Sandy Gill in Sofia -
Though Prime Minister Boiko Borisov’s complicated coalition is still in place, the last few weeks have been a tad confusing in Bulgarian politics. And the reason’s been debt – or, more precisely, a contract with four international banks for debt management in the form of the placement of Global Medium Term Notes (GMTN) over the next three years, potentially to the tune of €8bn.
Now, the authorities — largely, in this case, Finance Minister Vladislav Goranov and the government-aligned parliamentary budget committee chair, Menda Stoyanova — have been keen to stress three things. First, relatively little of that €8bn is new debt: around €6bn is designed to replace existing debt falling due over the period, including roughly €3.5bn due for repayment before end-2015. Second, even the other €2bn (a maximum, not a definite sum) corresponds to money parliament already knows about and has acknowledged as necessary — namely the budget deficits envisaged for this and, in the forecasts routinely contained in the annual budgets, the next two years. And third, this is a fairly routine arrangement, with the use of international banks and flexible timing designed to allow Bulgaria to take advantage of world financial market conditions, and with year-by-year approval of the debt itself needed in the budgets for 2016 and 2017. For it’s budgets, not debt management contracts, that authorise debt.
All of which is pretty much true. But, for reasons partly of presentation and partly of misrepresentation, the whole business has given a lot of fun to the opposition and caused misgivings among Borisov’s allies.
A question of appearances
It was partly ineptitude. The government signed contracts with the four banks in question — Citigroup, HSBC, Societe Generale and UniCredit — on February 6. And the item was then slipped at very short notice onto the agenda of the next budget committee session, as a first step to the necessary parliamentary ratification of the agreement. That looked bad. So, maybe, did the latitude given by the contract: debts could be up to 30 years at up to 10%, an odd provision to laymen when the contract’s advocates were stressing favourable current conditions and the possibility of finance at as little as 3%.
Some, moreover, asked whether, given recent revelations about the facilitation of tax avoidance, HSBC was a very appropriate choice. Others noted the rather swift choice of the four banks — apparently in just a week — and questioned how rigorous the selection procedure could have been. And they pointed to the fact that these had been precisely the same four banks that had provided the government with bridge funding in autumn 2014, in an emergency connected with earlier political deadlock that had blocked budget updates and moves to deal with debts arising from a major bank collapse. Perhaps hidden condition of the earlier deal, some speculated?
Foes attack, friends question
Clashes in committee, public rhetoric and press debate followed, with the issue coming to a plenary session in parliament on February 19. The opposition — or some of it — had a field day. Debt’s a somewhat sensitive topic in Bulgaria. Many still remember the traumatic post-communist foreign debt crisis of the early 1990s. And, husbanded by some very restrained fiscal policies under the country’s currency board arrangement, a debt that’s been notably low relative to GDP this century has been something for Bulgarians to hold onto in convincing themselves that things aren’t as bad as they might be. At end 2012, for instance, public debt was just 16.2% of GDP, the second lowest in Europe. And if Bulgarians wanted negative examples, they had to look no further than debt-ridden Greece next door.
So the debt button has been a good one to push — often without bothering about tiresome details like refinancing. Volen Siderov, leader of the pro-Russian, extreme nationalist and, economically, rather leftist Ataka, saw his chance to combine themes: the loan of €13.5bn (don’t forget interest!) was really intended to help finance the war in Ukraine in which the West intended to embroil Bulgaria, selling the Balkan state some of its used military equipment in the process. “Welcome to Greece, welcome to the Eurozone,” protestors were told by Siderov, the Bulgarian politician most enthusiastic when Syriza came to power in Athens.
The Bulgarian Socialist Party (BSP), too, still smarting from its bad experience in the deservedly short-lived government of 2013-2014, perked up notably. The feisty Maya Manolova — who stood unsuccessfully for the party leadership last summer against the rather low-key Mihail Mikov — led the charge with some style, handing out joke banknotes with Finance Minister Goranov’s portrait and a denomination of BGN10,000 — the amount of debt with which, according to Manolova, the finance minister was proposing to burden every Bulgarian citizen. Socialists as well as Ataka supporters protested outside parliament, though they generally kept their distance and neither contingent was especially large.
