Month: October 2012

The government, which won parliamentary backing for the reforms on May 7, has said it wants to hold a referendum in July on legal changes which opponents see as a threat to the Muslim country’s secular order.

“The president has sent the law that changes some articles of the constitution … to the prime minister’s office to be presented to a public referendum,” said a statement on the presidential website. Gul’s approval had been widely expected.

The main opposition Republican People’s Party (CHP) said it would ask the Constitutional Court to annul the reforms which it says would cement the AK Party’s power, rejecting government arguments that they are needed to meet EU entry requirements.

The reforms overhaul the Constitutional Court and an official body regulating judges and prosecutors. They also make the army answerable to civilian courts. However, parliament rejected an article making it harder to ban political parties.

The current constitution was drafted after a 1980 army coup and there is widespread agreement that reform is needed.

Parliamentary support for the bill was less than the two-thirds majority needed to pass it into law, meaning final approval will depend on the result of a referendum. The AK Party is confident it will secure enough support in the public vote.

The secular-minded Constitutional Court has struck down several key AK Party reforms in the past.

Frieden told reporters in an interview that EU finance ministers’ “ad hoc” decision to provide 500bn euros, plus about 250bn euros from the IMF in emergency loans to Greece and, possibly, others appeared to have stopped a sovereign debt crisis from spreading and should be enough for now.

But longer term the 27-nation bloc would need to amend its basic laws by setting up, for example, an IMF-style European Monetary Fund or giving the executive European Commission more permanent powers to raise capital on financial markets.

“This crisis showed that despite the fact that we were able to react… it would be worthwhile to think of something more structured that we put in to the treaty to have an instrument in place,” Frieden said on the sidelines of a World Economic Forum conference.

“This is not something we should discuss in a hurry. We can do it over the next year, there is no urgency,” he added.

Any treaty change would require unanimity of all EU countries and tough negotiations, but Frieden said the decision on the emergency package showed EU and eurozone governments are determined to protect the euro currency.

“We solved the Greece crisis and we are preventing further crises. I have no doubt whatsoever about the clear political will of all governments. They will implement it (the package),” he said.

Clear will to defend euro
“We are defending the euro and we believe in the future of the euro. All those who speculate that the euro would become weak or even inexistent currency were mistaken, there was a clear political will to strongly support the euro,” he added.

The future, permanent system could involve setting up the European Monetary Fund, an idea already floated in Brussels or giving the European Commission more powers to raise capital for aid countries in crisis.

“That is to be seen, if you change the treaty all options are on the table: the European Monetary Fund, giving more power to the Commission or an instrument in the hands of the Council (EU governments),” Frieden said.

He gave a cautious welcome to investors’ reaction to the emergency package, which sent the euro and stock markets up.

“From the first indications that we had early this morning it (the reaction) was rather positive, but we need to wait several days to make a judgment. There was an indication that we took the right step,” he said.

Commenting on suggestions by politicians that the EU should have agreed on the aid mechanism earlier, which would have made it less costly, Frieden said: “It would have been certainly an advantage if we could have taken some decisions already a few weeks ago, but the result is what matters.”

“The government, together with parliament, will propose to draw up and to revise regulations related to the monetary and fiscal sector,” Djoko Suyanto, the security, legal and political affairs minister told reporters after meeting President Susilo Bambang Yudhoyono.

He did not elaborate on how the regulations would be revised.

Earlier in March, parliament voted for a criminal investigation of Finance Minister Sri Mulyani Indrawati and Vice President Boediono – two of the president’s top reformers – over the rescue of Bank Century, a small lender, in 2008.

Indrawati and Boediono both defended the need to bail out Bank Century because of the risk its collapse could spark a panic in Indonesia’s financial markets at the height of the 2008 global crisis.

President Yudhoyono defended Indrawati and Boediono in what was widely seen as an attempt by powerful business and political groups to discredit and oust the two reformers, both of whom are respected for their efforts to crack down on corruption, attract investment, and spur economic growth.

