The ZUNK bonds in Bulgaria (and Their Ambiguous Effect)

Authors:

Pages: 198-205

Abstract:

According to the Law on Settlement of Non‑performing Credits (LSNPC), the commercial banks that have changed non-performing credits for ZUNK bonds are able to participate with their nominal value in privatization deals directly after receiving a written consent of the Privatization Agency for each case, as if to sell them at market prices. Individuals and legal entities who have pur chased ZUNK bonds from the Bulgarian National Bank or other primary dealers could use them as a valid means of payment in privatization deals also at their nominal value. The idea of including this restriction is for avoiding speculative deals with these bonds. The proposed mechanism is a reflection of the market conditions in a long perspective and the restrictions of national budget in short term. From fiscal perspective, a priority for the state is the accelerated reduction of the debt issued by the Law on Settlement of Non‑performing Credits not because of the high interest rates but because of their enormous amount for a country such as Bulgaria: 26 billion BGN and 1,8 billion dollars. These long-term bonds, issued to change the banks’ “bad credits”, assert themselves as one of the basic instruments for the participation of different investors in the privatization. Only those who had the information and the available financial means were able to make profit using the ZUNK bonds. In this way, they contribute to the deepening of the inequalities in society. The bonds issued by Law on Settlement of Non-performing Credits (ZUNK bonds) remained unknown for the general public.

Keywords:

state bonds; nominal value; privatization.

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