INTERVIEWS

Bloomberg TV: Bulgaria Says Bank Runs Show Crisis of Confidence

Mr. President, how stable are Bulgaria’s banks after the bank run now?

Rosen Plevneliev: Bulgarian macroeconomic indicators are one of the best in Europe. The Maastricht’s criteria today are fulfilled by just three EU member states and Bulgaria is one of them. Banking sector is stable. Banks are performing normally. There is just one bank that has been put under government control and that is temporarily. It will take a couple of weeks and then we are also sure this bank will get back to normality?

Let me make it very clear that there is no bank crisis in my country but there is a crisis of confidence. We had a very difficult period of political fights and tensions and we also have a period of, I’d say, low trust of people to institutions. And if you combine both of them - low trust of people to institutions and heavy political fights – then you get instability. And that instability could be implanted, could infiltrate within different sectors of economy.

Let me make it very clear: Bulgarian banks are stable. All the measures have been met. Bulgarian banking regulator is very strong and has proven track record.  Currency board will stay as long, as we get into the Euro zone and that is also a clear target of Bulgarian policy and Bulgarian state. And also make it very clear that Bulgarian banks are at least twice more liquid than any other banking system in Europe. They are liquid, they are stable so what we need to do increase the people’s confidence.

In your opinion, what caused the two banks run in such a short succession of time given the stability of the banking system?

Rosen Plevneliev: There is just one bank that has been put under government control. We truly believe that there was a speculative attack on that bank and institutions are working very heavily to see how and who is responsible for that. We have seen five people arrested and we are definitely sure that the Bulgarian authorities will continue to do their best.

Bulgarian banking system is performing well, is liquid and is stable. The Currency board is an island of stability and a foundation of banking security and stability. Everyone who is on the political stage, different political parties and institutions, has agreed on the late consultations on Sunday at the Bulgarian President that we will do everything necessary to calm down, to fund, to support and to make sure that something that is moving well and is performing well, and this is the Bulgarian banking sector and it is going to continue to perform like that.

Is anything being done to prevent the reoccurrence of other bank runs?

Rosen Plevneliev: It is definitely clear that if you have a low trust of people to institutions, every rumor and every work for instability and speculative attacks could create a panic. But we see a very clear development. There is no panic and instability. The banks are operating normally. Bulgarian government has additional liquidity which is not needed for the moment. We have placed within minutes additional bond that is in the hands of the government today, but we are not going to use even a dollar from it. We have also placed a government fund of 1.5 billion euros which was the most successful ever in our history with a very low interest rate of just below 2%. That is telling us that markets trust Bulgaria.

And also institutions and foreign authorities trust Bulgaria. The European Commission made a very strong statement that Bulgarian banking sector is stable and has the trust of the Commission too. So what is needed is work for stability, reduce political tensions and make sure that we have a new and a better level of cooperation between institutions, not confrontation but cooperation.

And how successful is Bulgaria’s membership in the EU given that the Commission has repeatedly criticized Bulgaria for not doing enough to fight corruption, on one hand. And on the other hand there are many Bulgarians who are disappointed that their living standards are not rising after EU entry. At least as much as they hoped it.

Rosen Plevneliev: If you look at the latest European elections in Bulgaria you will recognize how pro-European Bulgarian civil society and Bulgarian voters are. I am proud to be a President of a country that is not going to send a single anti-European member into the newly elected European Parliament. The vote of the people was very clear on that.

Bulgaria is and will continue to be a pro-European state and a pro-European civil society that is looking for a new state of integration in our European union as a unique project for peace and for prosperity. Of course, Bulgaria is not perfect. We do have a lot of tasks to be solved. A lot of reforms have to be performed but if you look at the way we have walked through, then you will see the progress. 15 years ago Bulgaria signed the Association Treaty and 7 years later we became a member. And if you look where Bulgaria was 15 years ago, well, our GDP was three times lower, our industrial production was three times lower, money for pensions, money for healthcare were three times lower and there was huge instability in my country 15 years ago. Government debt 15 years ago was 107% of GDP, today it is just 18% from GDP and it is the second lowest government debt in the EU. So, we have gone a long way and we have improved but we are not where we would like to be. And we are not where Bulgarian people would like to see their state. We need to work for a better and transparent institutions, we need to work for a more efficient Justice system, we need to reform some sectors, and yes I am here, to tell all of the Bulgarian politicians very clearly that reforms are necessary and progress and improvements are necessary too.  

And what challenges does Bulgaria face as a member of the EU?

Rosen Plevneliev: The biggest challenge I see is that some major reforms have been postponed in the last years. That is not good for the economy and that is not good also for the people. And we have seen a clear signal from voters but also from the European Commission that we need to perform those reforms. They are going to be performed now because of Brussels, but because our economy, our regions and our systems and sectors need that. So the biggest challenge will be to create a majority in the next Parliament that will be capable of performing strong and sometimes reforms that will hurt. For example – the healthcare reform, educational reform, pension reform, reform in the energy sector and the administrative reform.

We also have a huge problem to solve which is to me the problem of political fights, partisan games and instability that was never seen in our history in the past 25 years. We see a very low level of trust of people to institutions. Today the Bulgarian Parliament, today the Bulgarian Government and many other institutions have the lowest ever rating in our democratic history and that is a very strong signal for problem that has to be resolved. So, I will be expecting the next government which will take care, hopefully, in autumn of this year, after new elections I scheduled in my country on October 5th, and we all hope that we will have a government, that will be brave enough to perform reforms, that will work for stability and we will see more responsible politics in the Bulgarian Parliament.

