Bulgaria parliament rejects plans to raise debt, deficit

Mon Aug 4, 2014 10:08am EDT

Related Topics

* Parliament's decision complicates banking crisis

* Interim government takes over on Wed, can't raise new debt

* Poorest EU member state holds parliamentary poll on Oct 5

By Tsvetelia Tsolova

SOFIA, Aug 4 (Reuters) - Bulgaria's outgoing parliament refused on Monday to authorise the interim government to raise new debt and increase public spending, restricting its ability to tackle the Balkan country's worst banking crisis since the 1990s.

President Rosen Plevneliev, who last week told lawmakers that failure to allow an increase in debt and the deficit would harm the European Union's poorest economy, is due to appoint an interim government of technocrats on Wednesday that will steer Bulgaria until a parliamentary election on Oct. 5.

The parliament will also be dissolved on Wednesday.

Raising new debt would have helped the government deal with Corporate Commercial Bank (Corpbank), which was hit by a run on deposits in June. The central bank has seized control of the lender and has frozen its operations, pending an audit.

However, the political parties failed to reach agreement on the plans to raise the fiscal deficit to 2.7 percent of national output and to allow the raising of up to 3.4 billion levs ($2.33 billion) in new debt this year.

On Monday, its last scheduled session before dissolution, the parliament voted not to discuss the proposed changes, effectively rejecting the president's appeal.

"The parliament's failure to approve the changes effectively delays a solution for Corpbank for at least two and a half months, until a new parliament is in place, " said Petar Ganev, an economist with Sofia-based Institute for Market Economics.

POLITICAL DIVISIONS

The centre-right GERB party, which is tipped to win the October 5 poll, had initially supported the plans to increase debt but later backtracked, fearing a loss of voter support if it sided with a rival party, the junior partner in the outgoing coalition, which had backed the debt and deficit proposals.

The main party in the outgoing government, the Socialists, had opposed the proposals.

The central bank has said it plans to keep Corpbank, Bulgaria's fourth largest lender, shut beyond September 21 as lawmakers rejected its initial plans for a state rescue.

The central bank has ordered a full independent audit to help it decide whether the lender can be stabilised or should be declared insolvent.

Last week, President Plevneliev said failure to allow the incoming government scope to raise debt and increase the deficit would mean it could only cut spending "instead of stabilising the country".

The banking crisis has put renewed scrutiny on the investment climate in Bulgaria. Standard & Poor's rating agency downgraded Bulgaria's credit rating in June and the country has struggled to revive economic growth and foreign investment. ($1 = 1.4568 Bulgarian Levs) (Editing by Gareth Jones)

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