The protectionist tendencies could deal a severe blow to the world economy, said World Bank Kristalina Georgieva in an interview for the Bulgarian National Radio. This year we are having “customs shootouts” among the leading economies, and this engenders tension and could trigger an income shrinkage globally – USD 1 trillion 400 million less for the population of the world.

Kristalina Georgieva specified that the tendency of protectionism diverts the attention of the world away from important problems:

“The first problem we are seeing this summer with our own eyes is climate change – the fourth year of record-high temperatures. Unless we focus on this problem, what we are talking about now will seem like child’s play. The second problem is the debt burden – there is a USD 164 trillion debt hanging around the neck of the world. The third problem is a problem for us, in Bulgaria as well – a good economic climate, good conditions, but very few countries are making reforms. World trade is a very important issue. It is created by political decisions, but it could bring major liabilities.”

The World Bank is focusing its attention on high-risk countries anywhere in the world – Ukraine, Jordan, Tunisia, Ghana, Zambia, Uruguay, Brazil, Argentina, says Kristalina Georgieva, and adds that the financial conflagration we are witnessing in Turkey “is not such a big surprise”.

“Even a small increase in interest rates makes their debt problems more serious. Turkey has an external debt of close to USD 500 billion. In the course of this year they will have to refinance close to USD 200 billion, 80 percent of which is corporate debt. To what an extent the economic aspect of this crisis can be reined in largely depends on the extent to which a constructive course can be found for Turkey geopolitically.”

Will the crisis in Turkey have an impact on European economy?

“It must be said that the EU and the European financial system are much more stable now than they were before the Eurozone crisis. And though European banks have major exposure to Turkey – around USD 120-130 billion, they are much more careful. What Turkey will do in the coming days will be a very important indication of the extent to which the situation in Turkey can be brought under control.”

Kristalina Georgieva cautioned that interest rates will continue their gradual upward trend:

“This problem is there to be seen by all. Interest was low in the course of almost ten years. When interest rates are low, appetites to take out loans are high. For people, for those of us who take out consumer credits, but also for making investments using credits, it is important to think ahead how we are going to pay them back because there is no place a low interest rate could come from in the years to come.”

For Bulgaria, entry into the Eurozone is an asset, Kristalina Georgieva says and adds:

“We are pegged to the euro as it is – and that has been a great help to our economy in recent years, including by instilling in people the confidence to save up, to invest. We are inside the Eurozone in terms of policies pursued, and outside it in terms of the influence we have on these policies, we are also outside the Eurozone in terms of the safeguard mechanisms for our financial system. Yes, we need them today, our banks operate conservatively, Bulgaria’s policy is stable, but we have no way of knowing what the future will bring. I can understand the way Bulgarians feel, I myself, being Bulgarian will find it emotionally difficult to say goodbye to the Bulgarian Lev. People living here are worried what will happen to prices, but I don’t think they should lose any sleep over it because our prices are, in practice, in euro, seeing as the Lev is pegged to the euro, only they are 50 percent lower.”

In the words of Kristalina Georgieva the world economy is currently operating at full throttle and it is a matter of perspicacity to seize the moment and to make the most of it for carrying through the necessary structural reforms. Education is a priority sector for reform in Bulgaria, she says. The CEO of the World Bank is adamant that if Bulgaria wants to be a wealthy country, it must invest in roads, in social and public infrastructure, but most of all in people.

Edited by Elena Karkalanova

English version: Milena Daynova