site.btaEconomically Minded Governments Can Cope with All Fiscal, Prosperity Snags - Expert

"If governments from now on are guided by a beginner's course in economic though, say, 'What Everyone Should Know about the Economy and Prosperity,' all difficulties for public finance, the economy and people's well being can be overcome," according to Assoc. Prof. Dr Krassen Stanchev.

BTA interviewed him in connection with the 30th anniversary of the Institute for Market Economics (IME), of which he is the former executive director (from 1993 to 2006) and one of the founders.

Replying to a question, Stanchev says that people benefit from what should be done to meet the criteria for entry into the eurozone: it is good to have a balanced budget, low public debts, and low inflation and interest rates. "Until this happens, there is also a chance for the European Central Bank to tighten its policy and look like the currency board arrangement operation of the Bulgarian National Bank," the expert commented.

In his opinion, reducing the budget deficit is achievable: if salary rises in the public administration and the minimum wage are frozen, some BGN 400 million or a little more will be saved. Another BGN 500-600 million can come from closing the VAT loopholes, so the total adds up to a billion.

The State is unable to implement fully its capital investment programmes, which will naturally generate some BGN 4 billion in savings. In addition, staff can be cut back and expenditures can be streamlined without affecting municipal budgets, the expert observed.

He sees another option in extending concession contracts: renegotiating them will generate extra revenue because most of them, when signed, provided for rather modest income for the concession grantor. The only exception are the gold and minerals concessions, which are subject to excellent legislation. If the beach concession contracts are extended, the prices for beach use will decline, too, and more revenue will be generated in the long term, Stanchev said.

Asked about IME's greatest achievements, the associate professor singled out the Institute's contribution to the closure of the Ponzi schemes, which was IME's priority between 1993 and 1995. "It was then that Walter Starr and Ivanka Petkova drafted the bill on investment companies stock exchanges and I stood up for it," the expert recalled.

He also attaches great importance to the alternative budgets that the Institute has been publishing for 19 years. "They were instrumental in convincing Bulgarian public opinion, the International Monetary Fund and the parliamentary parties about the introduction of the flat tax, which is a very good instrument. The peculiar philosophy of the alternative budgets was to prove that a budget can always be balanced even with 10% income taxes, cutting unnecessary expenditures and streamlining rather than reducing social costs," the economist pointed out.

In his words, compared to 1993, when the Institute was established, Bulgaria's present situation is "simply rosy". Since 2000 alone, Bulgarians citizens' wealth has increased eleven-fold, according toe Global Wealth Reports of Credit Suisse Group AG.

"On the whole, it is very difficult to assess the choices that people make. Especially in politics, and not just in Bulgaria, there are lots of unpredictable things. What helps is a sound economic theory. Pure chance can always spring some surprising result. Otherwise, present-day economic developments are more easily predictable then before, despite Russia's war against Ukraine, which will be the most fundamental development with long-term effects since WW II," Stanchev said.

"A lot of stupid things have to build up in public circulation and public finances for a repeat of the worst in Bulgarian economic history: the period from April 1996 to March 1997," the economist told BTA. He was referring to a crisis with 16 bank failures, a fiscal collapse, 243% consumer price hyperinflation, dwindling foreign exchange reserves and a sharp decline in the value of the lev against the convertible currencies and in its purchasing power. A dramatic fall in real pensions and wages in the public-financed sector caused extreme hardship for large segments of the population during that period.