However, the $720m rescue of Bank Century did raise concerns about the central bank’s role as a regulator.

Suyanto said President Yudhoyono had ordered the police, the attorney general, and the Corruption Eradication Commission (KPK), to investigate any indication of corruption and banking crime related to the Bank Century case in accordance with the law, adding that both the finance minister and vice president would be presumed innocent until proven guilty of any wrongdoing.

Juncker, who chairs monthly meetings of finance ministers from the 16 countries that use the euro, added that the idea would not be on the agenda for the March meeting.

But he backed the idea to succeed. “Yes I do think [an EMF will be formed], under the condition that the principles will be put the right way round.

“By no means can this develop into a channel to avoid the no bailout clause of the treaty, so these principles have to be sorted out.”

“This is not a short-term story, it’s months, and no way is this meant to deal with the Greek case.”

The idea for a new rescue fund that could be tapped to help financially troubled Eurozone countries has been backed by Angela Merkel, though the response from some other leading European politicians has been more lukewarm.

The European Commission has said it is ready to propose setting up such a body and ECB President Jean-Claude Trichet said the bank has not rejected the idea but needs to see more details.

The IMF’s strategy to capitalise on surging gold to raise new resources for lending was first announced in 2008 and had been comfortably received by the market, with expectations for enthusiastic takers amongst Asia’s central banks.

Its sale of 200 tonnes of this quota to India, announced in early November, and small disposals to Sri Lanka and Mauritius prompted a frenzy of speculation over further sales.

But the key take-away for some analysts from the IMF announcement that it would soon begin phased open-market sales for its remaining 191.3 tonnes of gold was that central bank appetite for bullion may not be as robust as first thought.

“It could be viewed quite negatively that central banks, who obviously would have been favoured as buyers for the remaining gold, have found current (price) levels unattractive,” said Saxo Bank senior manager Ole Hansen.

The 191.3 tonnes on offer compares with total identifiable demand in 2009 put at 3,385.8 tonnes in the World Gold Council (WGC) demand trends survey.

Central bank activity has been seen as a key foundation of gold’s ability to rally even as other fundamentals, such as dollar weakness, faltered.

A third European central bank pact to limit sales seemed to cement that fundamental support, assuring investors that any official sector sales would be orderly.

Spot gold hit a record $1,126.10 per ounce in January and is still up almost a percent so far this year, even after a sustained period of falls.

WGC CEO Aram Shishmanian said that although some countries could sell gold reserves to cover budget deficits, the trend was unlikely to be big enough to damage the market.

The WGC’s managing director of government affairs, George Milling-Stanley, said the fact that the IMF had sold more than half of what it had on offer in off-market deals was a success.

“Any talk of this sale being a failure by the IMF is nonsense. The IMF always intended to sell this gold eventually on the market,” he added.

Lukewarm reception
No one can be sure what the psychology was behind the latest IMF development, but if the hope was to entice new official sector buyers, early indications are lukewarm.

Sri Lanka’s central bank was unlikely to buy more IMF gold right now as the nation has already reached its required reserve level, its governor said.

HSBC metals analyst James Steel noted that the idea that central banks may turn into net buyers of gold this year was an important element in the psychology of the rally.

“The fact that [the IMF] has announced that the remaining gold…will be sold on the open market is an indication that the IMF has been unable to find a willing buyer for the remaining gold,” he said.

Commentators have previously identified China, which last year said it had been adding substantially to its gold reserves in recent years, as a potential buyer of IMF gold.

But former officials poured cold water on that idea last year, pointing out that it would be cheaper for China, the world’s biggest gold miner, to buy domestic supply to boost reserves, and that near-record prices made IMF gold too expensive.

All is not lost?
After an initial knee-jerk drop, gold prices are recovering some poise, hovering above $1,100 per ounce.