Do you expect the political instability to reflect Bulgaria’s economy?

Rosen Plevneliev: That is already happening and that is something I am not happy with. Just look at the fact that in the last six months from July to December 2014 we will see three governments taking over the country.  Three governments in six months. That is a very heavy political instability. That has to be resolved and that instability, of course, is bringing instability for investors and low motivation for investments, and of opening new working places. That is definitely clear.

If you look in the numbers, they are not so bad in my country. The economy is going to grow this year probably with 1.5-1.8%. Unemployment is stable at 12.1-12.7% which is more close to EU average than very bad.

But on the other side this is not good for us and we could perform much better. Bulgaria has a very strong potential, Bulgarian economy has a strong potential, Bulgarian banks can fund a much bigger cake of Bulgarian economy and projects – they have money, they are stable, they are willing to lend. The question is that we need to have a good comfort level for investors and entrepreneurs to invest and to open new working places. That depends on politicians and my message to Bulgarian politicians is: work for more stability and create the foundations for a better coalition culture and more pragmatic work in the Bulgarian Parliament and get ready for tough but necessary reforms.

Why, in your opinion, the current government of Oresharski and the previous government of Borisov did not complete their terms in office?

Rosen Plevneliev: The problem was, I think, planned in the first days of the prime-minister Oresharski. I think a big mistake was that there was no coalition agreement between the coalition partners. So that created a kind of intransparency how this government works. There was also a decision which created a lot of tensions and also triggered public protests and that was a decision to appoint a media tied person for a chief of Bulgarian secret services. There were some other decisions that created instability and they have in a way planned the short horizon of this government. Some of the issues are related to sectors of economy like energy, healthcare and many others. At the end we see the logical end of an instability that was created by the day one. And last but not least, the elections held on May 12th 2013 made the task for Bulgarian politicians very difficult because we do have 240 members of Parliament and actually the ruling coalition decided to run the country with just exactly 50% of them – 120 out of 240. So by having exactly half of the members of the Parliament, it was very difficult from the beginning to have stability.

What further created instability was the fact this government decided to be dependent in the Parliament on an ultra-nationalistic party which further created tensions and instabilities. But in the end I am very grateful to Bulgarian politicians because they have seen the problem and they have solved the problem. We have a clear consensus that on October 5th we will have elections and on August 6th we will have a new caretaker government coming in place for Bulgaria. I am sure that the new elections in October will bring more stability for Bulgaria.

What are the underlying issues in that coming elections?

Rosen Plevneliev: The biggest problems for Bulgarian politicians to address will be to create reform culture and agree on necessary important steps in order to further boost economic and regional development. Just look at the fact how different Bulgarian political parties are – some of them are left, some of them are right, some of them are centered – but they need to learn after a phase of a heavy political confrontation, which we’ve witnessed since two years, they need to learn to come together, to learn to solve together important issues, they need to understand how important will be after October in the new elected Bulgarian parliament to share the price of necessary reforms. I truly hope that we will have a political agreement on reforms and on improvement of investment climate.

Bulgarian economy is vibrant and stable. Just look at the fact that in such a strong instability of political life that we have actually growth. Just look how Bulgarian economy, Bulgarian banks performed in the last six years. That is quite a remarkable performance in very difficult economic circumstances. But again we are making the problems of ourselves. The European Commission trusts and helps, the markets trusts and funds and we need to come back and to what we believe is the most important step further for Bulgaria – necessary reforms for better investment climate and for more stability and for the entrepreneurs to see Bulgaria as a good place to make business.

And which factor will be decisive for winning the elections in your opinion?

Rosen Plevneliev: I think we have seen on the European elections how wise Bulgarian voters are. They have made a very clear case for a pro-European and a new phase of modernizing and integrating the country within the proud family of European member states. So I will see, and I will definitely hope that Bulgarian people will see a brave move for a pro-European government that will be supporting integration, modernizing transparent management of European funds, reforming healthcare, reforming justice, reforming pension funds and making sure that we are moving fast in the already given by the people direction, modernize and integrate in the EU.

And now another note. What is the state of development of South Stream natural gas project in Bulgaria? There have been mixed signals coming out of the country.

Rosen Plevneliev: Yes, you are right. We all remember 2008. There was again fight between Ukraine and Russia and gas supplies have been stopped for many European countries, including Bulgaria. And in a very cold winter we have been left without gas so there is a broad consensus in my country that the lesson learned from the gas crisis in 2008 is that we should work for diversity and we should work and we should support projects that are bringing diversity to my country, no matter if those are pipes like Nabucco or South Stream, TAP or other suppliers. So I think in my country we do have a consensus on supporting new gas pipeline projects but the government misperformed in a way on the South stream and in result of this the European Commission has started an infringement procedure on some decisions taken by the Bulgarian government. As a result of this the prime-minister Oresharski announced publicly that he is temporarily freezing the work on South Stream in order to wait for the Bulgarian government and European experts to agree on next steps. So I would say that as a President of the country I would say that, but also consulting and talking to Bulgarian political parties, we all believe and we all hope, and we all will be supporting a case where if European Commission is giving a green light for further works, further works will be executed. But for the moment the ball is in the European Commission. The Bulgarian government has to work hard and when problems are resolved works should continue.

An interview by Elizabeth Konstantinova