Айде да ви е хайрлия, щом пак маат теми, те тука че си пускаме новинките.Белким за те това се намери некой да го преведе, че нищо не разбрах, нещо за ЕРМ 2 и девалвация на лева пишело май.
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www.allbusiness.com]
ERM-2 Accession Planned, Devaluation Still Likely
Publication: Business Monitor Online
Date: Monday, December 21 2009
BMI View:The apparent eagerness of the Bulgarian government to push forward with ERM-2 accession (and eventual euro adoption by 2013) have certainly altered the outlook for the lev over the medium term. However, we still expect to see some form of nominal currency adjustment
going forward, though note that this could occur within ERM-2 under the accepted limits for currency deviation.
In line with the government's broader anti-crisis strategy, Finance Minister Simeon Djankov has indicated that Bulgaria will apply to join ERM-2 as early as March 2010, with a view to securing eurozone membership in 2013. On the back of the international financial crisis and global economic downturn, most of the remaining non-euro EU members in CEE have been keen to accelerate accession to the bloc, which is widely seen as an anchor to stabilise financial markets and the broader economy for smaller aspirant states. Bulgaria is no exception in this regard, with the sharp domestic recession and overhang of largely euro-denominated external debt, prompting the government to speed up its own progress on accession and avoid having to devalue the lev. Also, we note that in Bulgaria's case, the new government will be keen to push for the most far-reaching and substantial structural reforms (including ERM-2 membership) during its first year in office (having been elected in July 2009), since the severity of the recession and rise in unemployment will likely weaken its mandate beyond then.
While current eurozone members may be less keen to admit Bulgaria amid the ongoing economic crisis, we note that the bloc will have little choice given that the following Maastricht Criteria (alongside membership to ERM-2 for two consecutive years) are likely to be satisfied:
Inflation No Higher Than 1.5pp Above The Three Lowest Inflation Member States.
Fiscal Deficit Must Not Exceed 3% Of GDP.
Government Debt Must Not Exceed 60% Of GDP.
Nominal Long-Term Interest Rate No Higher Than 2pp Above The Three Lowest Inflation States.
Based on our projections for 2010, we estimate the inflation threshold specified by the Maastricht criteria to be 0.8%. Consumer price inflation in Bulgaria is currently running at 0.9% y-o-y in November and is set to grind lower on the back of the government's internal devaluation strategy.
The fiscal criteria, meanwhile, has long been satisfied given that Bulgaria's currency board arrangement has resulted in one of the tightest fiscal policies in the EU. Indeed, even though we forecast a 1.1% of GDP fiscal deficit in 2010, this is still at the bottom of the EU league table (see chart below) as a result of the strong surpluses recorded in previous years.
The government debt criterion is also comfortably satisfied, with total government debt at around 15% of GDP, far below the 60% threshold. To be sure, though Bulgaria is heavily indebted (external debt exceeds 100% of GDP), it is the private sector that is by far and away the largest debtor, having made use of abundantly cheap credit during the boom years.
Finally, the last requirement for long-term interest rates should also be met. Indeed, though 10-year Bulgarian government bond yields trade around 350bps outside Bunds (the eurozone benchmark), the threshold interest rates specified by the Maastricht Criteria are derived from the three lowest inflation member states, which we project will be Latvia, Estonia and Ireland in 2010. However, these three economies are also among the most precarious in the EU, with the average long-term interest rate (determined by government bond yields) likely to be higher than in Bulgaria.
To be sure, though Irish 10-year bonds currently trade at 4.76%, 188bps inside the Bulgarian counterpart (yielding 6.64%), the Latvian equivalent currently yields 14.5%, which combined with similarly high rates in Estonia (computed from other domestic interest rates since there are no outstanding kroon government debt), will likely result in a higher average interest rate, eliminating the final stumbling block for Bulgaria.
Tough Decisions
As a result of the aforementioned factors, it is likely that Bulgaria will have satisfied the criteria upon applying for ERM-2 membership at some point in H110. However, even should the government succeed in joining the exchange rate mechanism, the question of whether or not to devalue remains. We have long held the view that the lev would need to be devalued against the euro in order to restore competitiveness and anchor the economy onto a healthy and more sustainable growth path over the longer term. We have also stressed that absent a substantial reduction in private sector external debt (which so far has failed to materialise), this would need to be accompanied with EU/IMF-mediated debt restructuring and debt forgiveness.
By joining ERM-2, the government would have further ammunition to support its decision for not devaluing the lev, and would likely cite the potential impact of a nominal exchange rate adjustment on inflation (as well as the private sector debt burden), which in turn would derail its euro ambitions. Should the government join the exchange rate mechanism and hold to its internal devaluation strategy, we caution that this would entail an additional two years of painful deflationist strategies before euro adoption, which would come at the expense of deteriorating popular support and elevated risks to political stability. Ultimately, this in itself could culminate in a forced devaluation should the political pressures become to great to bare.
There is also no guarantee that domestic prices will adjust far enough on the downside over the two years to bring down the real effective exchange rate inline with Bulgaria's key trading partners. Indeed, prices would likely need to fall by 15-20% in order for exporters to compete effectively alongside their Romanian counterparts, which have benefited from a sharp leu depreciation in H208 and early 2009. As such, there is a risk that should Bulgaria go ahead with adopting the euro, the country could be locked in at a higher rate than is appropriate for the economy, leaving domestic firms uncompetitive and hampering longer-term growth prospects.
An alternative option, and most likely should Bulgaria join ERM-2, would be to allow the lev to weaken up to the 15% permitted around the central rate. This would go some way to bolster Bulgaria's competitiveness, though would still likely require help from the IMF and EU to counter the increase in private sector defaults. A key concern, however, is that weakening the lev inside ERM-2 could prove destabilising for the economy, which in turn could see eurozone states delaying Bulgaria's eventual adoption of the euro. Indeed, the Maastricht Criteria specifies "participation in ERM-2 for at least two years, without severe tensions ", the latter caveat potentially being used to prevent outright euro adoption by Bulgaria's self-imposed timetable.
Another alternative would be to devalue the lev before joining ERM-2. By devaluing just before entering the exchange rate system, there would be a two-year period within which inflation could normalise following the likely increase in prices in the immediate aftermath of a devaluation. This would support the government's euro adoption plans, while also reining in the real effective exchange rate.
Devaluation Still Our Core Scenario, For Now
Though the government's euro ambitions could certainly alter the outlook for the lev going forward, we nonetheless believe that it is too early to take out our nominal devaluation forecast from our core scenario. Should the government decide not to join ERM-2 at the proposed date, or should a major obstacle to accession emerge in 2010, we would stress that little has fundamentally changed which would throw out our devaluation projection. If, on the other hand, Bulgaria joins ERM-2, we would still expect to see some form of nominal currency adjustment within the accepted limits. There is, however, a significant risk that the government avoids nominal devaluation altogether, in which case we warn that the longer-term economic outlook would take a significant hit.
Вечно ЖЪДЕН!Ебем ти ебане пред пиене!
