Bulgaria will have half the forecasted 2002 GDP growth of 6.5 per cent as a result of the terrorist attacks on the U.S., the Economy Minister Nikolai Vassilev was quoted by the local media as saying on Monday. "We have to resign ourselves to lower economic growth. Instead of 6.5 per cent, the rate will be half that," he said at the opening of the International Trade Fair in Plovdiv.

On Tuesday, he denied specifying such figures and said he never promised a growth of 6.5 per cent. Vassilev stressed that, considering the situation all over the world after the terrorist acts, Bulgaria would find it difficult to achieve considerable growth next year. Other problems outlined by Vassilev were the almost entire absence of privatization this year and the trade deficit.

Vassilev also noted a "limited reduction" in investments. "We have to improve conditions for foreign investors, grant tax breaks and eliminate corruption within institutions to make them more trustworthy," he said.

The framework of the budget for 2002 should be changed, the International Monetary Fund mission leader for Bulgaria Jerald Schiff told journalists after meeting with Labour and Social Policy Minister Lidia Shuleva on Sunday. Schiff was in Bulgaria for a week to talk with government members and discuss a new agreement.

Schiff said there is a risk that the macroeconomic framework may deteriorate and the IMF mission is working towards a joint position with the Bulgarian government. There will be a certain tension in the current account and the balance of payments, he predicted.

"The GDP growth projection for 2002 will have to be amended because the situation is very different now, compared to two weeks ago," Schiff said. He was expected in Sofia on September 14 but was delayed by the terrorist attacks in the U.S. "The IMF mission is quite close to the government's projections, but both sides will have to rethink their views on GDP growth," he said.

The IMF called for balance in the changes envisaged in the government program and the budget for 2002, the Ministry of Labour and Social Policy said after Shuleva and Schiff discussed the main points of the government's social program.

"We have no differences on the need for macroeconomic stability - it is the government's top priority," Shuleva said, according to the Ministry's press office. Higher living standards come second, said Shuleva, who is also deputy prime minister. Their improvement cannot be delayed because a downward tendency in purchasing power has been observed in recent years and poverty has increased dramatically. "The poorest income brackets are being targeted with the rise in the minimum wage from 85 to 100 leva, effective as of October 1, and the doubling of child benefits," she said.

The IMF sees the larger child benefits as a serious expenditure item in the 2002 budget. The Ministry of Labour and Social Policy said differentiation will be introduced for those entitled to child benefits with the help of a family assistance bill. Cutting unemployment is another major aim of the social ministry.

Social insurance contributions were also discussed in principle. Cutting them would encourage investors to create jobs, according to the IMF. Shuleva said the shadow economy should be reduced first, so as to widen the base of contribution payments prior to cutting them.

"We cannot afford not to sign an agreement with the IMF this year," Vassilev said on Monday. "The negotiations are very difficult but we cannot do without the IMF."

"I hope the government will sign an agreement with the IMF by the end of 2001," Finance Minister Milen Velchev said, after two meetings with Schiff. Velchev also expressed hope the positions of the two sides will converge to an extent that allows clarity and understanding on how the tax code should be shaped and to allow the government to proceed with its budget planning.

Schiff said the government's idea to increase the minimum monthly pay is not a good one and added that the fund thinks this will increase government spending amidst high unemployment and make it difficult to put together a balanced budget.

Velchev said that the increase was not preferable from the point of view of the budget but that the government aimed to improve the living standard of many Bulgarians with this measure. "I agree with the fund that the result for the budget is negative but we will offset that with other means," Velchev said.

Taxes will be cut as has been promised, Velchev said on Tuesday when asked to comment on Schiff's concern about these plans. "We do not intend to change any of our already announced plans for tax cuts. The issue now is how to regulate them legislatively," he said.

He did not expect a major change in the lev/dollar exchange rate and stated that a 2.10-2.11 exchange rate was realistic.

He added that the government was not obliged to coordinate every single one of its actions with the IMF but to work out a package of measures agreeable to the fund. "The pay rise will not derail the negotiations," Velchev promised.

Last week, IMF representatives asked for a Bulgarian chief negotiator to be appointed, the Economy Ministry said. At the same time, the IMF delegation confirmed its intention to sign a new agreement with Bulgaria.