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Sophia Kassidova



In summation, the simultaneous fulfillment of DESs and privatization will result in encouraging equity investment while reducing external debt obligations. Given these advantages DES schemes deliver promotion of inefficient SOEs' privatization.The extent to which these transactions would actually occur depends primarily on the attractiveness of the debtor country's investment climate, the availability and the quality of the assets offered for swap. Certainly, the pool of attractive investment assets is very much an issue of political considerations. By the same token, the Government ambitious about privatization should not exclude one unconventional but successful way of fulfilling privatization objectives simultaneously with external debt-burden reduction. When deciding on implementing DESs scheme the Government is concerned about solving the overall debt problem. In this way appraising the costs and benefits associated with DESs have to be in terms of this overall effect. For Bulgaria the conversion of the external debt at a discount and the positive medium-term effect on the balance of payments that the reduced interest payments will bring about make DESs appropriate.

Other countries experience with DESs suggests that some general rules to be followed would positively affect the transactions: auctioning the transaction quotas and than reallocating the revenues will reduce the cost incurred by the Bulgarian society from the debt overhang; requirement for contribution of given amount of liquid funds by each investor when swapping the debt notes; transaction should focus on investment providing external growth through production of tradable goods; an overall selective FDI policy should be aligned with DESs schemes so that providing effective access to new technologies, export markets and increased opportunity set of Bulgaria.

Transparent government policy for the conversion programme and introduction of some non-fiscal incentives could provide for attracting investors and offsetting for the political and economic constraints. A serious DESs program should be definite about the extent to which such schemes can be appropriately implemented into existing national privatization programme.

At present, there are some policy concerns for the possibility of Bulgaria to service its debt over the coming years. The historical record from indebted countries policy adjustment profess for a successful strategy of debt service coupled with economic growth. In general, DES schemes give an opportunity for large-scale investment in major new export sectors. This effect can be boost by the existence of excess capacity in the economy. The good production base, unutilized resources and skillful Bulgarian labour force work in the same direction. The inflow of foreign investment and management know-how will revive the economy, make the labour force internationally competitive.

There is no doubt that the debt conversion programme will be a political success for the government. DESs will bring powerful foreign investors which will confidence an economic environment of success. These schemes will facilitate speedy privatization to which the government has given top priority. The positive effects of debt-equity conversion are also in the increased knowledge of foreign investors of the Bulgarian economy and the bargaining experience with creditors.


1. EIU Country Report, 1 st quarter 1994

2. Anroine Basile, The Role of Debt-Equity Conversions in Privatization and Deregulation Processes, Coliogue de I'A.I.D.E., Budapest, 14-15 may 1992

3. Bank Review, Bulgarian National Bank, January 1994, pp.30-33

4. Daniela Bobeva and Alexander Bozkov, "Privatization and Foreign Investment in Bulgaria, Bank of Austria", 1993

5. Gunter Franke, "Economic Analysis of Debt-Equity Swaps", Studies in International Economics and Institutions, Springer, 1989, pp.213-33

6. K. Dezseri and J. Marcelle, "Debt-equity Swaps: Solution to a crisis?", Economie appliquee, 41(4), 1988, pp. 821-855

7. L. Golberg and M. Spiegel, "Debt Write-Downs and Debt-Equity Swaps in a Two-Sector Model", Journal of International Economics, November 1992, pp.267-83

8. L. Laney, "The Evolving Market forThird World Debt", Economic Impact, Vol.5 (1987) 9. R. Dornbusch, "Our LDCs Debts", NBER Working Paper, No.2138, January 1987

10. Ricardo Ffrench-Davis, "Debt-Equity Swaps in Chile", Cambridge Journal of Economics, 14(1), March 1990, pp.109-26

11. Steve Hanke, "The Anatomy of A Successful Debt Swap", Privatization and Development, San Francisco, ICEG, 1987, pp.161-68

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