While the IMF mission was finishing the examination of the draft budget, some local newspapers reported a buy-back of Bulgarian foreign debt bonds (Brady bonds) worth $60 million in their Monday issues.

The transaction was financed by Bulbank and was performed at a moment when the price of these securities had reached a record-high level, the press wrote. The operation had cost about $46-48 million for deals at prices varying from 76 to 80 cents.

The problem is, such a move should typically have approval from Parliament. The government initially refused to comment, but the media pointed to reliable sources within the government and information from bankers in London.

Two days earlier, the government published foreign debt statistics, showing a $200 million drop in the nominal stock of Brady bonds. The government explained that the change came from discrete buybacks last year allegedly done through Bulbank.

The cancellation cut down the foreign debt by $286.2 million or 3.2 per cent in September, including repayments of $64.5 million to the Paris Club (composed of state creditors) and $10.1 million to the IMF.

The alleged new buybacks are most probably not presented in the data. Thus, the government foreign debt dropped by six per cent in the January to September period to 64.1 per cent of the GDP. Together with the new IMF agreement almost at hand, lower debt raises chances of a rating upgrade. The international credit rating agencies are expected to announce their new assessments of Bulgaria in November.

"Recent press reports about alleged government operations related to the management of the country's foreign debt are tendentious," the Finance Ministry press office announced in a press release on Monday.

In the release, the Finance Ministry recalled that, under national legislation, such transactions are financed not through the national budget but by the government's fiscal reserve. Therefore, such operations cannot affect the debit side of the national budget, which is made up of allocations for social benefits, state subsidies, and support payments.

The foreign debt management policy is coordinated with the International Monetary Fund, the Ministry said.

The present government's basic policy on foreign debt matters is identical with the policy of the previous government. This implies refraining from public comments on the performance or nonperformance of debt management operations. The reason is that such comments may frustrate the potential success of these operations and will be to the detriment of national interests, the Finance Ministry said.