Profеssor Garabed Minassian, Economic Research Institute at BAS: The increment in oil prices should not be associated with the price growth of foodstuffs

Lili Mircheva
lili_hris@abv.bg


- Professor Minassian, what will the consequences be for the Bulgarian economy as a result of the conflict in Libya?
- I think that we should not exaggerate things in respect of the impact of the war in Libya on our way of lives. Quite recently, we went through a stage of much more active intervention in military actions in Iraq, where the problem was much larger, but there existed much more serious financial and credit relations.
I mean that our receivables were evaluated at about $ 1.7 bn and in fact, our country managed to be reimbursed with barely $ 300 mln. As regards Libya, we do not have such a kind of relationship. Actually, this state is located closer to Bulgaria, but it is also not far from Europe. Besides, talking about a wave of Libyan refugees, they will prefer much more to take refuge in Western Europe rather than in Bulgaria. I think that we will manage to protect, however, our borders. Our commercial relations with Libya and the Arab world are rather symbolic, constituting 4%-5% of the entire trade turnover with all African countries. Thus, in this respect, we can hardly expect any deterioration.

- In fact, Libya owes a financial debt to Bulgaria.
- As for our receivables from Libya, several years ago they were estimated at $ 50-60 mln, while currently the GERB government gives no clear indications about the status of that debt. During the political conflict with our nurses who were kept innocent in a Lybian prison, in some way the issue of these receivables was overshadowed. For me, personally, it remains still unclear whether Libya will discharge more receivables to Bulgaria, or they are simply written off.

- How actually the conflict in Lybia will affect the oil prices?
- In fact, it is a bit naive to think that what happens in Libya, will affect the world oil prices. Tension in the price structures was observed even before hostilities had begun in the Arab countries. Maybe in some way, not so much economically, but due to fear and oversupply with products, we could be talking about some pressure on prices of liquid fuels on the side of the Libyan conflict. Although in Iraq, much more serious military actions were waged, the oil production remained uninterrupted and it has been a matter of life and death for those who are engaged in this business. In Libya, it is the same tense situation and if there are difficulties in the extraction of oil, they will not continue much longer, especially since there is no foreign military presence. Personally, my much sober look suggests to me that the impacts on the Bulgarian economy will not be so much substantial.

- The increase in oil prices also triggered mandatory the price hike of foodstuffs, and hence only a step to the accelerating inflation remains. Could the Government adopt any positive measure in this situation?
- The increase in fuel prices mandatory leads to a rise in the general price level, rather than to a cost hike of the foodstuffs specifically. The price of fuels affects the production of all types of products. In fact, we have very large reservations for the reduction of energy consumption. For example, from 1998 to 2008 Bulgaria's GDP increased by 80%, which was a very significant growth for 10 years, while the electricity consumption has remained nearly at the same level since 1998, of course registering mild fluctuations. This means that we dispose of considerable reserves. I do not agree that the increase in oil prices should be associated with the increase in food prices. In all cases, we must consider the international market situation. Bulgarian lev currency is pegged to the euro and thus the effects are merging into one another. It is important to know that there will be such type of shifts in the future, which speaking in a professional language are defined as changes in relative prices. Some products will become more expensive compared to others, some will have relatively greater deficiency, etc. No administrative intervention, however, is in a position to change the consequences.

- Do you think, it will be a timely move for the adoption of the Financial Stability Pact now by the Finance Minister, Djankov?
- This is something I disagree. I approve the introduction of stricter rules in macroeconomic management, but not of such a nature as proposed by the Finance Minister. I believe that the drawing out of the Pact was more gesture to the Blue Coalition. The GERB Government might affect the course of economic processes through the use of monetary instruments. But in the absence of the option for the BNB to conduct a monetary policy, the only possible measure is a prudent fiscal policy to be pursued.

- What does a prudent fiscal policy mean?
- If we open the thick books, we will understand that it refers to assessment of the effects of different impacts on the economy. The impacts are exerted via the redistribution instruments of the State. Why for example the Pact states that the share of the state redistribution may reach up to 37%? Let the percentage of expenditures for science, education, healthcare sector, for example, be fixed. And when talking about adoption of key elements of macroeconomic policy by the qualified majority, the best that can be proposed, is the state budget not to be passed by qualified majority of two thirds and 60% of MPs. Then, the manifestations of aggression on the part of the majority as well as the ostentatious neglecting of various proposals would have disappeared. There would have been much points to be complied with the opponent's opinion and more arguments to be delivered. I have many reservations, but overall I am definitely opposed to this type of proposal, such as the Financial Stability Pact.

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