Forbes: 'The Bulgarian Banking Disaster'
An analysis of the latest developments in the case of Bulgaria’s Corporate Commercial Bank by Frances Coppola has been published on the website of Forbes magazine.
Under the headline “The Bulgarian Banking Disaster” Coppola who is a Forbes contributor draws the attention to the different treatment of Corpbank and First Investment Bank by Bulgaria’s central bank which she claims “is both incompetent and politically captive”.
The author opines that “EU authorities must now intervene”, as “a financial collapse in Bulgaria would be disastrous for the entire Balkan region.”
According to Coppola, the recent failure by Corpbank to make the final payment on its dollar-denominated bond "raises questions about the trustworthiness of the Bulgarian authorities.”
In addition, Coppola argues, “shabby treatment of depositors raises questions about the commitment of the Bulgarian authorities to the responsibilities of EU membership.”
The author is quoting the opinion of a source described as “close to” Corpbank’s majority owner Tzvetan Vasilev, according to whom “the ultimate objective of those behind the failure of the bank was to destabilize the Bulgarian banking system, break the currency board and cause a repeat of the 1996 financial collapse and hyperinflation.”
The full text can be found here.
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Currency boards don't change non-monetary fundamentals. If you have a corrupt, inefficient and kleptocratic economy before the currency board (Argentina *cough* Argentina) you will have a corrupt, inefficient and kleptocratic economy after the currency board.
The only difference is that the government will have heavily indebted itself to the West and the IMF to obtain the necessary foreign reserves to peg its currency, and even then speculators or market panics may test the government's resolve. And no doubt, these loans would come with countless strings attached, as is typical for any IMF "assistance" package. I guess the EU isn't that concerned about Bulgaria after all!
And inflation? The peg to the euro may keep import prices from rising but would require Bulgaria to adopt near zero short-term interest rates. But that's only helpful if you have a positive export balance. What does Bulgaria export and how does that relate to what Bulgaria imports? I'll let you draw your own conclusions.
Bulgaria will not be able to assert its territorial sovereignty by abdicating its monetary sovereignty. The Bulgarian economy is long due for a massive structural rebalancing, and some of this will play out on the currency markets bur it's the so-called "little fish" who will end up paying for this complete and utter incompetence of the Bulgarian government and central bank. If I was a foreign investor I would avoid Bulgaria like the plague. Shaky banks on every corner? That can be brought down by a simple text message does not give much confidence.