Finance Minister Exposes Predecessor's Secret Deal with Bulgaria's Fiscal Reserve

Bulgaria’s former Finance Minister, Plamen Oresharski, and the Central Bank Governor Ivan Iskrov had a secret deal for depositing about 14% of the fiscal reserve into commercial banks.

This was announced Friday by Bulgaria’s Finance Minister, Simeon Djankov, after his predecessor Oresharski slammed the 2010 draft budget, and asked what was going to happen with Djankov’s idea to deposit part of the fiscal reserve in commercial banks over the expected interest revenue. This idea was put forth by Djankov in the recent weeks but was later rejected by PM Borisov and the GERB government.

“During the former government of the three-way coalition 14% of the fiscal reserve were deposited in 17 commercial banks. This is something that you did not tell the people,” Djankov declared addressing his predecessor.

In his words, his team at the Finance Ministry discovered a secret agreement between Oresharski and the acting Governor of the Bulgarian National Bank Ivan Ikrov which allowed the depositing of about BGN 1 B from the fiscal reserve into commercial banks at Oresharski and Iskrov’s discretion.

“During the government of the former three-way coalition, a large portion of the fiscal reserve was insecure. And not only was it insecure but those transactions were carried out secretly,” Djankov declared adding that his team was currently analyzing the reasons why the previous Minister and the Central Bank Governor made such a secret deal.

“We made this agreement in October 2008 when the banking systems all over the world received enormous public funds, and that included leading banks that had to be saved. We had a preemptive agreement to act in the same way in Bulgaria if that was necessary. Fortunately, we avoided those dangerous trends – with one small exception. But I would not make public things that would endanger the financial stability of the country,” Oresharski replied to his successor’s announcements.

Finance Minister Djankov claims, however, that Oresharski and Iskrov made their secret deal in May 2008, long before the financial crisis kicked in. At that point, the government’s deposit at the BNB was BGN 8,534 B, whereas the fiscal reserve amounted to BGN 9,763 B according to IMF data. 14% of that sum is BGN 1,36 B. The difference between the total reserve and the deposits in the Central Bank is generally the result of current financial transactions of the government.

The response of the Bulgarian National Bank READ HERE.

“The idea to deposit part of the fiscal reserve into commercial banks was generated by the need to raise more revenue for the state budget,” Djankov said regarding his recent idea.

“On September 30, 2009, Bulgaria’s fiscal reserve amounted to BGN 7,691 B. 86% of this sum is currently deposited at the BNB. 30% of that is in daily deposits, where the average interest is 0%. This interest rate varies because of the market, and in some weeks it is negative. In order words, the state budget is paying the BNB to guard 30% of the fiscal reserve. Another 63% are in weekly deposits at the BNB where the interest rate is 0,3%. In other words, Oresharski and the former government did not conduct proper revenue policies,” Djankov explained on Friday.