Institute for Market Economics    Events and News

Bulgaria Events and news

What's New - 10.07.2000

LEGAL AND REGULATORY REFORM

IMPACTS ON PRIVATE SECTOR GROWTH

Assenka Yonkova (editor), Borislav Georgiev, Diana Kopeva, George Stoеv, Krassen Stanchev (editor), Pavlina Petrova, Petya Mandova, Svetlana Alexandrova, Svetlana Yanakieva, Tzveta Dimitrova, Zora Blagoeva, Alexander Kashamov

14 April 2000 (funded by USAID)

Task and scope of work
This report summarizes results from USAID-funded research on Legal and Regulatory Reform in Bulgaria That Affects Private Sector Growth. It deals mostly with laws endorsed by the Parliament" in 1998-1999. The general objective was to assess the level of regulatory reforms in the country that affect the private sector's performance.

Structure of the report
The report begins with the description of the sources and the methodology. Then it gives a brief summary of the peculiarities of legal and regulatory reforms in the years preceding the 1998-1999 research period. The idea of this part of the report is to give an insight into the legacies of previous reform attempts. The actual analytical part is divided into six sections:
1) impacts through general financial stability;
2) immediate impact on microenvironment of companies' day-to-day and year-after-year operations;
3) the provisional effects of regulations enforcing private property and creditors' rights;
4) provisional impacts of regulations related to public governance (e.g., the SME Law, the laws on administration and public service);
5) the regulatory requirements stemming from international agreements expected to have an impact on private sector performance;
6) a review of the customs tariffs and private sector advocacy efforts to influence policies in this field.

These sections contain brief summaries of advocacy effort where relevant. However, the next major part provides an overview of the private and non-governmental sector activities that aimed at influencing the regulatory reform. It also contains a table of foreign and domestic foundations, which sponsored seminars on different reform segments. Conclusions of the analytical part are presented in a separate paragraph and another section deals in particular with different methods of continuous monitoring and efficient evaluation of the legislative reform. The final part of the report explains the structure of the attachments and gives tips on how to use them.

Download full research report as single PDF file (223KB).

29.05.2000

"Calling Cyprus, the capital outflow and the strategic investments"

Last week (29.05.-04.06.) the Parliament "closed one of the doors through which the capital fled of Bulgaria" by unilaterally denouncing the Agreement on avoiding double taxation (AADT) with Cyprus, upon Government's proposal. This act of the Government deserves our highest respect - as it fails to create incentives for foreign capital inflow, why not plugging up all holes through which these capitals leave the country? But is the siphoning of the poor Bulgarian financial resources the real purpose of the phenomena "off-shore companies"?

The agreements on avoiding double taxation appeared in the Bulgarian legislation in the middle of the 80-ties when the foreign debt of the country grew up. Probably, at that time the siphoning of capitals from Bulgaria was their primary aim. But up to last week more and more presidents and chief accountants of Bulgarian firms considered registering parallel firms in an off-shore zone (preferably Cyprus, because of its favorable geographical location and taxation regime, as well as existing AADT) only for avoiding the excessive taxation-social insurance burden in Bulgaria. Is this a "capital siphoning"? Hardly, for the saved in this way money is distributed among Bulgarian employees of these firms, too, by increasing wages, bonuses and additional social benefits. Which are spent in Bulgaria.

So, it turns out that instead of combating the reason for the phenomenon, the Government tries to "cure" its consequences. This means that instead of creating a normal investment and business climate in Bulgaria it goes fighting the "bad offshore companies".

In 1999, Cyprus was Number 1 among countries investing in Bulgaria. So we should ask ourselves several questions:

1. Why, after it was obvious for everybody that the AADT with Cyprus is unfavorable for the Bulgarian state budget it was not denounced until now?

2. Many investors, who took the risk to come to our country and used the opportunity to lower their taxes by registering a company in Cyprus, will remain captured by the constantly changing political will in Bulgaria. If these investments were not welcomed, why in the last year so many enterprises were sold to Cyprus firms?

3. Does the Government really believe that by denouncing this agreement it will stimulate the interest to our country among the so called "serious investors"? They are actually beaten back by this instability and impossibility to plan its activity for a reasonable time period (unlike Bulgaria where the business is already used to planing its activity for a very short period of time in the "normal" countries still exist and are applied both the middle-term and the long-term planning).

