villagers on
their part don’t pay any taxes, nor do
they register the money that they get,
anywhere.
This is twilight economy which is a
basis for a whole export-oriented economy
of Bulgaria. And if we want to
export our food products we will have
to make the whole process brighter, at
least for the sake of the sanitary and
hygienic requirements and standards.
If the name of the cow that gave the
milk for the cheese production, is
known – because this cheese will go into
the sandwich that the child will eat at
school – then the economic processes
will be channeled as well.
There is nothing bad about the twilight
economy, apart from taxes not
being paid. The state must create incentives
– more of a carrot than of a stick –
concerning people, so that they start
declaring their profits.
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