But even some of Borisov’s allies had their doubts too. Not the (quite genuinely “reformist”) Reformist Bloc (RB), which saw the debt-management programme as good policy if somewhat ineptly introduced. But the nationalist Patriotic Front (PF) complained of lack of consultation, of prior information, and of clarity about what the debt was to be used for. The Alternative for Bulgarian Revival (ABV) — a left-of-centre formation loosely and uneasily counting itself part of a predominantly right-of-centre majority — also objected, on the grounds that there had been no mention of the prospect during long discussions in forming the government and that there were serious doubts about how the banks had been chosen.
Meanwhile, PM Borisov had raised the stakes. On February 18, the day before the due plenary session of parliament, he had made clear that the contract was vital to national finances and that he’d gladly leave the problem of how to pay due foreign debt to another government. That is, it was a resigning matter. With quite a few of the groups in the fragmented parliament far from sure of re-entry in the case of new elections, that was quite a serious threat — to the extent that it was a credible one.
Delay, fudge — and a solution
Both PF and ABV stuck to their guns at the plenary session of parliament considering the matter on February 19, with both refusing to back ratification. But, as a way of averting a possible crisis, the PF successfully proposed that voting should be postponed till the following week — which prompted one Socialist MP to ask whether the PF really needed a week to be bought.
In the end, it turned out that the PF didn’t need to be. The following week, Goranov came up with a cosmetically elegant — if substantially baffling — concession. Though the contract was to be voted through with the original figure in it, Finance Minister Goranov made a verbal promise that the debt that would in fact be raised would be BGN2bn (around €1bn) less. Quite how the requisite reductions were to be made in budget deficits hitherto argued by Goranov to be inevitable was not clear. And it will be interesting to see how that promise will figure in debates on the 2016 and 2017 budgets. But for the purpose of vote gathering, it served remarkably well as a pretext.
The debate that took place on February 25 was stormy and at one point had to be stopped because of the apparent imminence of fisticuffs between rival nationalists: Siderov, lately an enthusiast of “Eastern Orthodox” values, accused PF leader Valeri Simeonov of broadcasting “gay porn” on his hometown TV channel, while a colleague of Simeonov’s, adjusting the microphone after Siderov had spoken, made a disparaging reference to the Ataka leader’s height. But the voting outcome spoke of calculations and deals, not passion.
GERB and RB voted predictably for, and BSP and Ataka predictably against, the deal. But two opposition formations — the 13-member Bulgarian Democratic Centre (BDC) and the 36-strong Movement for Rights and Freedoms (DPS) — professing themselves convinced by Goranov’s concessions, dropped their prior reservations and voted in favour. So, in a last-minute decision, did ABV’s contingent — apparently defying a decision by the party’s executive. And the Patriotic Front? It abstained, not making very much difference to the vote: first and second reading votes for the bill ran to 161 and 159 respectively, around two-thirds of total parliamentary strength of 240. The BSP attempted to procure a presidential veto on procedural grounds and a parliamentary committee of enquiry into how the contract was arranged, but failed on both counts. Borisov had got his way.
In what shape that leaves Bulgarian politics and Borisov’s coalition remains to be seen — Bulgaria’s national day on March 3 and the four-day weekend associated with it have distracted attention from the country’s politics to its somewhat more appealing history for the moment. But, especially with local elections due this autumn, politicians must be giving their position some thought.
Not least in ABV. To put it mildly, that’s a complex formation. Its politicians were united in their decision in early 2014 to leave a BSP they saw as failing. But they’re a diverse bunch. Social-democratic and EU-oriented types rub shoulders with traditionalists and Russophiles.