A good idea would be to conclude an agreement between the Bulgarian government and the USA, for example - so the share of agreements with "serious" investors will "substantially"increase.

And, finally, allow us a little tip to the Government - it is now the time to look through all AADT, in order to avoid the appearance of other "traps" which could undermine the state budget.

22.05.2000

Agribusiness forum 2000, 3 - 5 May 2000

The second edition of Agribusiness forum was subjected to the idea of Vision of Future. It was organized by the Ministry of Agriculture and Forests and Bulgaria Economic Forum. Main sponsors were Amylum Bulgaria, Central Cooperative Bank and State Insurance Company.

Main Forum aspects were:
1. Land market. Discussions outlined the necessity of: identifying real land owners; building a working and customer-oriented information system of selling and purchasing agricultural land; public access to transaction prices and fees. International institutions representatives recommended establishment of unified cadastre and land property register (adopting Law on cadastre and land property register was assessed as a positive step). There was a lively discussion about imposing a tax on agricultural land. Most of the participants in the discussion agreed on the idea that imposition of land tax will activate land market and indirectly will lead to land consolidation and building of viable farms.
2. Sources of funding. Internal and external sources of funding were presented in parallel and it was stressed on opportunities for restructuring agriculture through SAPARD programme.
3. Organic farming. Organic farming was outlined as an alternative opportunity for occupying new niches in EU markets. Some problems were identified such as: lack of government policy toward ecofarming development and lack of legal framework for certifying eco- products. Counterpoint of organic farming were technologies of genetically modified organisms and their impact on consumers and environment.
4. Structure of farms. Discussion subject was the condition of existing farm structures and their possibility to meet EU requirements.
5. Challenges to agribusiness in the process of EU enlargement. Main aspects of discussion were: pace of restructuring agrarian sector, crucial moments in negotiations with EU, competitiveness and common agrarian policy.

Special guess was Franz Fischler, EU Commissioner on Agriculture and Fisheries. In his speech he stressed on need of:

• development of land market, aimed at facilitating investments in different sectors in rural regions;
• elaborating a strategy for rural development;
• elaborating a strategy for sustainable agricultural development;
• supporting organic farming development as one of the most dynamic developed agrarian sectors in EU.

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NSI announced a 2.4-per-cent real GDP growth in 1999. Meanwhile, the official statistics is still unable to cover a huge share of the economy. Rough estimations show that the economy grew last year by more than the official 2.4 %, as the broad money increased by some 17 % without any significant inflationary pressure. Thus, the informal sector is the most dynamic one.

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BNB's different high officials continue to show up with notions against the early introduction of euro as domestic currency in Bulgaria. The central bank's semi-official position is obviously to stick to the currency board arrangement until Bulgaria's entry into the European Monetary Union.

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Present pre-election situation in Bulgaria is featured by confidence crisis - corruption remains the major topic. Problem is not whether it exists, but that society cannot do anything about it. A winning pre-election campaign should include clear mechanisms for constitution of civil control over managing state and economy.
1. Decency of political process has to be introduced by amendments of party and election financing:

• sources should consist of membership fees, grants and state subsidies for election campaigns (envisaged in the State Budget Law of the respective year); economic activity of political parties and grants from SOEs should be prohibited;
• public access to lists of sponsors and individual candidates;
• sanctions for publicity breach must be considerable, at least three times the amount of avoided reporting.

2. Voters ought to be able to know whom are they giving their votes to, i.e. a majority element should be introduced, either by coming back to the election regulations from 1990 (50/50 majority and party-list system), or any other clear form.
3. In order to shed light of the government, the following should be present:

• publicity of state administration records (the so-called "public information"), excluding those explicitly restricted by a law;
• publicity of government intentions, i.e. guaranteeing a mechanism for preliminary discussion of draft regulations in the pipelines of the cabinet and parliament; discussing drafts with interested partners, bearing implementation costs;
• public information on services and goods purchased by the government; definition of public procurement and detaching control from the Prime Minister.

