European Economic Integration and South-East Europe
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European Economic Integration and South-East Europe

Challenges and Prospects

Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald

With both transition dynamics and the EU integration process having shifted to the south-east of Europe, a region fairly marginalized in the literature, this book fills a gap by taking stock of where South-East Europe’s economies and institutions stood in 2004. The authors evaluate the potential for investment and growth within the South-East European region, including the role of trade and FDI, and discuss the challenges associated with unemployment, poverty and ‘brain drain’. The book also provides insights into the particular monetary and exchange rate policies applied, including cases of ‘euroization’, and finally makes an assessment, against this background, of the European perspective of the countries of South-East Europe.
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Chapter 12: Exchange rate and monetary policies in Bulgaria since 1990

Mariella Nenova


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 characterized 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 economic 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 international financial markets. However similar the starting conditions for the two programmes had been, the factors causing...

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