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.
BIBLIOGRAPHY
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
| 