4. Amend general rules of civic commitment and control, following the structure of the Constitution:

• at individual citizen level - implementation of appeals before the Constitutional court;
• at municipal level - grant fiscal independence;
• at government level - abolishing the opportunity for substitution of the constituting vote of the particular assembly, according to Art. 99 of the Constitution (the three attempts for overcoming a government crisis to be limited to one, plus introduction of a deadline for composing a cabinet);
• President's veto should be overruled by 2/3 majority of all MPs;
• at MP level - immunity to be limited, provided voting for specified individuals is in place and there is no "majority rules".

5. Implementation of property rights - liberalization of private property disposition (free from government intervention); rise of business communities prestige through:

• restriction of state control to licensing health, personal and national security; no transfer of licensing costs to private sector; limitation of state resolution on procedures, explicitly adopted and stipulated by laws;
• avoidance of post-privatization control on concluded deals with provisions for necessary conditions (predominantly open procedures and disposal of state shares);
• facilitation of access to commercial and credit registers.

For the past three years, the government lacked critics from the "right". Pure financial (monetary and fiscal) aspects of the economic policy were unclear to those who implemented the measures. This is why they supplemented it with channels for redistribution, based on group and party criteria. No public sources of trust were created outside the specific

16.05.2000

The Council of Ministers supported last week the proposed amendment to the Law on Radio and Television Broadcast. According to the amendment alcohol and tobacco products advertisement is prohibited. The only way to advertise in television and radio broadcasts can be spots broadcasting presenting short information about the producer and the price of the product (in other words - information not advertisement).
The external intervention on the advertisement market will provoke changes in the financial resources distribution among different participants. The new prohibition of advertisements in television broadcasting will finance the newspapers. The data collected through surveys on cigarette advertisements shows that foreign producers are investing in television advertisements opposed to Bulgarian ones - they prefer newspapers for advertising. Gallup estimates financial resources invested from foreign producers in advertising to be BGN 479 654 . Thus the Law on Radio and Television Broadcast may guarantee to newspaper editors certain amount of money from tobacco advertisements.
The supposed change in the financial status of the advertisement market is a possible reason for the contract for combined tariffs signed by representatives of the newspaper editors. The reached agreement gives the newspapers the opportunity to collect more money from advertising. At the same time the price of the advertisement is lower when one advertises in several newspapers. This frame of a contract between editors shows effort of newspapers to attract future advertisers.

As a delayed reaction came the critics on Deputy Premier's (and Minister of Economy) report for introduction of Urgent Measures for Business Environment Improvement, adopted by the Council of Ministers late April. Critics stressed upon tardy implementation deadlines set (choosing among three versions of tax rates amendments, which is due end-2000). All three options suggest increase of non-taxable minimum by 50%, decrease of rates and additions of another rate level, i.e. tax burden mitigation. Share of incomes in the state budget from personal taxes is considerable - more than 10%. Probably the concept of such a reform is to improve taxes collection. Nobody really thinks this is part of the social policy. What is not taken into consideration is, that problems arise from corporate tax levy (firms alleviate taxes as survivalist strategy). Instead, attention should be paid to the Ministry of Finance propositions to shorten the VAT-return term (stimulating trade), and fragmentation of patent tax collection.

17.04.2000

The Council of Ministers supported last week the proposed amendment to the Law on Radio and Television Broadcast. According to the amendment alcohol and tobacco products advertisement is prohibited. The only way to advertise in television and radio broadcasts can be spots broadcasting presenting short information about the producer and the price of the product (in other words - information not advertisement).
The external intervention on the advertisement market will provoke changes in the financial resources distribution among different participants. The new prohibition of advertisements in television broadcasting will finance the newspapers. The data collected through surveys on cigarette advertisements shows that foreign producers are investing in television advertisements opposed to Bulgarian ones - they prefer newspapers for advertising. Gallup estimates financial resources invested from foreign producers in advertising to be BGN 479 654 . Thus the Law on Radio and Television Broadcast may guarantee to newspaper editors certain amount of money from tobacco advertisements.
The supposed change in the financial status of the advertisement market is a possible reason for the contract for combined tariffs signed by representatives of the newspaper editors. The reached agreement gives the newspapers the opportunity to collect more money from advertising. At the same time the price of the advertisement is lower when one advertises in several newspapers. This frame of a contract between editors shows effort of newspapers to attract future advertisers.

