USIA - Text: World Bank to Assist Bulgaria's Economic Reform Efforts, 97-03-24

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TEXT: WORLD BANK TO ASSIST BULGARIA'S ECONOMIC REFORM EFFORTS

(Loans for commodity imports, promoting enterprise) (870)

Noting concern over deteriorating conditions in Bulgaria last year, Johannes Linn, vice president of the Europe and Central Asia region for the World Bank, said March 21, "We are pleased to see the remarkable progress the government is making in tackling the most pressing problems."

Following a meeting in Washington between World Bank officials and a high ranking Bulgarian government delegation, Linn added that the government's program of stabilization and reforms is ambitious, "but it offers an excellent chance for the turnaround of the economy, and we are prepared to support the implementation of this comprehensive effort."

Following is the text of a World Bank announcement on the meeting:

(Begin text)

WORLD BANK SUPPORTS BULGARIA'S ECONOMIC REFORM EFFORTS

"We were very concerned with the deteriorating conditions in Bulgaria over the last year, so we are pleased to see the remarkable progress the government is making in tackling the most pressing problems. We recognize that the government's program of stabilization and reforms is ambitious, but it offers an excellent chance for the turnaround of the economy, and we are prepared to support the implementation of this comprehensive effort," said Johannes Linn at the opening of the meeting.

In response to the government's request for assistance, subject to approval by its board of directors, the bank is considering providing Bulgaria with financial support totaling approximately $290 million in the form of three loans.

A Critical Imports Rehabilitation Loan of $40 million will support the initial efforts of the government in implementing the reform program. The loan's proceeds will be used for fiscal and balance of payments financing of critical imports of commodities currently in short supply such as wheat, medicine, and fuels. The loan will be conditioned on the initial reform measures agreed to under the IMF's program and is scheduled for disbursement in May. Two other loans are also planned, a Social Safety Protection Loan of $80 million, and a Financial and Enterprise Sector Adjustment Loan (FESAL) of $170 million to promote enterprise and banking reforms.

Under the FESAL, the bank will be extending its support for the government's privatization efforts with technical assistance focusing on the privatization of Bulgarian banks and large enterprises, such as the Bulgarian telecommunications company. The bank's work in this area will be facilitated by the government's firm commitment to privatization as emphasized by Prime Minister Sofiyanski at today's meeting. The FESAL could be presented to the bank's executive board of directors by June, to coincide with the introduction of a currency board arrangement. However, for the foregoing financing package to proceed to the bank's board Bulgaria will have to implement in advance a number of the key measures in the government's reform program.

With Bulgaria embarking on overarching reforms, the bank will now be able to work more closely with the government to improve the implementation of the bank's previously approved projects in the country.

To mobilize financial support from the international community, the bank is in the process of organizing jointly with the European Commission a G- 24/Consultative Group meeting scheduled for April 8-9 in Brussels during which Bulgaria's economic program will be presented.

Background

Facing a deep economic crisis, Bulgaria's GDP declined between 8 percent and 10 percent in 1996 with foreign currency reserves shrinking to about $445 million at end-February. Furthermore, the inflation rate in February reached an unprecedented peak of 243 percent, resulting in a cumulative inflation of about 392 percent in 1997. In addition, from the beginning of 1997 until mid-March the exchange rate depreciated by 247 percent, while the level of the average salary in the public sector shrank from a $70 1996 average to as low as $25 in January 1997. Bulgaria also still has foreign debt payments totaling about $1 billion ($1,000 million) in 1997.

In response to the Bulgarian President's appeal for support the bank has sent missions to work with the government and is committed to supporting Bulgaria's reform efforts.

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