Download Рисков профил на Уникредит Булбанк АД за периода 01

Speech of Mr. Ivan Iskrov, BNB Governor, before the Bulgaria
Business and Investment Summit, Invest in Bulgaria 2009, Sofia, 5
March 2009
Dear Ladies and Gentlemen,
First of all, please let me thank the organizers of The Bulgaria Business and Investment
Summit for the kind invitation and the opportunity to attend this forum. It is a pleasure and
honour for me to be together with you.
If you are interested and have questions I am prepared to give you particular information
concerning Bulgarian economy and banking system, but since we have a certain time limit please
let me draw your attention to some more conceptual issues.
1. Firstly I would like to express my surprise at the increasing aggressiveness towards
emerging European economies, demonstrated by some Western analysts and institutions,
especially Anglo-Saxonian. During the last several weeks the attention of the media and analysts
was heavily concentrated towards Central and Eastern Europe and in particular South-East
Europe.
Somehow almost everyone has started to make comments, forecasts and recommendations for
our economies. By reading such ridiculous materials one could start to believe that our
economies have caused the current global financial and economic crisis.
Some investment bankers, independent analysts and even simple speculators are rushing to
explain how bad the economic situation in our part of the world is, which makes no sense when
one checks the figures.
It is important all the observers never to forget what caused the crisis and where it started. The
current financial crisis is a result of inadequate regulations and supervision of the financial
markets in the most-developed economies and extreme greediness of some market participants.
These were developments that were not caused by our citizens, companies, governments or
central banks.
It is also ridiculous that the institutions which criticize us most, are themselves the ones, which
needed government support to cope with the gaps in their balance sheets. But they still continue
to give advice to the investors in emerging market countries.
2. Secondly, the practice to draw conclusions for the state of the whole region, that comprises
a variety of countries with different economic features, seems like comparing tomatoes and
cucumbers. Both are vegetables, but there are big differences between them. It is very important
when someone talks about the adjustment processes of the Central and East Europe economies, to
try to differentiate and to understand weaknesses and advantages of each country.
In the past 5-6 years when everything was growing and there was the perception that
everything is possible in the globalized world, financial markets and investors did not make
efforts to differentiate. It was simply not necessary. Nowadays, however, policy-makers and
market participants must be aware of the particular features of each country and economy.
There are a lot of similarities, but there are also significant differences of crucial importance –
stable or unstable governments, good or bad fiscal policies, consistency of macroeconomic
policy, financial sector conditions and regulations, labour market situation, etc. Moreover, we
need to differentiate between the new member states and the other emerging markets in Europe,
as well as among the new member states.
1
3. And last but not least, if we take medium-term view on our economies and their long-term
perspectives for economic growth and further catch-up and integration to the EU, we will notice
one interesting thing. It is that risks in our region are not greater than risks in the older member
states. On the contrary! The fall of the Iron curtain created enormous opportunities not only for
former communist countries, but also for Western Europe.
If old member states like Austria and Greece had not invested in our region and taken
advantage from our integration into European economy, then where would their investment
opportunities have been today? Probably the City of London or Wall Street would bring them
higher yields at lower risk? I doubt it!
To my mind in the future the only region in Europe destined to have stronger economic growth
is Central and East Europe. And this is despite the current short-term difficulties that were
imported from developed financial markets.
4. Finally, I would like to make some specific comments on the Bulgarian economy. As I
already mentioned Central and East Europe as a term is a very general concept. In order to make
proper assessment and take adequate decisions we have to take into account countries’ record in
terms of governance, fiscal stance, structural reforms and consistency of their macroeconomic
policies.
If you take Bulgaria as an example, you will see that for more than 12 years three consecutive
governments have followed very consistent and stability oriented fiscal and structural policies.
Since 1998 we have either a balanced budget or significant budget surpluses. Government debt
was reduced from close to 100 % of GDP in 1998 to 16% of GDP in 2008.
Even now, when we expect economic growth to slowdown, the Bulgarian government have
prepared a budget with surplus. There are significant buffers built in the budget in order to assure
that we can preserve the stability of the fiscal policy even in the case of a greater slowdown. This
stability of the fiscal policy is of crucial importance.
The main goal of this policy is to rule out the possibility to end up in the situation to depend on
financing from the financial markets. This is because today the international markets are frozen
or they demand too high prices.
Nowadays, when the national governments are running massive fiscal deficits in order to
stimulate domestic demand, financial markets will put more and more emphasis on the
sustainability of those policies and sources of their financing.
5. In the context of recent developments in Central and East Europe I would like to underline
that the Bulgarian economy has one very big advantage – a monetary regime based on the
principles of the currency board arrangements and fixed exchange rate. The lack of exchange rate
volatility is an enormous advantage for us, especially in the current situation. It is now clear, that
the floating exchange rate can not bring long-lasting competitive advantages, but only problems
and to feed speculators.
Central and East European banking systems are dominated by foreign banks (mainly from the
Euro area) and significant share of credit to households and corporate sector in our economies is
denominated in foreign currencies (mainly euro, but in some countries also Swiss frank and
Japanese yen).
The fluctuation of the exchange rate in these economies creates balance sheet effects and
transforms exchange rate risk into credit risk. I would like to stress that the advantage of the
Bulgarian banking system is that foreign currency credit is predominantly in euro and there is no
fluctuation of the euro/leva exchange rate.
2
It is crucial for investors to know that, no matter what adjustment the Bulgarian economy
may undergo, it will be under the existing monetary regime of currency board arrangements and
at the existing level of the exchange rate. That was the case over the last twelve years.
Bulgaria will not make any experiments and gamble with its monetary regime and
macroeconomic and financial stability.
This is a common commitment of the Bulgarian political class, citizens and business
community.
Tank you for the attention!
_______
3