Commerzbank said in a note to clients that central banks that had been waiting on the sidelines, may now see an opportunity to buy.

But with a clouded demand picture from central banks, and uncertainty on the dollar’s trajectory, some analysts are beginning to wonder about where the impetus to take gold higher from here will come from.

A fiscal crisis in Greece has helped to send gold prices in euros to record highs and dollar-gold to one-month highs approaching $1,130 an ounce.

“It doesn’t feel like we’ve reached the top of the market, but the problem is the huge amount of investment demand that has been behind this price increase. It doesn’t seem to be here at the moment,” said VM Group analyst Matthew Turner.

“The caveat is that you never quite know where the investment demand is going to come from. The Greece issue may be the catalyst for European investors to buy gold – so it’s not all over yet.”

At the centre of controversy is outspoken FDP Foreign Minister Guido Westerwelle, who has come under a barrage of criticism from his own party and Merkel’s Christian Democrats (CDU). Polls show support for the pro-business FDP has nearly halved since September’s election to about eight percent.

One former CDU cabinet minister, deriding Westerwelle’s description of unemployment benefits as reminiscent of Roman decadence, described him as an ass.

FDP supporters feel let down by a failure to deliver substantial tax cuts. Party credibility also took a hit when a 1.1 million euro donation from a hotel group owner emerged after the government pushed through tax breaks for hotels.

In response, Westerwelle has reiterated his determination to see through tax cuts despite Germany’s strained public finances and adopted arguments on welfare benefits to appeal to his core voters which are putting strains on the coalition.

“The image of this government in its first few months has been poor and doubts could grow about Merkel’s ability to lead unless she is firm with Westerwelle,” said Gero Neugebauer, a political analyst at Berlin’s Free University.

The conservative-FDP coalition was welcomed by business when it won power in September as a break from the wrangling that beset the previous conservative-Social Democrat coalition.

Westerwelle caused a storm recently by describing as socialist Germany’s attitude to the welfare state – a relatively generous net of benefits and support that formed the foundation of German state reconstruction after World War Two.

He compared long-term unemployment benefits to “late Roman decadence” and insisted the system needed a radical rethink.

Scorn
In a sign of the growing tensions in the coalition, conservatives have poured scorn on Westerwelle.

“In Roman times, decadence was about… Emperor Caligula appointing his ass as consul. Westerwelle’s comparison is right up to a point: 100 days ago, an ass became foreign minister,” former CDU cabinet minister Heiner Geissler told Die Welt paper.

Westerwelle’s cabinet colleague, CDU Labour Minister Ursula von der Leyen, also distanced herself, saying the welfare state had proved itself in the last 60 years and she saw no decadence.

The debate also triggered criticism from senior FDP colleagues about his leadership style. Some have demanded he relinquish some of his responsibilities. As foreign minister and party head, many think Westerwelle has too much on his plate.

“The party leadership needs to be stronger as a team. More FDP faces need to be in the foreground,” Westerwelle’s deputy Andreas Pinkwart told the Hamburger Abendblatt, adding the slump in the polls showed voters were very disappointed with the FDP.

A key test comes in May with an election in Germany’s most populous state, North Rhine-Westphalia (NRW).

It is uncertain if the CDU and FDP will hold the state. Analysts say the FDP is doing so badly, the CDU may be forced to find another partner in the Greens.

“If the NRW vote goes badly for the FDP, pressure will grow on Westerwelle to give up some responsibility. That looks bad, said Dietmar Herz, political scientist at Erfurt University.

“The FDP has been thrown into a panic. Westerwelle has gone storming in and tried to appeal to his core supporters but it’s unclear if his strategy will work,” added Herz.

The effect could be to limit the appeal of the FDP, traditionally seen as a party for young professionals, which Westerwelle successfully widened in 11 years of opposition.

