Economist: financial crisis brewed by U.S. market fundamentalism 2009-03-12 18:51:01   Print

Special Report: Global Financial Crisis

    SOFIA, March 11 (Xinhua) -- The wide spreading financial crisis has the hallmark of being "made in U.S.A." with its origin and the disaster center all in the United States, said a leading Bulgarian economist in a recent interview with Xinhua.

    Ivan Angelov, member of the Bulgarian Academy of Sciences, strongly criticized what he called "U.S. market fundamentalism," which he believes triggered the global crisis.

    He expressed his strong belief in government intervention which should be made in time, rather than lagging behind until the disaster grows bigger.

    A market-oriented economy should be within the control of the government, the free-market economy preached by the fundamentalists will not work, he said.

    The Bulgarian economist blasted the U.S. bailout plan, saying salvaging the banks is actually footing the bills of the rich by using the money of the struggling tax-payers.

    He said it is a big irony that the Wall Street top executives, who used to enjoy bonuses of tens of millions of dollars, could still get a half-million-U.S. dollar compensation, higher than the annual salary of the U.S. president.

    He noted that the financial crisis spread quickly from the United States to Western Europe within half six months and was transmitted to Eastern Europe several months later.

    This year will be difficult because massive loans, estimated at400 billion dollars, granted by Western European banks to East European countries, will be due, Angelov said.

    These loans will prove to be too much a burden for East European countries that are already deep in economic troubles, he said.

    The countries deep in debt are those who depend heavily on a currency board, the practice of a small country to peg its currency to a strong, stable one, just like what Estonia, Latvia and Bulgaria are doing.

    By September 2008, Estonia's foreign debt accounts for 131 percent of its GDP, Latvia 116 percent, Bulgaria 109 percent.

    Another symptom of Eastern Europe's financial crisis is its high current account deficits, Angelov said.

    The current account deficits of Bulgaria, Estonia, Latvia and Lithuania -- whose currencies are all pegged against the euro -- are at 15-24 percent of GDP, levels that have historically been associated with currency crises.

    The worsening financial instability that is troubling the entire Eastern Europe will trigger massive foreign investments outflow, analysts forecast.

    In 2008, the capital flow from developed countries to Eastern Europe reached 254 billion dollars, while this year, the volume will expected to merely 30 billion dollars, Angelov said.

    There were already cases that some Western European banks pulled money out of their branches in East European countries, Angelov noted.

    He said the trend is alarming because West European banks are holding as much as 90 percent of the capital of Bulgarian banks, leaving the Bulgarian government little leverage to save the country's real economy.

    Even the banks have enough money, they are cautious about providing loans to Bulgarian enterprises given the unpredictable financial situation, Angelov said.

    Still, he said he was against selling most of Bulgaria's banks to foreign investors.

    Angelov underlined the necessity to restore confidence in Bulgaria's financial sector and encourage banks to keep money in Bulgaria and provide loans.

    He said the financial crisis has left enormous impacts on Bulgaria, citing a fall of 10 percent in the country's industrial production index in December, a 31-percent drop in mining industry, and a 60 percent decline in ferrous and metal production.

    "That is utterly horrendous for Bulgaria," he said, adding that the country's export-dependent metallurgical industry also suffered an annual shrink of 35 percent.

    Angelov said he believed that the shockwave of the financial crisis began to hit Bulgaria in late 2008 and the beginning of 2009, and will reach its peak from April to June, leading to sharp falls in exports and production, and then quickly spread to other sectors.

    Angelov said foreign investment badly needed by Bulgaria will plummet from last year's 5.4 billion euros (6.92 billion U.S. dollars) as foreign capital is fleeing Eastern Europe amid fear of financial instability in the entire region.

    He recommended the government to take timely and effective measures to deal specifically with the crisis.

    On Bulgaria's economic prospects, Angelov said the crisis will last through 2010 and recovery is expected to come in 2011.

    "Confidence is everything for the moment," he said.

Editor: Zhang Xiang
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