10.04.2000

Collective labor agreements will fix minimal wages in different branches for 1-2 years. Confederation of Independent Trade Unions in Bulgaria (CITUB) and the Minister of Social Policy are negotiating on new proposals for amending the Labor Code. They will give a new opportunity to the State to control wage levels in private sector. Minimal wages in different branches will be obligatory not only for the state companies but also for the private ones /including companie that did not agree to apply such collective labor agreement/. Expected increase in wage levels will rise social security and health insurance costs, taxation and employers` costs. The minimal branch wages will affect the forthcoming privatization in main economic sectors in the following two ways:

• it will discourage the foreign investors due to the compulsory nature of the agreement
• it will decrease the employment rate of the economy in long-term period because it will be another new obligation to employers included in the Labor Code

There is no accidental events in negotiations between CITUB and government. Trade Unions take active part in negotiations within the Tripartite Council - the other parts are Bulgarian government and employers. The opportunity to fix minimal wages will increase the role of trade unions in different sectors of the economy..There is no accidental events in negotiations between CITUB and government. Trade Unions take active part in negotiations within the Tripartite Council - the other parts are Bulgarian government and employers. The opportunity to fix minimal wages will increase the role of trade unions in different sectors of the economy.

03.04.200

On 30 March 1999 the Constitutional Court announced anti-constitutional 8 texts of the Tax Procedure Code. The decision has the following major effects:

• the state has no more privilege position among the creditors when collecting its private receivables;
• approval by the Ministry of Finance is no more necessary for amendments in the tax legislation

27.03.2000

In the case with the privatization of "Borosport" the Ministry of Economy obviously decided to choose the approach described in the Bulgarian proverb "Measure twice and cut once". As already mentioned in our previous comments, one of the first decisions of Petar Zhotev as Minister of Economy was to prolong the impossibly short period for presenting the offers of the potential buyers of the company. After it turned out that one of the candidates that passed over the first round of the procedure can not present trustworthy evidences for having transferred the money for the deposit, the other candidate have been pronounced a winner. There are many indications however that a second procedure will be announced for choosing a buyer for the strategic for the resort company. The scandals which supported the first negotiations (procedural omissions, law suits, restitutional claims, etc.) compromised it. In addition, the Ministry does not seem satisfied with the terms contracted with the buyer - the MEBO "Borosport Borovets". So Minister Zhotev has two choices: either to declare the MEBO a winner in the procedure having in mind the principle "better sold through imperfect procedure and private instead of still state-owned" (but let us do not forget that the company is profit - making so the Ministry is not in urgent need to sell it) or start a second privatization procedure. We wish the Minister success if he decides to make a second try - this time the players will be probably the same but the winner will not be known in advance.

European integration: Albania, Bulgaria and Macedonia have submitted applications for financing 30 projects to the Stability Pact Working Table II (Economic Reconstruction, Development and Cooperation). This weeks' summit in Brussels will be discussing projects of regional importance. Liberalization of trade with EU members continues - 600 goods will be traded with zero-customs duty starting beginning 2001, thus maintaining asymmetric approach. Repair of blocks 5 and 6 of the nuclear power station Kozloduj (NPS) will begin this summer. The American Westinghouse, and European Consortium, consisting of Russian and French companies have applied to the reconstruction works. This will be financed by the EU, providing 1500 new jobs. In the meantime, France Press spread a Romanian national TV segment, accusing Bulgarians of concealing radiation emissions. This radiation from the NPS was destroying health near settlements of inhabitants for years. Our authorities' reaction was, that for the past 25 years, no cases of leakage have been noted neither by Bulgarian, nor by international experts.

20.03.2000

The legislative program of the Bulgarian Government for the period 1.01 2000 - 31.07.2000 includes 53 new draft laws or draft laws for changes and amendment of already existing legislation. The very first impression is that a significant part of these drafts are connected with the tax and social security policies of the Government. Even the changes in the Penal Code are directed towards criminalization of the non-payment of social contributions in a particular big amount. It will be good if all these active steps bring some clarification of the tax and social security policies and not more legislative mess. Another main part of the draft laws in the government program are directly connected to the topics of the coming Bulgaria - EU pre-accession negotiations, especially in the common foreign and security policy. A third group of laws is directed towards introducing of a government housing policy in Bulgaria which was totally missing in the last 10 years. Perhaps as a part of these efforts the draft Law on Mortgage Bonds will be passed at last after the one - year discussions on it among interested institutions and organizations.
Last week the tax administration launched a so-called "control over wholesale trade tax fraud". This means that tax officials stop and check every person at the exit of the wholesale market for the purchases made and require invoices and cash receipts to be presented. With this measure however the tax administration:

•violates the right of free movement of citizens, which by law is within the competence of police authorities;
•violates the right to privacy - i.e. tax officials require information on purchased goods;
•treats all citizens as potential criminals;
•shows weakness to deal with tax evaders with the tools provided in the Tax Procedure Code.

13.03.2000

Last week a roundtable on "Urgent measures for sustainable economic growth in 2001" took place in Sofia, with representatives of the government, the business associations and NGOs taking part. There the government listened to the proposals without providing concrete answers. Two tendencies however can be tracked:

•According to the Chief Tax Director Anton Donchev, the tax system shall be based on volunteer payment, and also the main goal of the tax administration would not be to collect revenues for the budget but rather to be a partner to the business. These statements contradict economic rationale and the definition of tax as a compulsory payment to the state. They also show that tax administration is moving away from real problems of tax and social insurance systems.
•Events like "roundtables" where the government claims to be negotiating with the private sector have become more frequent recently. Without commenting on the representation of such fora and the legitimacy of negotiated policies, we shall have to highlight the absurdness of the so called "social contracts" that have been negotiated. Such "social contract" for example attempts at fixing the relative prices of bread, flour and wheat. The labor unions on the other hand proposed a "nation-wide collective labor bargaining", which is deemed to protect the interest of all workers. According to IME, this is an attempt on behalf of the unions to retain tools for participation in the economic policy of the government, after the proposed amendments to the Labor Code would restrict their power.
•Zachari Zheliazkov, head of the Privatization Agency, explained the input of non-price future commitments in the privatization contracts with the pressure from the trade unions, mass media, and the whole society; this should be the reason also for the prevailing use of "closed" privatization techniques - tenders and negotiations - in the practice of the privatizing bodies, as well as for the existence of the post-privatization control.

Progress in the EU accession process for Bulgaria this spring expressed in agreeing upon the first five topics of the negotiations: SMEs, R&D, education and training, international relations, common foreign policy and security policy. Similar are the topics for Lithuania and Slovenia. Unlike the EU, accession countries are eager to include more than 5 topics in the first round, like statistics, audio-visuals, culture. Bulgaria's Chief Negotiator bargains supplementing the negotiation package with three more topics. EU considers adding no more than one. The situation looks like chaffering - candidates believe to be ready to assume more responsibilities, but the EU insists on limited number of topics (considered easy by both negotiating sides). Romania is considered lagging behind since they are starting off with only 5 topics. However, what the working teams fail to explain, and journalists overlook, is that in this case "negotiating" does not mean achieving mutually beneficial agreements, but a process of introducing EU regulations and standards into candidate-country's legislation. Still pending is the question of how effective is the Bulgarian negotiating team. For instance, there are 500 experts signed up, while Polish team is 17-times smaller. Intriguing is also the fact, that there are ideas to buy a building in Brussels, providing premises for about 200 of them. And this is meant to cut off negotiating expenditures!

For the second time after the banking crisis of 1996-1997 and after the introduction of the currency board in Bulgaria, BNB took measures toward closure of an insolvent bank. After revoking the license of the "Creditbank" in early-1999, at the beginning of March 2000 BNB revoked the license of Balkan Universal Bank (BUB). The reason for the bank closure is the big number of delayed payments. This closure will barely have any significant negative effect on the banking system, having the small market share of BUB. In September 1999 its assets were only 0.3 % of the total banking system assets. For the last year BUB`s losses were 15 mln. leva and its capital adequacy was negative. The attracted deposits of the bank are some 0.1 % of the total. The deposits from non-financial institutions and households are just about 3.2 mln. leva, more than half of them (1.7 mln.leva) are deposited by one company - "Litex Commerce". There seems to be problems with settling of creditors` claims, since almost all big assets of BUB are litigious. The biggest losers from the closure of the bank are the State Reserve with claims for 4.116 mln.leva and two insolvent banks - "Capitalbank" and "Balkanbank" whose total deposits in BUB are 5.1 mln.leva. It become clear from the preliminary calculations that the Deposits Guarantee Fund has to reimburse some 1.5 mln.leva to the bank`s clients. This is hardly going to be a problem for the Fund with its 31 mln.leva funds raised. Technically, the reimbursement of the guaranteed deposits will not be complicated due to the fact that BUB has just 4 branches (two of them located in Sofia) and small number of depositors.