When Slovakia adopted the euro in January 2009, Alexander Joszay loved driving across the border to Hungary, where financial crisis had weakened the forint to deliver lower prices for euro-earners.

But the factory where the 58-year-old maintenance man worked liked the idea too. It sacked Joszay and other Slovaks a few months later and moved across the border.

 “There was not just the single positive thing of people taking advantage of the exchange rate,” said Joszay, who worked for car parts firm MBE in this eastern Slovak town.

“People also lost work after the employers told them it was no longer profitable to continue with production.”

Slovakia’s case underscores the euro’s double-edged nature for the European Union’s ex-communist countries and serves as a warning for Poland, Estonia, Bulgaria and other states who see the stability of the single currency as a panacea for crisis.

Slovakia attracted billions of euros in foreign investment to become the world’s largest producer of cars per capita, but the country of 5.4 million people depends on autos and electronics for more than half its exports.

“Policy-makers in general envy Slovakia for entering the euro zone because they are scared of currency volatility. The euro provides stability in this sense,” said Lars Christensen, head of emerging markets research at Danske Bank.

“But it takes away the flexibility, and it is clear that Slovakia is suffering in terms of loss of competitiveness,” he added.

The euro has helped Slovakia be perceived as a better credit than others in the region: its 10-year benchmark bond yield is now 97 basis points over the euro zone’s benchmark German bund, much tighter than Poland’s 285 and Hungary’s 403 points.

The economic problems faced by many ex-communist EU newcomers are still too significant for them to consider joining the euro zone any time soon.

The euro entry criteria require all applicants to cut fiscal deficits to below three percent of GDP, but most euro candidates face ballooning fiscal gaps as the crisis bites deeply into budget revenue. Even euro members are giving themselves until 2011 to start bringing down deficits.

A Reuters poll shows economists expect Estonia to be the next eastern EU member to join the euro, perhaps in 2012. All other states were seen joining in 2014 at the earliest.

“Euro zone enlargement by another central European economy is … not going to happen quickly,” said Michal Dybula, central European economist at BNP Paribas in Warsaw.

Heavy shield
Slovakia became only the second ex-communist country to adopt the euro after Slovenia, capping a decade of transition from a central European laggard to a leader in economic growth, which culminated with 10.4 percent expansion in 2007.

Emboldened by investments by Volkswagen, Kia Motors and PSA Peugeot Citroen, the alpine country saw euro entry as the next prestigious move.

Two revaluations of its crown currency in the runup to the switch pushed it 30 percent higher against the euro, so low eurozone interest rates were not a spur to inflation as in euro-joiners Slovenia and Ireland.

From behind the euro shield against market turbulence, Slovaks went on bargain-hunting trips to neighbours like Poland, where the crisis had wiped a third off the value of the zloty versus the euro in a matter of months.

But with the euro appreciating by more than 20 percent against the dollar from 2007 to mid-2008 and regional currencies sliding by up to 30 percent in the early months of 2009, Slovak factories became more pricey than their regional peers.

That amplified problems as the crisis slashed demand for cars and electronics, drove unemployment to multi-year highs, stopped wage growth, and pushed down consumer spending.

In the service sector, once-popular Slovak ski resorts and spas suddenly found themselves too expensive for their usual guests, and Czech, Polish and Hungarian visitors fell by almost a third at the start of the year.

In 2005 before Slovakia joined the euro, its average unit labour cost was the equivalent of just EUR4.60 per hour, below the average of its neighbours Poland, Hungary and the Czech Republic. Once inside the euro that jumped 54 percent to EUR7.10 per hour in January 2009, undermining competitiveness.

MBE, which made cable boxes for Ford and employed around 700 people in 2008, said it had to cut production at the end of the year due to consumers’ evaporating demand for new cars.

“The euro was the last straw,” said former MBE executive Ladislav Mento. “Production became more expensive and it was moved to Hungary.”

Output pain
Not all producers share the view the currency has complicated doing business.

