-9-

the late 1 980s the authorities were unable to enforce discipline (hard-budget constraint) on enterprises. Bv then the financial system hat! bec.ome the supplier of finance to sustain the lossmaking enterpri3es. The authorities encouraged indiscipline (soft-budget constraint) by making credit readily available.

Table 3: Barking System's Expension fn Net Domestic Assets 1/ (Percentage of GDP)

||...<br>.. . ....<br>|^**.**<br>. ..............<br>|||
|---|---|---|---|---|
||1987|1988|1989|1990|
|NE. DOMESTIC<br>ASSETS<br>C1+2)<br> <br>|. .. .. .......<br>12.5|.<br>.<br>11.5|.<br>.<br>.<br>.<br>.<br>11.5|.<br>.<br>.<br>66.9|
|1.NetDowstic<br>Credit (ua+b)<br>|14.0|12.6|12.6|32.?|
|a.Net Ctaims on General Govt.<br>Not State Budet|3.5<br>05|5.8<br>1|5.8<br>|21.2<br>|
|g<br>InLeva|-.<br>08|.3<br>14|1.3<br>14|18.2<br>|
|<br>InConvertible Currencies|-.<br>03|.<br>00|.<br>|11.5<br>|
|<br>Extra-Budetar Fnds Nt|.<br>40|-.<br>4|-0.0<br>|6.7<br>|
|gy u, e<br>FCIf|.<br>32|.5<br>|4.5<br>|2.9<br>|
|<br>othur|.<br>08|4.5<br>00|4.5<br>|1.1<br>|
|<br>|.|-.|-0.0|1.9|
|b. Claims onWon-Goverrment<br>Claims on Non-Financial PSE|10.5<br>94|6.7<br>|6.7<br>|11.6<br>|
|<br>In Leva|.<br>82|5.6<br>48|5.6<br>|6.7<br>|
|<br>In Convertible Ci|.<br>12|.<br>|4.8<br>|-2.8<br>|
|urrences<br>Claims on Prit St|.<br>|0.8<br>|0.8<br>|9.5<br>|
|vae ecor<br>lK%usin Ctti|1.1<br>|1.1<br>|1.1<br>|4.9<br>|
|q onsrucon<br>Other|0.9<br>03|0.8<br>|0.8<br>|2.6<br>|
|<br>|.|0.3|0.3|2.3|
|2. Net Other Assets<br> Caital Accounts|-1.5<br>11|-1.1<br>|-1.1<br>|34.2<br>|
|a.p<br>bValuation Adtt|-.<br>|-1.2<br>|-1.2<br>|-4.0<br>|
|.jusmen2/<br> Net Others|0.0<br>04|0.0<br>|0.0<br>|39.0<br>|
|c. <br>MM:<br>Ch Pbli St Dfii PD|-.<br>|0.2<br>|0.2<br>|-0.9<br>|
|as uc ecor ect (S) 3/<br>Domestically-Financed<br>PSD|5.1<br>38|5.6<br>63|1.4<br>27|9.2<br>|
|<br> <br>...........<br>......................<br>......................|.|.|.|8.1|

Source: National Bmk of Bulgaria, Monetary Survey.

Notes: (C) This is the IMF-corrected Monetary Survey. Corrections consist of: -ttfng Mlunicipalities' deman **d** eposits from Net Claims on General Goverrwnent ard .lassifying SCIF as part of Net Claims on General Goverrment. Estimates mesure the increase in end-of period (December) stocks. Estimates for 1990 ere preliminary. (2) Is the foreign exchange risk ess wd by banks (valuation effects and measures the effect on banks, balance sheet of devaluations in the domestic currency. on average banks have more liabilities than assets denominated in foreign currency. (3) Includes only the paid interest on foreign debt. The 1990 is a preliminary estimate.

Available estimates on the financial system's credit expansion (See estimates in Table 3.) indicate that the major borrowers from the financial system, with the exceptior of 1990, were the non-financial public sector enterprises (PSEs). In 1987-89, on average, total net domestic credit increased by 12.7 percent of GDP, of which credit to PSEs accounted for 7.6 percent of GDP; that is, PSEs accounted for 70 percent of total net domestic credit expansion. Although it is difficult to obtain hard evidence, anecdotal information suggests that a large proportion of the credit granted to PSEs' after 1987 was used to finance current losses. Moreover, to the extent that the authorities made credit available to PSEs, it signaled to them that undiscipline could continue and