Bulgarian President Snubs Finance Minister's Fiscal Board

Finance | June 8, 2011, Wednesday // 18:27|  views

Parvanov (back) and Djankov (front) during their meeting on the Financial Stability Pact Thursday. Photo by BGNES

Bulgaria's President Georgi Parvanov has declared principled differences with Finance Minister Simeon Djankov over the latter's "Financial Stability Pact", an initiative to amend the Constitution.

After meeting with Djankov and his team together with experts from the Bulgarian Socialist Party (whose leader Parvanov was before he became President in 2002), including ex Finance Minister Plamen Oresharski, the President said in a statement that he shared the belief in the need of a consistent and sustainable finance policy.

He pointed out that in his view the reason the Borisov Cabinet has come up with the Financial Stability pact are certain recommendations of the European Commission including in the "Euro-Plus-Pact", a grouping of euro zone states and hopefuls designed to coordinate fiscal policies.

Parvanov, however, said that the quest for fiscal stability should not be a goal in itself but should be a means for raising the standard of living of the Bulgarias.

He is firmly against the idea of setting up a special voting mechanism, requiring a two-thirds majority under the proposed Constitutional amendments, in order to raise the budget deficit, while other key Parliament decisions will be made with a simple majority such as forming a government and no confidence votes.

"It is not right to set a cap on budget deficit below the EU requirements (2% in Djankov's document) given the fact that nobody can forecast if the changing macroeconomic reality or extreme circumstance's won't lead to the violation of this cap," the President said in his statement.

He further snubbed Djankov ideas for restrictions on the increase of taxes by saying that they would have made sense if they applied to all taxes but not just the corporate and income taxes, currently the lowest in the EU with 10% flat rates.

"This creates the impression that with this change a policy option is taken away from the future governments, and a silent decision is imposed on an incomplete debate about the progressive taxation," Parvanov believes apparently hinting that he is against the flat taxes.

He also slammed the Financial Stability Boards provision to limit the public sector within 40% of the GDP "keeping in mind the low social and economic starting base of Bulgaria."

At the same time, Parvanov proposes amending the State Budget Structure Act in order to set a minimum limit for the fiscal reserve.

He said the international experience is not sufficient to justify the introduction of a fiscal board the way Djankov proposes it, and put forth his idea to hold a sitting of the Consultative National Security Council, a body of key government figures and opposition party leaders, on the challenges for Bulgaria's financial, economic, and social stability.

Earlier on Wednesday, after meeting Parvanov, Djankov announced that the parliamentary vote on the proposed changes to the Bulgarian Constitution to adopt a Financial Stability Pact is likely to put off till after the presidential and local elections in the fall of 2011. 

Upon submitting the draft constitutional amendment for discussion by parliamentary parties in late May 2011, Finance Minister Djankov said he hoped the Pact could be adopted by the fall of 2011.

The three main pillars of Djankov's Financial Stability Pact to be solidified via constitutional amendments are introducing a limit to allowed budget deficit, restricting the ability of the state to redistribute public funds as a percentage of the GDP, and introducing a qualified majority vote of two-thirds of the votes in Parliament to change Bulgaria's direct taxes.

The plan envisages capping the budget deficit at 2% of GDP product and spending at 40% of GDP.

Djankov's Financial Stability Pact is expected to enter into force as of January 1, 2013, several months before the expiration of the four-year term of the Borisov Cabinet and before the regular parliamentary elections provided that the government serves its full term. This means that the Pact, if approved, will be in force for those ruling Bulgaria after the present Cabinet of Boyko Borisov.

Djankov believes that the proposed measures will "cement" Bulgaria as having one of the strictest fiscal policies in the European Union, and will be supported by both the rightist and the center-leftist opposition.

In order to amend the Bulgarian Constitution, the Borisov government will need to have three-fourths of the MPs, or 180 MPs, to vote in favor of the motion in three different votes.

Ruling party GERB has 117 MPs, and can rely on the support of 17 MPs plus four renegades from the nationalist party Ataka, supposedly 14 MPs from the rightist Blue Coalition (most likely only the 9 MPs from the Union of Democratic Forces (UDF), as the Democrats for Strong Bulgaria part, the other partner in the Blue Coalition, said it is against), and several independents, formerly from the conservative party RZS ("Order, Law, Justice").

The ethnic Turkish party DPS has send mixed signals, first saying it would back the Pact, then declaring it was pessimistic about it.

If the Bulgarian Socialist Party (BSP) and the ethnic Turkish party DPS (Movement for Rights and Freedoms) join forces, with a total of 77 MPs, they could deny Djankov the three-fourth majority that he needs to pass the amendment.

However, even in this scenario, the amendment stands a fair chance of being passed because if the initiative failed to get a three-fourth majority but still musters more than two-thirds of the votes (160 out of 180), it can then be adopted if it gets two-thirds of the MP votes in a next voting that is required to take place no earlier than 2 months and no later than 5 months after the first vote.

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