“The euro’s key advantage is that it lowers transaction costs in the economy – costs related with (foreign exchange) conversion, for securing against currency swings,” said Maria Valachyova, senior analyst at Slovenska Sporitelna.

And the benefits of euro-zone membership have continued to resonate for big subsidiaries of foreign firms. Because they sell most of their production in the euro zone anyway, they see the euro as a price stabiliser.

The largest Slovak company by sales, Volkswagen said the country’s adoption of the euro was one reason for siting production of its new small model UP! in the plant near the Slovak capital Bratislava.

“Euro adoption was very important from this point of view, because it enables long-term planning and eliminates foreign exchange risks related to currency volatility,” said Andreas Tostmann, chairman of the board of Volkswagen Slovakia.

“We are capable of solving the supply issues,” Vladimir Fisinin, president of the Russian Poultry Breeders’ Union, the powerful industry lobby told reporters.

Russia has been purchasing large volumes of US poultry since the early 1990s, when it turned to the US to supply low-cost meat, mostly chicken leg quarters, commonly known as “Bush’s legs”.

The nickname goes back to when US President George Bush Sr was promoting US- Russia trade. Moscow recently banned the meat because US producers use a chlorine wash, which Russia claims violates its food safety standards.

Russia said it was ready for a second round of talks after a first round in January ended without any commitments from Moscow to reopen its market.

Analysts said Russia has the upper hand as it is rapidly expanding domestic production and looking for alternatives to the 600,000 tonnes Washington could ship under an import quota granted to it for this year.

“I believe they will have to yield in one way or another,” said Yelena Tyurina, general director of the Agricultural Marketing Institute thinktank.

“If they do not export the meat to Russia, they will have problems with disposing of these volumes especially because they are now also having problems with China.”

China, another important market for US poultry meat, has said it will levy heavy anti-dumping duties on US chicken products.

“The United States will most likely agree with the Russian demands, as poultry meat prices there are falling, while stocks are rising,” said Darya Limareva, an analyst with the Institute for Agricultural Market Studies (IKAR).

Stocks to last several months
Russia appears to have sufficient stocks to survive without US imports, while domestic producers are rapidly increasing output in line with the goal set by the government to reach self-sufficiency in poultry meat in the next three years.

“I believe stocks may last until the end of March,” Tyurina said. “And imports from other countries continue and domestic producers are increasing output,” she added.

Fisinin said that Russia had stocks of 220,000 tonnes of poultry meat at the start of the year, which rose further in January.

“Even if not a gram of poultry is imported [from the US], we will live happily until the end of May,” he said.

IKAR’s Limareva said that average accumulated stocks of domestic poultry meat alone in Russia may last 25 to 27 days. “Russia will not face a deficit at least in the next couple of months. That’s for sure,” she said.

Russian domestic poultry output rose last year by 315,000 tonnes, equal to half of planned US exports to Russia this year, Fisinin said.

“This year we have all the necessary capacities to increase output by another 300,000 tonnes, and by 150,000 in the first half of this year, thus patching the possible gap,” he said.

Russia has set the target to completely end imports by the end of 2012, and poultry breeders are drafting a plan of achieving this target, which they expect to send to the Agriculture Ministry for approval in March, Fisinin said.

“In the next three years we plan to raise output by 920,000 a year,” he said.

Domestic poultry prices have been declining this year, and the existing high stocks are unlikely to reverse this process in the next few weeks, Limareva said. But prices may rise if US imports stop as meat from alternative suppliers will cost more.

“Brazil, the European Union, Thailand and Turkey, have expressed their wish to ship poultry meat,” she said. “But it is evident that signing new contracts will take time and prices of new supplies will be substantially higher.”

“We are running the risk of loosing cheap product which is mostly used in meat processing and production of semi-fabricates, as well as sold in provinces, where incomes are lower than in big cities,” Tyurina agreed.

