Issues in reforming financial systems in Eastern Europe : the case of Bulgaria
The author uses the situation in Bulgaria to illustrate the financial system most Eastern European countries have inherited. Reforming these financial systems is especially difficult because of the problems inherited from a centrally planned economy (CPE). The financial system in a CPE is completely different from a financial system in a market economy. It is only a slight exaggeration to say that reforming the financial systems in these countries means creating a financial system from scratch. The author illustrates the types of problems Eastern European countries face in reforming their financial systems. He argues that these countries can stimulate the supply response by giving the emerging private sector more access to credit and by increasing the savings deposited in the financial system. He argues that the authorities should: (i) link reform of the financial sector to the privatization of banks and enterprises, (ii) quickly privatize a group of banks, (iii) encourage privatized banks to lend exclusively to the emerging private sector, and (iv) turn the of the banks into investment banks and make them participate in the restructuring and privatization of state-owned enterprises.
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