Bulgaria's Ex-FinMin: We Did What We Could

What they could have done was to scrap the mindless fixed currency regime and devalue the Lev by, say, 20%. This would have made foreign imports more expensive, Bulgarian exports more attractive, Bulgaria a more attractive place for foreign investment, increased the standard of living for the poor. Thus GERB would not have imposed on Bulgaria the austerity and disadvantages of being in the Eurozone that are now damaging the economies of Greece, Spain, and Italy, etc. A quaint concept called "Monetary Policy". With a currency regime, Monetary Policy is best conducted by a compulsive 14 year old. Without one, you need some gonads, which Djankov lacks.

Unfortunately currency devaluation brings with it financial instability (remember 1996?) and high inflation - both of which are anathema to economic growth.

Which is like saying, since I once went on a binge, I'll never take another drink! If you are going to adjust the foreign exchange rate, you have to do it deliberately, responsibly, transparently and in a very measured way. This is called "responsible Monetary Policy". At minimum, you ought to adjust to account for the difference between foreign and domestic inflation.
The people of Greece, Spain, Italy, Portugal are suffering horribly because they cannot devalue their currencies (since, Eurozone members, they no longer have a national currency). But Bulgaria has no such excuse, and the people can legitimately blame their government for part of their poverty and unemployment.

Sofianits, much larger, stronger, more fiscally robust economies than Bulgaria have attempted to devalue in a ''deliberate, responsible, transparent and measured way'' with disastrous results - I'm intrigued to know what makes you think that the markets would see Bulgaria as anything other than another lamb to the slaughter?

Chuski, you are misinformed. Almost all of the countries in the world (except, perhaps, China, but including the Eurozone), have a flexible foreign exchange policy. In fact, no other country? (name one) except Bulgaria has a strangulating currency regime of the type repudiated by Argentina, to their benefit. So, what you have said is absolutely and totally false.
In considering these matters, it is better if you adopt the perspective of a person whose children are cold and hungry. Bulgaria's children are more cold and more hungry than they need to be or they would have been if the GERB government had pursued an effective Monetary Policy, which it did not dot.

Sofianits, my point and the question posed is not whether other countries in the world have flexible exchange rates or not, it is the impact to the economy of a country that IS already pegged to another currency which suddenly either devalues against the peg or floats altogether.

And I need to correct your claim that only Bulgaria is the only country to employ either a fixed exchange rate policy or has chosen to adopt a mainstream currency rather instead of the local currency - the list is quite long, and here are a few examples:

US$:

The Netherlands Antilles
Aruba
Jordan
Lebanon
Oman
Qatar
Saudi Arabia
United Arab Emirates
Barbados
Trinidad and Tobago
Antigua
Dominica
St. Kitts
St. Lucia
St. Vincent and the Grenadines
Grenada
Maldives
Belize
Venezuela
The Bahamas
Hong Kong

Euro:

Andorra
Monaco
San Marino
Akrotiri and Dhekelia
Kosovo
Montenegro
Bosnia and Herzegovina
Comoros
Denmark
Cape Verde
Latvia
Lithuania
Morrocco
São Tomé e Príncipe
Benin
Burkina Faso
Guinea-Bissau
Ivory Coast
Mali
Niger
Senegal
Togo
Cameroon
Central African Republic
Chad
Republic of the Congo
Equatorial Guinea
Gabon
French Polynesia
New Caledonia
Wallis and Futuna

The fact of the matter is that they (GERB) didn’t do absolutely anything. They just stayed like scrooges for all those years stagnating and crippling the Bulgarian economy.
Currency devaluations could have some arguable and controversial effect on the economy being overall insignificant to stimulate it.
What would have been way more effective is increased spending and borrowing by the government.
Bulgaria has a relatively low debt to GDP ratio and the government could have borrowed and spent more money on infrastructure and development in order to stimulate the economy and decrease unemployment. Money is a tool, an instrument which must be used in a balanced way and its liquidity and availability is crucial for growth and development. The lack of it and the austerity measures inevitably lead to stagnation and recession. The Americans for example even though being deeply in debt are constantly increasing their borrowing limit in order to stimulate their economy and keep it going. (still they have the largest and arguably best economy in the world!) Another major economic stimulus for the highly volatile Bulgarian economy would have been the utilization of all energy projects. The proper orientation towards increased trade with the emerging markets is another missed opportunity. Let us not forget that Bulgaria itself is an emerging marked and should have been having a healthy GDP growth for all those 20 years!
Here some links on debt to GDP ratios for the world. Bulgaria could have easily increased its debt rate to 50%, 60%.... and still be in a good fiscal position.
http://www.usdebtclock.org/world-debt-clock.html
http://www.tradingeconomics.com/bulgaria/government-debt-to-gdp
http://www.tradingeconomics.com/bulgaria/external-debt

Hong Kong and Lithuania have currency boards, as well as Bulgaria. That's all, unless you include certain British overseas agencies like the Falkland Islands. George Zheliazkov makes an excellent point. In addition to establishing a more flexible Monetary Policy to account for trade differences between Bulgaria and it's chief trading partners (Germany), the Government should also have pursued a more vigorous Fiscal Policy, more borrowings and public works. Greece and Spain are trapped in the Eurozone (they have no national currency). Both have unemployment over 20%.