06.03.2000

By the end of February the Law on Transformation and Privatization of State-Owned and Municipal Enterprises was amended for 19th time since adopted. According to the amendment, the price offered by MEBOs will be discounted not by 10% but by annual discounting rate of 10%. The methodology will be approved and adopted by the Privatization Agency. This new order will to some extent equalize the conditions for candidates which are to pay when the contract is concluded and the MEBOs which payment is deferred. Another effect will be the decrease in the individual discretion of privatization bodies which for the time-being have to apply supplementary (non-price) criteria when choosing between higher price but with deferred payment and lower price to be paid in cash. Of course, when having in mind the average annual interest rate on long-term credits for the private sector (13-14% according to BNB) the MEBOs still have the advantage.

28.02.2000

Last week BNB announced the latest figures of the balance of payments (covering January - November 1999):
•BNB's foreign reserves increased by USD 209 million for the period.
•Foreign Direct Investments are up with USD 341 million on the basis on the same period 1998.
•In parallel with the FDI, the import of investment goods increased by USD 232 million on the basis of the same period 1998, contributing for the increased trade deficit.
•Although the trade balance is negative by USD 925 million, the positive balance on services and the positive financial account entirely compensate for it.
•The volume of exports fell by USD 376 million; however the volume of consumer goods exported went up, showing improved competitiveness; the share of consumer goods in the exports increased by 4.4 percentage points at the expense of the share of raw materials and energy resources;
The Foreign Investment Advisory Service (FIAS), a joint facility of the International Finance Corporation and The World Bank, presented a report on the administrative barriers to investment in Bulgaria. The study was conducted at the request of the governmental Foreign Investment Agency and aimed at presenting complete investment guide, as well as showing the inefficiencies in the regulatory framework and the public administration functioning, and giving recommendations how to overcome them. The report covers four distinct areas:
•entry and employment of foreign citizens in Bulgaria.
•reporting before public authorities.
•physical locating of business.
•operation of the company.
Although not comprehensive the study addresses a bulk of administratively determined problems that foreign investors face by their entry and operation in Bulgaria. Changes are recommended that would eventually improve the business environment, as well as optimize the functioning of the public administration.

The Law on the Census of Population, Housing and Agriculture Estates in Bulgaria in 2001 was promulgated on 25 February. IME already warned of the possible consequences related to the high implementation costs and potential violation of basic individual rights:
•Most of the data which should be collected during the census is already collected under other auspices such as issuance of new identification documents or property declarations to the tax administration. The duplication of collection and processing of information leads to higher costs for the administration.
•The obligation of the citizens to ensure access for the interviewers imposes costs to those who are detached from their everyday activities. For 2 million working under labor contract alone, and given the average daily wage of 10 leva, the total cost reaches BGN 20 million, if the citizens have to wait only one day at home. This amount averages at 0,08% of the projected GDP for 2000.
•The present ambiguous provisions of the Law provide the National Statistical Institute with discretioniory power that might threaten during the census the right to private property and personal privacy of citizens guaranteed by the Constitution.

Last week the Minister of Finance issued an order that approved the form of "Statement for Amounts Paid" and "Formal Statement" as provided in Art. 39 (2) of the Personal Income Tax Act (PITA). The form requires also a declaration to be filled which should contain data on different circumstances including income received since the beginning of the year, and income taxed with social and health insurance contributions. We believe that the requirement of such declaration exceeds the competence of the Minister of Finance according to the PITA. Moreover, the new Tax Procedures Code guarantees the right of the tax subject of confidentiality regarding "nature, source and size of income and/or revenues and expenditures". It is obvious also that the introduction of legal obligation for the taxpayers to reveal data on income received to other persons than the tax administration, makes futile the obligation of the tax administration to protect the confidentiality of information.

