Investement club brings former minister on campus

 

Milen Veltchev, a former Bulgarian finance minister, gave a lecture on financial bubbles and the current condition of the Bulgarian economy to over 100 AUBGers on March 9, in the New Academic Building Auditorium. The AUBG Investment Club organized the event.

"The presentation was focused on the gloomy economic situation in and out of Bulgaria. We should therefore still be wary, realistic, and conservative of what is coming ahead," said Dimitri Avramov, AUBG Investment club president.

"Mr. Veltchev is one of the finest professionals in his field. His career span is what kept our attention. Few have had the experience of being both on the private and sovereign side of finance and investment," Avramov added.

"We are in the middle of the second deepest financial crisis that the world has seen," Veltchev said at the beginning of the lecture. "For many years the cost of money was cut sufficiently low or sometimes artificially low by the central banks, [...] and Alan Greenspan is routinely blamed for contributing to the crisis [...] as under his stewardship the Federal reserve kept interest rates too low," Veltchev added.

It could have been a milder crisis had it happened years ago and had the bubble been deflated, Veltchev explained. Following excessive overproduction, especially in the United States, people consumed more than they saved, contrary to China and other Asian nations' over-saving.

Veltchev addressed the issue of whether Bulgaria would reenter the crisis once it got out of it. He explained the three possible cases. The V-shaped recession occurs once a state enters a recession and it gets out of it quickly; L-shaped recession happens once a state enters a recession, which is followed by a long period of stagnation; W-shaped recession happens once a state recovers from a recession and enters a second one shortly after.

"The [United States] and some European Union states have seen their economies getting out of the recession and started growing again," Veltchev said. The former finance minister questioned the duration of this growth as those states' governments have spent unprecedented amounts of money trying to pull their economies out of recession. "The level of budget deficits is so high that it is only comparable to the years of world war," Veltchev added. The U.S. budget deficit is close to 10 percent, while the Euro zone countries are nearing 5 to 6 percent, he added.

Another long-term problem governments have not dealt with is the aging population. As workers get older and retire there will be too few people who contribute to retirement funds to support those benefiting from them, and as a result public social security schemes will not be able to fulfill their obligations, Veltchev said.

"In Bulgaria, the asset prices have substantially gone down, but it doesn't mean that they don't have more to fall," Veltchev said. Bulgarian economy follows the European one with a certain lag because of "administrative burdens" and "geographical detachment," he added. If Europe enters a W-shaped recession then it would take year(s) before the Bulgarian economy starts growing again, Veltchev said.

"I was literally shocked to see that the total revenues for January 2010 compared to the ones in January 2009 were down by 36 percent, from 2.7 billion leva to 1.7 billion leva; the Value Added Tax (VAT) revenues were down by 46 percent. At the same time expenditures were up by half a billion leva," Veltchev said.

"I was surprised by the statistics Mr. Veltchev presented," Aleksandar Bakoev, an AUBG student said.

"I am quite a bit concerned about the budget and the economy as the government has to generate a surplus for the next ten months of the year - meaning it will be close to impossible," Veltchev added.

Even if the government has stellar performance, which it does not have currently, there will need to be some serious cuts due to the crisis.

It is very unfortunate that the current government talked about necessary reforms in pensions systems and state enterprises but has suddenly forgot all of this.

"Those of you who have some more years before graduating are certainly more comfortable about the future. Those who graduate this year will probably have to work extra hard in order to get a nice well paid job, unless they are looking to go to a graduate [school] immediately. Which may be a clever thing to do," Veltchev said.

"The demand for highly paid MBA graduates from investment banks in the east isn't as high today as it was in the 1990s. On the other hand, it depends where you want to work, if you want to work in the USA, certainly a MBA degree is a must if you want to do well," Veltchev concluded.

"I was pleased with Veltchev's friendliness to the audience and his answers to the students' questions. It was a very good lecture," Bakoev added.

"I think that Mr. Veltchev is a paradigm of professional development," Avramov said.