Sofianits, you are clearly confused

First you demand Bulgaria must ''scrap the mindless fixed currency regime and devalue the Lev''.

Then you confusedly claim that ''Almost all of the countries in the world (except, perhaps, China, but including the Eurozone), have a flexible foreign exchange policy'' when this is clearly not the case as the numerous examples I gave prove.

Then you completely ignore my point which is not whether any other countries in the world have flexible exchange rates, it is the impact to the economy of a country that IS already pegged to another currency which suddenly either devalues against the peg or floats altogether.

Then you start naively rambling on about ''currency boards'' as if this makes Bulgaria hugely different to other countries which operate fixed exchange rates ignorant of the fact they operate in much the same way. The Fact is like it or not should Bulgaria float the Lev, then as sure as night follows day there will be a run on the currency, inflation will leap upwards, and interest rates on loans secured in international markets will rise to an unsustainable level. If you think this wont happen to Bulgaria then perhaps you can provide an explanation.

Oh me, oh my,

I never said that Bulgaria should have a floating exchange rate. I only said that the Lev should be devalued. the fact is, the lLev is overvalued seriously against the Deutschmark. A "fixed exchange rate" does not prevent correcting this. A Currency Board, which Bulgaria has, does. The Lev needs to be devalued. That is a fact that ought to be apparent to anyone, whether they favour "fixed" or "floating" exchange rates. My comment said nothing against fixed exchange rates, as long as the fixed rate can be adjusted by the country's monetary policy to align the rate with external circumstances associated with the country's trading partners. I nave nothing against fixed exchange rates. Probably best for Bulgaria. Devalue the Lev.

Poor Sofianitis, yet again exposed - your simplistic cries of ''devalue the lev, devalue the lev'' as if this is the panacea to Bulgaria's problems really do highlight your complete lack of understanding of the issue.

The famous study by Ghosh, Gulde, and Wolf using a data set containing all IMF member countries over more than twenty-five years, attempted to isolate the inherent effects of a currency board arrangement - Comparative statistics and more formal econometric analysis confirm that, historically, currency board arrangements have done better than even other fixed exchange rate regimes. For example, the presence of a currency board arrangement is found to lower annual inflation by about 3.5 percentage points — the result of a "confidence effect" that essentially arises from the faster growth of money demand made possible by the greater institutional certainty associated with a currency board. In contrast to fears often raised by opponents of currency boards, the study did not find that existing currency boards had any negative effects on growth.

Try and understand that devaluation WILL NOT MEAN growth for Bulgaria, but WILL mean an end to the days of economic credibility, low inflation, and lower interest rates.

But of course, Sofianitis knows better ;-)

Chushki,
Every fact that I have stated is true, and every opinion supported by logical facts. The unemployment in Bulgaria has reached 12.5% Given that every one unemployed affects three other people, half of the people in Bulgaria are affected by unemployment.
Perhaps you think that the people protesting down at Orlof Most are having a picnic or something. No. They are hurting, and their families are hurting.
Try to adopt the perspective of one whose children are cold and hungry.
This will give you a better understanding.
If the Lev had been devalued, as it should have been, by a Bulgarian government with some nuts and a monetary policy, this would not have happened. Unemployment would be significantly reduced.
As to days of "economic credibility", I haven't the faintest idea what you mean, or what benefit that could achieve. You want for Bulgaria to be "economically credible"? Maybe you mean "bend over and take it the way we in Germany want to give it to you, and then we will be credible". Submissiveness to the neo-liberal ideas of idiots, whose monetary policy theories have been proven, beyond a scintilla of doubt, totally false, is not a good policy for Bulgaria. And so I say good riddance to Djankov.

Sofianitis, you're stating opinion and hearsay, NOT facts. I am stating FACTS based on actual data reported in robust research papers founded on empirical data collected over many years. That is the difference. Carry on with the rag bag band of protestors with your conflicting and in most cases completely unworkable demands and seewhere it will get you.

CHUSKI - all that empirical research based upon historical experience is wrong. Perhaps you haven't noticed this as yet. It has only been evident for about 4 years. Try to feed your children all the empirical research.

Of course it is Sofianits - I often wonder why all these esteemed economists and scientists bother with all this research and modeling, as for a bottle of rakia you could provide the patented Sofianits economic solution to the worlds fiscal challenges.