21.02.2000

One of the key moods of the previous week was the evolving suspicion that Bulgarian Telecommunication Company will not be sold to OTE and KPN. The mood will not disappear this week or any time sooner. The very fact the deal is still pending is already interpreted as confirmation of the inability of the government to finalize things. If this opinion is to be justified the anyhow modest investors interest will go under the rubric "wait and see". The EU attitude - currently doubtful about continuity for after 2001 period - will land on procrastination, a perfectly employable manner of the EU structures.
The new development is that, in fact, for the first time - through the media, but after ОТЕ/KPN suggested deadline of February 15, 2000 to reach a new agreement in principle - the argument of "endangered national security" was used. Presumably, as press quoted the minister of transport and telecommunication, the threat stems from the OTE control over BTC and suspected future toleration of suppliers like the Greek Intracom (alleged in laundering ex-KGB/STAZI funds). There is no information whether the buyers received any document explaining these considerations. But if negotiations are to continue, this is a rather untypical manner to request a revision of the shareholders agreement OTE and KPN.
IME comments on these developments are as follows:
· if there exists a background explanation concerning "endangered national security", duly expressed by the administration, the only place it could come from the ad hoc committee on the sale of BTC, which involves ministers of defense and interior;
· no change in the shareholders agreement can guarantee against any future supplier; such contacts are subject to the public procurement law, which execution is supervised by the prime minister;
· the time and the manner of expressing "national security" concerns indicate that the government is procrastinating BTC negotiations because of interests it does not find appropriate to speak publicly about;
· this fact would confirm the general impression that the government of Bulgaria is incapable of finalizing things; would feed up questions about who runs government policies: the prime minister, the security services, the owners of the actual beneficiary from prolonged GSM-monopoly, Mobiltel Jsc., or somebody else.;
Current delays in BTC sale and possible blockage of the deal would send a bad signal to the investors community and would hamper the provisional interest in other deals, e.g. those related to the privatization of the power sector. Press "forecast" that Greece will block Bulgaria EU negations is an obvious exaggeration. But the mentioned above general impression that "Bulgaria is a difficult country" will do enough harm. In this situation, the press and the public opinion tend to believe explanations using national security rhetoric.
Krassen Stanchev

Last week the Bulgarian Association Civil Society and Law Initiatives announced that the Supreme Administrative Court (SAC) has revoked the Association's appeal against Council of Ministers Decree 23 of 10 February 1999, on the Implementation of the 1999 State Budget. The grounds for the appeal were that two appendices which endorse the budgets of state bodies, ministries, district governors and other budget organization were not promulgated in the State Gazette. Thus the obligation for promulgation of all normative acts is being violated. In its decision the SAC claims that the above mentioned documents are not normative acts but rather general administrative acts, and they do not need promulgated to be enforced. With this decision the SAC assumes that information on budget organizations' financing does not concern unlimited number of citizens, and therefore is not to be publicly available through promulgation. The decision marks a dangerous precedent in two dimensions: it allows government not to publish some of its acts on grounds that they are administrative acts, it also reduces the transparency of public spending.

14.02.2000

The Prime Minister Ivan Kostov reported before the Parliament for the execution of the Program 2001. The main points of the report focused on the already completed goals of the government:
— the official invitation for negotiations with the EU.
— the financial and economic stabilization.
— the momentum in the restructuring process - 70 % of the privatizable state-owned assets are already in private hands.
— the liberalization of the domestic and foreign trade.
— the almost completed restitution of the agrarian lands.

Mr. Kostov mentioned the reform in the Bulgarian army as a basis for broader cooperation with NATO. He also promised that the reformed health-care system will overcome its current catastrophic condition.

07 Feb 2000

Licensing regimes in Bulgaria
The working group lead by Mr. Peter Zhotev, Vice Prime Minister and Minister of Economy presented to the government its report on licensing regimes in Bulgaria. The group suggests that 40 licensing and permission regimes be abolished and another 150 - relieved. The report outlines the major policy changes that are needed to reduce the burden on entrepreneurs:

• government regulation should be limited to protection of human health, social order and national security;
• licensing requirements should be introduced only by law;
• normative acts of administration should not enlarge the requirements set in the law;
• coordination between all institutions involved in one licensing procedure should be improved and one-stop shop procedures should be introduced;
• when a new licensing requirement is to be introduced it should be well motivated and consulted with the Legislation Council.

