Around 4% is the sustainable and long-term feasible growth of the Bulgarian economy, with expected growth of 2.8% for 2011 . This potential growth can be achieved in 2013, said Levon Hampartzoumian, MB Chairman and Chief Executive Officer of UniCredit Bulbank in his open lecture for the students at the American University in Blagoevgrad at the invitation of the University’s business club. The topic of the lecture “Modernization of Bulgaria in the Last 15 years” was chosen by the students.

“It seems that we are witnessing recovery indications. I am hopeful that it will be a sustainable recovery, however the growth model will change dramatically compared to the boom years”, said Levon Hampartsoumian. In his opinion 4% sustainable growh for Bulgaria is the limit for our country under the current conditions. “If you want an economy with higher growth, you must learn Chinese or go to Brasil, for example”, Hampartzoumian told the students.

He pointed out that Bulgaria is still very much lagging behind the so called first wave countries – these are the first CEE countries to kick off the reforms – the Czech Republic, Slovakia, etc. “The main conclusion is that Bulgaria needs reforms in order to have competitive power and growth.”, said he.

A major task for this country, according to Hampartzoumian, is to strengthen its competitive power which can be achieved when the real sector reforms are enhanced. “The only field, in which I think investments are needed without looking for immediate direct return, is education”, Hampartzoumian added. The reforms in the judiciary system and healthcare are extremely important too, he said. “The curious thing is that conducting full reforms is a political suicide. This is not a Bulgarian but a world’s phenomenon. Normally the one that carries out the reforms looses power, possibly for more than one term in office. Therefore election speeches always proclaim these as the priority fields, but it is quite another story when you are in power and understand what has to be done and what will be the consequences for you. Even the strongest governments in the world are not so successful in reforming healthcare”, Hampartzoumian thinks.

He underscored that in terms of climate Bulgaria is fantastic with great seasons. “We have history from many civilizations on our lands and all these civilizations chose to live here”. “It is curious that over its history Bulgaria has always been at empires’ borders – Roman, Ottoman, Soviet, and now the EU and as every border country we have a different way of thinking, we have good and bad traits.”

Hampartzoumian thinks that the 1997 crisis lay the foundations for active and very systematic conducting of reforms. “This is also a way of development, not very pleasant, but it’s a fact. That crisis led to the introduction of the currency board arrangement which turns out very good for us in the current world crisis”, he added. The high growth between 2006-2008 is due to FDI in the two main sectors – financial services and real estate.

The improvement of the quality of the public sector services is also among the reforms, that should be a priority. “Today we pay comparatively low income and corporate taxes, however indirect taxation in Bulgaria is rather high”, said Hamparstoumian. He thinks most problems of Bulgaria will be resolved not from political desire but due to logical need. “What will take Bulgaria out of the crisis and make it a nicer place for living, is the entrepreneurship of every single Bulgarian and of the companies in this country, and not the EU, the subsidies or the government. Those that have good ideas and have responsible behaviour, will develop”, said he.

Asked by a student whether the Banks in Bulgaria are stable, Hampartsoumian replied that he considers the banking system in Bulgaria stable and pointed out that unlike Western Europe and America, our government did not have to save banks and spend taxpayer’s money. The reason is that the banks in this country deal with traditional banking – servicing of loans and giving deposits, we do not have “toxic” assets and we have very conservative regulations.

Questions asked by the students:

I recently read an analysis that banks in Bulgaria can survive if bad loans are up to 20-25%? Will banks survive, especially the small ones?

- LH: Banks in Bulgaria are stable and strictly regulated. Even in the good years there were bankruptcies, but they did not even hit the headlines. Those were small-scale banks which pose no systemic risk for the economy.

Do you think as a banker that Bulgaria is a good destination for the foreign direct investments and do we have good prospects for the future?

- LH: Bulgaria is by far not a bad FDI destination, but for sure we have a lot of room for improvement. We compete not with ourselves but with the world. In world rankings Bulgaria is always somewhere in the middle by business-friendly conditions. We must keep in mind that we compete with Vietnam, the Baltic States, Romania, Turkey, which are much bigger than us and have bigger potential. But if we want to grow with the sustainable 4% or more we must become a “preferable destination” in the ranking, which we cannot achieve only with low corporate taxes. It is interesting that we do not have natural resources, which in fact is not that bad. There are many countries with natural resources which attract olygarchs and dictators while the population is extremely poor. Some of the most developed countries have no natural resources – look at Japan, Switzerland. We are much closer to those countries. We only need to organize outselves better, to have educated people and a strong civil society which to control the governments.

What do you think about investment banking in Bulgaria, about the Bulgarian stock exchange?

- LH: In order to have a well developed stock exchange we must have debt, volumes, even Vienna is a small market compared to the world markets. We must have some sort of regional consolidation, in order to have a realy good exchange. If you look at the big centers like Singapore, London, Tokyo, New York, there we have layers of various layers of companies, products. The volumes traded at the exchanges are a natural protectionagainst attempts for manipulation.

If you were a student from the American University, are graduating now and have a little money, in what would you invest it?

- LH: The golden rule is never to put all your eggs in one basket. If you are to invest in private business, try to find a business that you understand and like, because as Confucius said: “If you like what you do and do what you like you will not have a single working day in your life”.

What do the banks do to support their clients during the crisis which affects them?

- LH: Banks are not interested in loosing their clients and will do everything necessary to restructure loans, in order to keep the client. However, we are in a third year of restructuring and helping certain companies. It is time for these companies to either ride out of their problems, which they will do if their business model is good. However, if there is no improvement, their models is obviously wrong and keeping them on the surface is doing good to no one in the long-run.

What can you forcast for the real estate sector?

- LH: The real estate sector’s future is good, if you have the time to wait. The 2006-2008 boom resulted from the fact that expectations were bigger than reality and there was a big FDI inflow due to that. But those people who invested had seen the summer only, they had not gone to Varna in the winter. The real estate sector will recover, probably the office areas sector is rather glutted, almost glutted is the commercial area sector, in every big city there are malls, but there is still potential there. The sector of residential and industrial areas will develop. The difference will lie in the fact that the real estate market development will be led by local demand, and not by foreign investors.

Do you think that Bulgaria must focus on the third sector – services or should we aim for production?

- LH: The countries that kept their industrial capacity like Japan, Germany and the emerging markets like Brasil and China are much more successful than those who believed that the services model will be able to replace production.

When can we expect lower interest rates?

- LH: When the economy starts showing indications of sustainable growth.

In Bulgaria there are low taxes and low labour price. Do you think that foreign companies use this country for profit only?

- LH: Naturally, one of the objectives of the foreign companies, as well as of a company with Bulgarian shareholders, is to make a profit, this is normal. But it is very important that foreign companies use considerable funds and create conditions for training and high qualification of their employees, give reasonable salaries … I’ll give you an example: currently 16 Bulgarians are on top positions in various countries in UniCredit Group. I am not talking about regular jobs, I am talking about top managers in Switzerland, Vienna, Munich, etc. So, it is true that every year we pay dividends to our shareholders and if we start paying less, they will not be willing to give so much capital or invest in Bulgaria. But the only way to grow as a country is to have foreign investments. You know the zero sum cake theory (editor’s note: this theory described a situation in which cutting one piece of cake leaves the other participants with a smaller piece of cake). However, the foreign investments’ effect in Bulgaria in fact is that thus our cake becomes bigger. Even with the outflow for dividends to foreign shareholders, more remains here than if there were no investments.