The clash between the Bulgarian government and the central bank over a draft law which would allow the government to invest pension funds in unrated Bulgarian bonds was stoked on April 18 by criticism of the legislation by the European Central Bank.
In an opinion requested by the Bulgarian government, the ECB said the law would discriminate against foreign debt securities, which would continue to require a credit rating. "This leads to unequal treatment of the different investment instruments, which could create competition and market distortions," the ECB said in a statement posted on its website.
Finance Minister Simeon Djankov responded in a letter stressing that any Bulgarian bond issues purchased by the fund would have interest rates based on market benchmarks, the dpa news agency reports.
However, the Bulgarian central bank sided with its colleagues in Frankfurt. "The ECB only gives its opinion in particular cases regarding draft legislation. The fact that it even published an opinion shows the ECB's concern," the BNB said in a statement.
The central bank clashed with the government on the issue last week, saying it "cannot support" proposed plans to invest up to 30% - some €276m - of pension funds in Bulgarian state securities starting this year, AFP reported.
The central bank said it is urging the government once again to "withdraw this draft law and submit it to an in-depth discussion between the institutions responsible for macroeconomic and financial stability."
The Bulgarian government wants to allow its Silver Fund, set up to anchor the public pension system, to also invest in bonds issued by national and local administrations. According to the ECB, the fact that Bulgarian securities would not require a rating could place the Bulgarian government in "a privileged position compared to other issuers." Such "indirect discrimination" could lead to "unjustified restrictions on the free movement of capital," thus violating European Union rules, it said.
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