The report shows the government understanding of the costs that licensing requirements pose on businesses. The recommendations in the report coincide with the IME philosophy of limited government, low entry barriers for business and transparent administrative procedures. IME report on licensing in retail food trade, wholesale trade and commercial road transport in selected cities is to be published soon!

J.Haider and "united Europe"
Turbulence in political layers of Austria threatens to become a crack in the tidy cover of "united Europe". Some Western-European countries, probably influenced by modern pro-Semite moods, have expressed "international worries" of having rightist coalition govern in EU country. The Party of Liberty leader Jorg Heider was accused of xenophobia and hampering EU enlargement, based on his biography and statements. Austrian community hesitates whether to stand for its choices, or indulge its opponents. Pressed by intensive negative notes, the European Commission called a special session to discuss implementing penalties and "preserving European democracy". Actually, imposing pressure and isolation to a political formation, elected by EU citizens, should be raising concerns. The Bulgarian President, Mr. Peter Stoyanov fears that the new Austrian government can endanger our "national interests". Only, becoming an EU-member is stated as such not by the Nation.

BTC privatization - to be continued ...
A new improved offer for BTC was submitted by the consortium between Dutch KPM and Greek OTE. The price offered for the Bulgarian telecom remains USD $510 million but the new offer stipulates the government to receive up to US $30 million dividends from the BTC profit, as well as US $10 million in shares from the future increase in the company`s capital. KPN/OTE abandon their requirement for monopoly over international data transmission and Internet services. The consortium intend to invest US $150 million. It is stipulated half of this amount to be spend for increase in the BTC capital, another half to be a corporate credit with an option to be converted in shares. The Bulgarian government may receive up to US $200 million under the provided scheme for distribution of the profit from eventual public offer of BTC shares.

01-Feb-2000

Minimal wage debate with IMF
Last week IMF Mission to Bulgaria and Bulgarian government finally reached agreement on minimum wage increase for 2000. The Mission was firm on gradual increase to 70 and 72 leva, while the government insisted on 100 leva, and the trade unions demanded 120 leva. The size of the minimum wage has insignificant impact on income in Bulgarian economy; however, it serves as a benchmark for determining the social and health insurance contributions due. Any increase of the minimum wage would lead to increased social welfare burden and thus hinder private sector activity.

Tourism Sector Privatisation
The privatization of Golden Sands JSCo (assets include the land, the infrastructure and many restaurants, hotels and bars in Golden Sands resort) and 60% of Borosport JSCo, which maintains the infrastructure of Borovets resort, started with a scandal after it turned out that potential buyers had an unrealistic short deadline to get acquainted with the above two companies and deposit tender offers. The tenders were suspected to be manipulated. This could be true, if we take into consideration that hotel owners in Borovets and Golden Sands are practically dependent on conditions set by the owners of the two companies for using infrastructure. The Minister of Economic Development Mr. Petar Zhotev prolonged the period for presenting offers and suddenly became one of the few to gain from the commotion - the quick measures he undertook proved he would not pay for other's mistakes and helped keep the tourism sector supervision within the structure of his ministry.

State Guarantees for Priority Projects
Last week the Government approved a list f 17 projects, for which state guarantees will be underwritten. The total amount of the guarantees is US $799.916 million. A priority is given to investment projects in sectors of energy, transport, education and culture, ecology, health and social insurance. Main creditors are the European Investment Bank, European Commission, World Bank, EBRD, etc.

• Positive is the fact that for the first time in the process of underwriting state guarantees public/transparent.
• The Bulgarian external debt will increase with the guarantees, which means increase in the ratio external debt to GDP (the ratio should decrease according to the government program and the criteria for EU membership).
• Due to the fact that the state budget for the year 2000 has been already adopted, adding guarantees would require increase in the budget expenditure through re-voting the budget in the National Assembly, or compensation of these spending through reduction in other expenditures stipulated in the budget for other purposes.
• Part of the guarantees are given for World bank financed projects and there is a difference between World bank's and IMF's positions. IMF insists on reduction of external debt burden and gradual shifting Bulgaria towards private international capital markets.