The Baltic state of Lithuania – sandwiched
between Latvia and the Russian exclave Kalingrad – faces an economic
contraction of 18 percent for 2009.

To that the government has said it will add
a 30 percent increase in household power prices in 2010, as it fulfils a
condition of EU membership and shuts Ignalina, the Chernobyl-style
nuclear power plant that provides 70 percent of Lithuania’s power.

EU officials in Brussels pressed for the
closure at the start of the century, when the bloc was embarking on its eastern
enlargement. Their goal was to lower the risk of a repeat of the Chernobyl
nuclear explosion of 1986.

Neither recession nor energy security were factors when the
sculpture was symbolically unveiled on May 1, 2004 as Lithuania, once occupied
by the Soviet Union, joined the EU. It is described by the country’s tourism
website as marking “the poignant return of Lithuania to the family of
European nations”.

But from December 31 – when temperatures can drop to minus 30
degrees Celsius (minus 22 Fahrenheit) and rivers freeze – the closure will
make Lithuania more dependent on an increasingly irregular supply of power from
its former occupier.

“It’s the worst crisis ever,” said Jan
Glushachenkov, a 44-year old former excavator driver who lives next to the
sculpture above a compass mosaic.

Speaking to reporters in the still hush around the column near
the village 26km northeast of Vilnius, Glushachenkov said he has
already been out of work for almost a year.

He pointed out the more pressing risks Brussels now faces in
closing the reactor with the country’s 3.5 million people locked in recession:
“People will have to emigrate or to go to steal.”

Population losses due to net emigration since 1990 already
amounted to about 10 percent, according to a 2008 report from the OECD.

Edgy relations

For those who stay, things will be tough. Glushachenkov’s
neighbour Ludwik Trypucki, an 86-year-old farmer, said the shutdown will lift
his monthly power bill to about 18 percent of his 800 Lithuanian litas ($333.5)
pension. He already pays 120 litas per month.

“I understand they had to close it if it was unsafe to
operate, but they had to agree in advance to get cheaper electricity. Now it’s
unclear where that will come from,” he said.

Lithuania plans to import electricity from Estonia, Russia
and Ukraine, via neighbouring Belarus. A small amount will be imported via
cable from Finland and Latvia.

The increasing energy dependence on Russia, which will also
supply gas for a fossil fuel-powered electricity plant, comes as relations
between the countries remain edgy.

Lithuania objected to Russia building a gas pipeline to
Germany under the Baltic Sea and attempted to block the start of EU-Russia
talks on a strategic partnership.

Some in the Baltic region fear a planned pipeline under the
Baltic Sea from Russia to Germany, Nord Stream, could offer Moscow a direct
energy lever with Europe, enabling it to cut off countries’ gas to wield diplomatic
pressure.

Russia has in the past been a reliable gas supplier to
Lithuania, although it has cut oil supplies to a Lithuanian refiner, Mazeikiu
Nafta, now owned by Polish oil group PKN Orlen.

Inflation

Prime Minister Andrius Kubilius is hopeful countries in the
region will be happy to sell Lithuania electricity surpluses the downturn has
created in their countries, and pointed to long-term power contracts Lithuania
has signed.

“Lithuania will become more dependent on imports of
energy resources after Ignalina’s closure. That will reduce our energy
security, but we feel assured about the next year,” he told reporters.

The EU has allocated so far about 820m euros ($1.17bn) in aid to decommission the plant, deal with the nuclear waste and
upgrade a fossil fuel plant, but the central bank points to the shutdown’s
broader impact.

“A 30 percent hike in electricity prices will slash
gross domestic product by one percentage point and will increase inflation by
almost one percentage point,” said Raimondas Kuodis, the central bank’s
chief economist.

“It does not look a lot in the context of the global
crisis, but for Lithuania’s economy it’s a painful hit.”

Besides jobs lost at the reactor in the town of Visaginas in
Lithuania’s easternmost corner, businesses straining to maintain working
capital will be squeezed.