The party’s prestige is to a large extent dependent on Georgi Parvanov, state president from 2002-2012 and widely perceived as successful at the job — and obsessed, for the last few years, with furthering Russian energy projects. He’s criticised the debt deal on various grounds — including questions about repayments due and ideas that some link with investment programmes ought to be established. And when it emerged that ABV’s MPs had gone against a party executive decision and voted for the deal, Parvanov announced that he felt honour bound to step down as leader. Whether he will do so remains to be seen: the relevant meeting is on March 6 and Parvanov has left wiggle room. He’s conceded that there may have been miscommunication. And he’s prepared to admit the sincerity of the arguments of ABV-aligned social minister Ivaylo Kalfin that the deal was needed to keep the business of government going — arguments that help sway ABV’s parliamentarians.
Rumen Petkov, another ABV heavyweight, has been more aggressive than Parvanov, calling on February 28 for Goranov’s resignation. The participation of ABV in the government has been rationalised by its role as a “social corrective”, ensuring that welfare concerns were not overlooked. How long that rationalisation will hold is an interesting question.
The PF hasn’t come out of the affair too well either. To a great extent competing for the same votes as Ataka — xenophobic, populist and impressed more by conspiracy theories than by calm arguments — the Patriots have come out looking lame. Abstention (which they claim they intended all along) is hardly charismatic, especially where voting turned out not to be close.
Justifying the move, Simeonov called for the government to “pay attention to publicly significant issues”, talked of “negative perceptions” arising from December’s pensions chicanery and, it seems, from suspension of certain train routes, skipping to fuel excise evasion and asking finally when those responsible for last year’s bank collapses and the state of the energy sector would be brought to book. Well, yes, but what about debt?
There’s a certain lack of focus in the PF’s approach — at least that of the National Front for the Salvation of Bulgaria (NFSB), the element headed by Simeonov. Interviewed by bne IntelliNews in February, political commentator Evgeni Dainov — professor at Sofia’s New Bulgarian University — observed: “The political intelligence of NFSB isn’t especially high. They’ve spent the last couple of years saying ‘screw the gypsies’ and they think they’ll become political megastars by continuing to say ‘screw the gypsies’ in parliament.” That’s still true.
As to the oppositionists who voted for Borisov, no one was especially surprised about the BDC. A flash-in-the-pan populist movement that sprang up last year under the idiosyncratic leadership of former talk-show host Nikolay Barekov, it peaked in May’s European Parliament elections and has been somewhat disoriented since the exit (though not in that order) of Barekov and the oligarchic backing that had helped him. BDC and its parliamentarians, dismissed by GERB during coalition talks, are obviously up for grabs, especially since some owe allegiance to controversial businessman Hristo Kovachki (not the oligarch Barekov had first thought of).
But DPS is, arguably, back in its element. This mainly ethnic Turkish (but increasingly also Roma-backed) movement, was a leading light of the last government — and is a potential ally that reformers, seeing it as a bastion of sleaze, want to keep at arms’ length from Borisov. It’s been an element in, or an influential though sometimes unobtrusive backer of, most governments in the post-communist period and this has been an important factor in maintaining credibility with its supporters. And it’s not been terribly comfortable with being out of government: for the first few months its activity appeared to consist of shrill statements about political purges and about how “un-European” it was for the DPS to be excluded and the PF to be centre stage. DPS leader Lyutfi Mestan was turning out a “prima donna”, said Dainov last month, while DPS was “just making dramatic declarations without clear political strategy.”
Maybe the Movement’s getting back into form now: keeping its reservations about the debt moderate, it was ready to swing behind Borisov. For what price, it remains to be seen.
And Borisov himself? Sitting pretty, it might be argued. He’s demonstrated that he can do without two of his coalition partners if necessary and that they’re reluctant to do without him. He’s got his budget financing secured for this year — or will have, once the banks work their magic in a road show commencing in March. He’s riding high on successful absorption of EU funds. And he’s so far preserved pretty good relations with his biggest coalition partner, the Reformist Block. But there’s hard work ahead, and hard decisions. Actually putting reforms in place will be tricky and the process will show who the real Boiko Borisov is — a genuine reformer or an inveterate cutter of deals.
And, meanwhile, there’s a sector where, by Borisov’s own account, really urgent action is needed: both the mouthy Borisov and his more prosaic bean-counter energy minister, Temenuzhka Petkova, have been talking about “collapse” of the electricity system barring remedies by mid-year.
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