Home | Databases | WorldLII | Search | Feedback Edited Legal Collections Data

Nenova, Mariella --- "Exchange rate and monetary policies in Bulgaria since 1990" [2005] ELECD 387; in Liebscher, Klaus; Christl, Josef; Mooslechner, Peter; Ritzberger-Grünwald, Doris (eds), "European Economic Integration and South-East Europe" (Edward Elgar Publishing, 2005)

Book Title: European Economic Integration and South-East Europe

Editor(s): Liebscher, Klaus; Christl, Josef; Mooslechner, Peter; Ritzberger-Grünwald, Doris

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781845425173

Section: Chapter 12

Section Title: Exchange rate and monetary policies in Bulgaria since 1990

Author(s): Nenova, Mariella

Number of pages: 23

Extract:

12. Exchange rate and monetary
policies in Bulgaria since 1990
Mariella Nenova

In its recent economic history Bulgaria has applied two approaches to
macroeconomic stabilization that involved completely different exchange
rate and monetary policies: first a floating exchange rate (from 1991 to July
1997) and then a fixed exchange rate under a currency board arrangement
(CBA), (since July 1997). Correspondingly, the period up to 1997 was char-
acterized by a quite active monetary policy and the use of a wide range of
monetary policy instruments: a basic interest rate, minimum reserve
requirements, refinancing facilities, open market operations and last resort
lending. Since July 1997 money supply has reflected the strict rule that the
national currency can be issued only in exchange for foreign currency at the
given statutory exchange rate.
Both approaches were introduced via macroeconomic stabilization
programmes, supported by the IMF. The design of both programmes took
into account the stance of the economy and existing constraints. The eco-
nomic conditions amid which each stabilization package was launched
were in fact pretty similar ­ a huge drop in output, depletion of foreign
reserves, accumulation of inflationary pressures and demands for exchange
rate depreciation, and heating up social unrest (see Appendix Table 12.1A).
Initially, the two programmes also shared common constraints ­ a high
government debt burden, significant share of non-performing loans in
banks' portfolios, predominance of the state sector operating under soft
budget constraints, an unsustainable fiscal position, and no access to inter-
national financial markets.
However similar the ...