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BULGARIAN CONTEXT IN TEACHING INTERNATIONAL ECONOMY ASSOCIATE PROFESSOR DR. DANIELA BOBEVA OUTLINE: THE THREE “W” • Why we need to present the Bulgarian case in lecturing International Economy? • What we would mean by “Bulgarian context” ? • Where we have to put focus on? MAIN THESIS We need to have in all lectures in International Economy a presentation of the Bulgarian case. The specific Bulgarian context requires also more Bulgarian authors’ publications to be included in the readings and the theoretical basis WHY WE NEED TO PRESENT “THE BULGARIAN CASE”? • The international economy course integrates a wide range of subjects and represents a modern view of the way today world economy works. The synergy between the national and international construct the real understanding of the economy. The national economies are more international than ever. • A combination of characteristics makes the Bulgarian economy rather specific and nonconventional economy. • Students are interested in the implication of international economy theories in Bulgaria. • Students need to know the advantages and opportunities and also the risks the international economy creates to Bulgarian market participants WHAT MAKES THE BULGARIAN ECONOMY NONCONVENTIONAL • Sustainable monetary regime: 19 years of currency board arrangement • Small public sector: Public sector enterprises only 5% of GDP • Open economy: 85% of GDP through foreign trade • Large foreign investment sector: 75% of financial sector, 60% of mining, 65% of chemical industry, etc. THE BULGARIAN CONTEXT: FOCUS ON: • Bulgaria and the currency regime • Bulgaria and the euro area. • BoP specifics for Bulgaria. The story about high current account deficit • FDI and multinational companies in Bulgaria • Free trade and Bulgaria • The external debt of Bulgaria • Bulgaria and the IFIs • BG goods on the global stock exchanges • Global crisis and the impact on Bulgaria Focusing on the Bulgarian context may challenge the conventional wisdom in international economy theories LECTURE: INTERNATIONAL MONETARY SYSTEMS Thesis: Fixed exchange rate regimes are imposed in vulnerable economies and they do not provide with a sufficient level of flexibility • Stable and rigid monetary regime: 19 years of currency board arrangement without fluctuation and tension • Surviving during different stages of the cycle proving sustainability • Adjustment through fiscal policy and structural reforms instead of monetary policy • Imposing strict fiscal policy and larger buffers against risks • Low level of public debt LECTURE: ECONOMIC AND MONETARY UNION The single currency has to be adopted only by mature economies where Maastricht criteria are met but also real convergence has to be advanced • Currency board is compatible with ERM II but formally not accepted by the ECB • BGN not allowed to the ERM II due to other than macroeconomic considerations • Bulgaria is the only country that meets all numerical criteria according to three consecutive convergence reports of the ECB and EC • Macroeconomic stability and prudent fiscal policy for more than LECTURE : DEBT AND DEBT CRISIS Public debt should be kept small – up to 50% of GDP. • Bulgaria: Ups and Downs • Reduction of public debt is difficult but the accumulation is easy • Maintaining low public debt for 16 years has not brought sufficient benefits LECTURE: BALANCE OF PAYMENTS Current account deficit beyond 6% is an indication of severe tension and macroeconomic imbalances • Bulgarian economy reached historically highest current account deficits ( 22% of GDP) but • Not led to a crisis since driven by large FDI inflows • Self corrected for less than one year but • “The price” was shrinking FDI LECTURE : MULTINATIONAL COMPANIES AND FDI FDI and foreign companies contribute to the growth, exports and innovations • Bulgaria: Highly unstable but large FDI inflows • The quality of FDI is a challenge: low value added, low export potential, concentrated in low skilled sectors • Small reinvested profit of foreign controlled companies and limited innovation LECTURE: INTERNATIONAL FINANCIAL INSTITUTIONS IFIs may impose policies that create challenges for sustainable growth . Their policies have not proven success in most of the countries of operation • Bulgaria is a success story for Bretton Woods institutions? • After 13 agreements with the IMF the economy is stabilised and restructed, private sector makes 95% of GDP , open economy with a strong FDI impact • Fiscal discipline imposed and limited social benefits Thank you