Arturas Zaremba, head of major cement producer Akmenes
Cementas, said his power prices would more than double to 15 Lithuanian cents
per kilowatt-hour from six, raising costs for the company with revenues of 125
million litas by six or seven million litas.

“The electricity price increase will be a serious shock
not only for our company, but for the whole economy,” he said.

In Visaginas, unemployment at about nine percent – less than
the national average of 11.7 percent – is forecast to reach about 11.5 percent
in 2010.

“I have been working at the plant for 27 years, my whole
life was connected to it,” said Andrei Grigoriev, walking past a memorial
stone from 1975 marking where the town was begun.

“Of course, it is painful to see it being shut, and that
it was a politically motivated decision,” he said.

Lithuania’s opposition made a last unsuccessful attempt in
December to force the government to restart negotiations with Brussels with a
view to extending Ignalina’s lifespan, a project supported by former Prime
Minister Gediminas Kirkilas.

“The European Commission does not fully apprehend the
situation of the Baltic states, and think that electricity imports from Russia
is not a problem,” he said. “They don’t share the same historical
experience.”

Better opportunity in Africa

In an office hooked up by closed-circuit TV to a direct view
of the gleaming, cavernous interior of the reactor hall, Viktor Shevaldin,
Ignalina’s veteran head, says he is resigned to the closure of the plant’s
remaining reactor at 11pm on New Year’s Eve.

Full decommissioning at an estimated cost of 8.6bn
litas will take about 25 years.

“We face a different future, but we have come to terms with
it already,” said the grey haired 60-year-old.

But let him talk more, and his tone changes. The chance of a
major accident is one per one million years of reactor work, he said:
“It’s like being hit by a meteorite while walking on the street.”

Back at Purnuskes, Algirdas Kauspedas, an architect who
became a celebrity rock musician with a band he formed in the last days of the
Soviet Union, is pragmatic.

“Market perspectives are bleak here. It’s better to look
for possibilities in Africa,” he said.

The global economic downturn has hit hard the poorest EU member country, which benefited from investment in real estate and financial services in the past decade.

Stoyan Stalev, head of the state investment promotion agency, said he expected FDI to have fallen over 50 percent in 2009 to about three billion euros, but would show a moderate growth of about 10 percent this year following an economic recovery in Western Europe.

He told reporters that Bulgaria, which joined the EU in 2007, planned an advertising campaign in Asia to promote itself as an investment destination and a gateway to the 27-nation bloc.

“We will seek a better position in the regions with high growth rates. Korea has a growth rate of four percent, China – eight. We expect serious investments from there,” Stalev said.

China’s largest sports utility vehicle maker, Great Wall Motor Co has already started the construction of a plant to assemble cars under its badge in northern town of Lovech.

“If that investment goes through as planned, it will be a huge success, because car manufacturing is a very important factor for the whole economy,” he said.

Another Chinese investor, Luoyang Glass Group, plans to build a glass factory near Razgrad, in northeastern Bulgaria.

Stalev said there was Korean interest in real estate, while other officials had said electricity production was also on the radar screen of Korea companies.

Economists and analysts have criticised Sofia for failing to create a stable manufacturing base during the boom years, when most foreign cash was channelled into real estate.

Bulgaria’s poor infrastructure, inefficient courts and rampant corruption have put serious investors off and the Balkan country of 7.6 million remains the least developed EU nation.

Stalev said Sofia’s main priority was attracting production-linked investment to create jobs and ensure a return to sustainable growth.

He also said there was room for building logistics parks and warehouses to benefit from Bulgaria’s geographic position as a gateway between Europe and Asia.

Bulgaria can benefit from its fiscal stability and corporate tax of 10 percent – the lowest in the EU – as well as the efforts of the new centre-right government, elected last July, to overhaul the infrastructure and crack down on graft, he said.