Economist: financial crisis brewed by U.S. market fundamentalism

Special Report:Global Financial Crisis

SOFIA, March 11 (Chinese media) -- The wide spreading

financial crisis has the hallmark of being "made in U.S.A." with its origin and

the disaster center all in the United States, said a leading Bulgarian economist

in a recent interview with Chinese media.

Ivan Angelov, member of the Bulgarian Academy of

Sciences, strongly criticized what he called "U.S. market fundamentalism," which

he believes triggered the global crisis.

He expressed his strong belief in government

intervention which should be made in time, rather than lagging behind until the

disaster grows bigger.

A market-oriented economy should be within the

control of the government, the free-market economy preached by the

fundamentalists will not work, he said.

The Bulgarian economist blasted the U.S. bailout

plan, saying salvaging the banks is actually footing the bills of the rich by

using the money of the struggling tax-payers.

He said it is a big irony that the Wall Street top

executives, who used to enjoy bonuses of tens of millions of dollars, could

still get a half-million-U.S. dollar compensation, higher than the annual salary

of the U.S. president.

He noted that the financial crisis spread quickly

from the United States to Western Europe within half six months and was

transmitted to Eastern Europe several months later.

This year will be difficult because massive loans,

estimated at400 billion dollars, granted by Western European banks to East

European countries, will be due, Angelov said.

These loans will prove to be too much a burden for

East European countries that are already deep in economic troubles, he said.

The countries deep in debt are those who depend

heavily on a currency board, the practice of a small country to peg its currency

to a strong, stable one, just like what Estonia, Latvia and Bulgaria are doing.

By September 2008, Estonia's foreign debt accounts

for 131 percent of its GDP, Latvia 116 percent, Bulgaria 109 percent.

Another symptom of Eastern Europe's financial crisis

is its high current account deficits, Angelov said.

The current account deficits of Bulgaria, Estonia,

Latvia and Lithuania -- whose currencies are all pegged against the euro -- are

at 15-24 percent of GDP, levels that have historically been associated with

currency crises.

The worsening financial instability that is troubling

the entire Eastern Europe will trigger massive foreign investments outflow,

analysts forecast.

In 2008, the capital flow from developed countries to

Eastern Europe reached 254 billion dollars, while this year, the volume will

expected to merely 30 billion dollars, Angelov said.

There were already cases that some Western European

banks pulled money out of their branches in East European countries, Angelov

noted.

He said the trend is alarming because West European

banks are holding as much as 90 percent of the capital of Bulgarian banks,

leaving the Bulgarian government little leverage to save the country's real

economy.

Even the banks have enough money, they are cautious

about providing loans to Bulgarian enterprises given the unpredictable financial

situation, Angelov said.

Still, he said he was against selling most of

Bulgaria's banks to foreign investors.

Angelov underlined the necessity to restore

confidence in Bulgaria's financial sector and encourage banks to keep money in

Bulgaria and provide loans.

He said the financial crisis has left enormous

impacts on Bulgaria, citing a fall of 10 percent in the country's industrial

production index in December, a 31-percent drop in mining industry, and a 60

percent decline in ferrous and metal production.

"That is utterly horrendous for Bulgaria," he said,

adding that the country's export-dependent metallurgical industry also suffered

an annual shrink of 35 percent.

Angelov said he believed that the shockwave of the

financial crisis began to hit Bulgaria in late 2008 and the beginning of 2009,

and will reach its peak from April to June, leading to sharp falls in exports

and production, and then quickly spread to other sectors.

Angelov said foreign investment badly needed by

Bulgaria will plummet from last year's 5.4 billion euros (6.92 billion U.S.

dollars) as foreign capital is fleeing Eastern Europe amid fear of financial

instability in the entire region.

He recommended the government to take timely and

effective measures to deal specifically with the crisis.

On Bulgaria's economic prospects, Angelov said the

crisis will last through 2010 and recovery is expected to come in 2011.

"Confidence is everything for the moment," he said.