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