Bulgaria: Has the IMF got it right in Sofia?

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Bulgaria: Has the IMF got it right in Sofia?

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Bulgaria could turn out to be the latest test case both for the future of currency boards and the IMF's new approach to reform. With some analysts predicting the possible demise of the Bulgarian currency board in 2001, advocates of both approaches must be sweating a little.

Bulgaria's problem is that of all other transitional economies: how to transform state-owned industrial behemoths into something sleek and modern while steering through the minefield of different interest groups. The verdict on Bulgaria's progress until the start of this year was pretty abysmal.

The currency board introduced in 1997 - and which has created "the lowest level of inflation in the world", to quote an IMF representative, out of the ruins of hyperinflation - has been the bright spot in an otherwise gloomy picture. It brought stability to a country which came close to being the first ever to default on Bradies and whose banking system had collapsed.

But the danger of the currency board is of being lulled into a false sense of security.


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