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The Crisis in Bulgaria

The Crisis in Bulgaria. Is there one or not?. ?. GDP/Capita. In General. Bulgarians, being citizens of the poorest country in the EU, have not had the cash to indulge in a big spending spree. The banks in BG are, in general, rather small and limited in their capacity to lend.

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The Crisis in Bulgaria

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  1. The Crisis in Bulgaria Is there one or not? ?

  2. GDP/Capita In General • Bulgarians, being citizens of the poorest country in the EU, have not had the cash to indulge in a big spending spree. • The banks in BG are, in general, rather small and limited in their capacity to lend. • The country still lacks a typical western “Middle Class.” • However, there are bad signs.

  3. Housing “The falling prices caused alarm amongst the market speculators, loan borrowers and property developers who are desperate to offload properties as quick as possible and turn them into cash before any further slump in their value comes about, insisted Vladimir Lafchiev, manager of property agency Viel.” • There is a large problem lurking here which will lead to collapse. • The price of housing (m2 price) has risen out of control, especially in Sofia. • Isn’t this strange in such a poor country from which two million people have emigrated? • There is hugeovercapcity (empty units).

  4. Curious Factors • Many Bulgarians hold onto second, or third, apartments because of their rising capital value. • This is exactly what happened in the west. • But people are reluctant to part with these “assets.” • At one time, they thought a gold mine would come with EU membership. Wrong. Fool’s Gold

  5. Overcapacity • Some estimates place the overcapacity at 30% waiting, out there, to crash onto the market. • This will cause prices to collapse and rentals too. • Rentals have stayed high because many people could not afford to buy, so they became renters. Please

  6. What else? Stop Work! • There will be a sudden and almost total stop in building—so that thousands will lose their jobs. • Many developers and builders will go bankrupt, and there may well be some very big, bad loans. • There is a lot of criminal money being laundered here, which is complicated.

  7. Collateral Damage • The world’s largest real-estate company has said: “Around 3000, of a total 5000 existing Bulgarian realty agencies are to go bankrupt due to the effect of the Global Financial Crisis.” • 7000 realtors will lose their jobs. • Real estate market has declined by 12.5% with a long way to go. Welcome Realtors!

  8. Signs of the Times. Feb 09 • “Svilacel” Cellulose company stopping production • Bulgarian steel output: 2007=2m tons; 2008=1,329 m tons. Exports declined 50% • Bulgarian Finance Minister says Bulgaria will grow 2%, IMF says it will fall at least -0.4%.

  9. Investment Dries Up • IMF says net private capital flows to emerging Eastern Europe will fall from $393bn (2007); $254bn (2008) will be in the region of $30bn. How can a recession be avoided. • Meantime, Bulgaria runs a huge current-account deficit (buying more than it is selling) Foreign direct investment (FDI) in Bulgaria decreased by 1.17 billion euros (1.50 billion U.S. dollars) in the first eight months of 2008 compared to the same period in 2007, local press reported Thursday.

  10. The Tourists Financial Crisis Shatters Bulgaria's Wine Exports to Russia 9 February 2009, Monday Official property prices figures for Bulgaria are showing declining prices across the country with just the Bourgas region showing any increase. The data shows that average prices have fallen by 4.1 percent VelikoTurnovo registering the steepest decline with a drop of 11.7 percent, Varna a significantly smaller drop of 1.3 percent and the capital city, Sofia, seeing a fall of 0.5 percent. • A major source of income and foreign exchange. • But a large proportion of them are from the UK, where the recession is worst. Will they have money to take a vacation? • Others may deflect from more expensive places to BG, which is a cheaper location. • Foreign property-buyers will disappear completely.

  11. Will the Russians Save BG? Ruble/$ exchange • The Russian economy is in a worse mess than anybody’s. • It is unsophisticated and depends on the export of raw materials (a colonial economy). • Large dependence on oil exports, and price has dropped by ¾ since the summer. Ruble is sinking fast.

  12. The Lev This is what The 20 lev Note should Look like after Devaluation! • Though BG is not in the Euro Zone, its currency is tied to the Euro, through the now dead DM! (1.95583 per Euro). • The currency does not “float” against other currencies, but is locked into the EU. • Other countries have let their currency fall: Kazakhstan -22%; the ruble by 35%; Ukraine by 40%.

  13. The Lev • Pegging to the Euro cost 16% of BGs reserves last year. • The Lev remains high, despite the state of the economy, which makes exports expensive. • However, the Euro has slipped. • But, an overvalued currency will deepen the crisis in all respects.

  14. Currency Board • But decisions about the currency are not entirely under Bulgarian control because it has an IMF-instituted Currency Board. • Can this last? Same situation in the Baltic States, which have the same problem. • The Lev could go the same way as the £, which has lost 25% of its value since the summer.

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