Bulgarian Economist Condemns Silver Fund Draft Law
Yordan Tsonev, an economist and Deputy Chair of the ethnic Turkish Movement for Rights and Freedoms (DPS) party, has termed the proposal of Finance Minister Simeon Djankov concerning the Silver Fund as a blow against the stability of the Bulgarian lev.
The legal amendments initiated by Djankov providing for an option to invest the assets of the state fund for guaranteeing the stability of the state pension system in domestic assets was approved on April 11 at a regular Cabinet session.
"The Silver Fund is part of the international reserves of the country and its conversion into government securities will destabilize these international reserves of the Bulgarian National Bank (BNB)," Tsonev commented in a Thursday interview for the Bulgarian National Television (BNT).
He reminded about the1996/1997 crisis in Bulgaria and cautioned that the slightest suspicions about a threat to the financial stability of the country were reason enough to prevent experiments in the sphere.
Finance Minister and Deputy Prime Minister Simeon Djankov intends to increase the profitability of the Silver Fund by investing its assets in government bonds.
In his Thursday statement, Tsonev described the step as a "total absurdity", adding that "if the Finance Minister, who also heads the Silver Fund, issues government bonds and at the same time buys them, this does not constitute a market."
"I believe that our priority is on the stability of this fund, rather than its profitability. After all, the profitability of the fund might increase throughout the year but its stability may drop several-fold," the economist observed.
Mentioning Wednesday's critical statement of the European Central Bank (ECB) about the initiative, Tsonev stressed that Djankov was the sole proponent of the legal amendments, given that a number of experts, politicians, non-governmental organizations, the Bulgarian National Bank (BNB) and ECB were against.
"I feel puzzled by the fact that we once again need an outsider to remind us what is right," the DPS MP added.
On Wednesday, the European Central Bank issued an official statement, strongly advising Bulgaria against investing the assets of the state fund for guaranteeing the stability of the state pension system in domestic assets.
"The ECB notes that the draft law does not require an investment grade credit rating to apply to securities issued by the Bulgarian government, whereas the other debt securities do require such a rating.This leads to unequal treatment of the different investment instruments, which could create competition and market distortions," the ECB wrote.
"It puts the government in a privileged position compared to other issuers. Furthermore, under the draft law, securities issued by the Bulgarian government can only be acquired in the primary market. To the extent that the draft law provides that the Fund may acquire debt securities issued by other Member States and third countries only if they have an investment grade credit rating awarded by a credit rating agency registered or certified in accordance with Regulation (EC) No 1060/200912, while investments in debt securities issued by Bulgaria are not subjected to such requirement, an issue of indirect discrimination arises that may lead to unjustified restrictions on the free movement of capital contrary to Article 63 of the Treaty," the ECB argued.
Djankov, however, sought to defend the legal changes in a letter sent to ECB President Mario Draghi later on Wednesday.
"The investments of the fund's resources into Bulgarian government securities will be made in stages if this opportunity should be availed of," the Finance Minister reasoned.
The Silver Fund will not be allowed to invest more than 30% of its assets in Bulgarian government bonds in 2012, with the percentage to grow by 10% each year until it reaches 70% in 2017, according to the letter.
Bulgaria's central bank BNB has also vehemently criticized the draft law, saying that it puts at risk the already accumulated funds, as well as the country's financial stability.
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