For 27 months, since the first quarter of 1999 IME has observed the progress of the business climate and issued a bi-monthly monitor of the business environment. All of the bulletins have been published in the official press, mostly in "Pari Daily" newspaper, and can be found on the IME's web page (www.ime-bg.org). Our goal is to support the economic policies, their orientation and the overcoming of some external shocks. The major criterion for evaluation is to what extent the legal framework and the politics restricts or encourages competition and economic freedom. We have never shied away from negative appraisals. And we'll continue like this in the future. Now it is time for conclusions. For the past period we have analyzed the BNB regular reports, the government budget and NSI data, and all legal acts adopted by the Parliament and the Council of Ministers (1). When we had the opportunity, we've paid attention to the legal acts of line-ministries as well. The normative acts are those that materialize government policy; the rest are mere intentions. We put those acts in the following categories: macroeconomic environment and finance, microenvironment and sector policies, administrative environment, private property rights and international agreements and exchange. The first of those categories - macroeconomic environment and finance - received no negative evaluations over the period of review. The rationale behind our attention to macroeconomic conditions was to examine closely the common denominator of economic developments. The macro economy as a whole and the regulations of the financial sector for the past period show that the economic policy that was sustained had not in any way been an obstacle of economic development, rather on the contrary. A good example in this respect is the adoption of the Mortgage Bonds Act (elaborated by IME, drafted in Parliament by Nikola Nikolov, and adopted in the end of 2000). This law creates long-term monetary instruments, accelerates exchange and disclosure of information by banks, increases competition between the banks, reduces the price of housing credits, gives an example for subsequent creation of other debt instruments (transfer and pass-through consumer bonds, deposit receipts, etc.), and fosters the development of faster and transparent procedures in protection of the creditor's rights.(2) Even when some initiatives in this area imposed difficulties for business the positive assessment would prevail. A typical case for such negative measure is the denomination law, which removed 'zeros' from the Bulgarian currency in 1999. It forced an additional 6,5 millions leva unnecessary expenses for legal business, but the general effect was some reviving of consumption - a very important factor for economic growth in 1999. As a whole most of the investments (including international and those "greenfield"), most of savings and incomes in budget, the shrinking of the gray economy etc., can be considered as indirect proof for lower corruption in comparison with past periods. Almost every time the appraisals of international contracts and exchange are positive. But the remaining three sectors have unsteady, often negative history with some actions which neutralized former positive developments. The influences of the economic policy in these fields since 1999 to date can be divided into two clearly distinguished periods. Until the autumn of 2000 the microenvironment, the branch politics, the administration and protection of the ownership rights and contracts, did not increase economic freedom and competition. In 1999 the regulations were so absurd that at the end of the year we announced a competition for the most unreasonable regulation and the "prize" was awarded to three normative acts. The situation had changed significantly in the spring of 2000. It is interesting to observe that in this moment, in together with the acceleration of growth and general improvement in income and pensions, the critique of the Government was primary anticorruption rhetoric. The positive development is mostly in the field of private property rights. In the first place, we had a reduction (although not radically) of preferences for managers-employees buy-out companies. Secondly private property rights were strengthened by some judgments of the Supreme Administrative Court, accelerated bankruptcy procedures, and the reduction of taxes. Under the banner of compensation of property rights however the government did different injustices and obvious economic nonsense. The most famous case is the compensatory notes. They are based on administrative determination of the price of compensation (i.e. the property) with total value of about 7% of GDP for 1999 (followed by hiding information even from the right-owners themselves) and creating transferable instruments, i.e. instruments for payment in case of obtaining state property, which ensures an 80-85% discount of the supposed price. Another case of violation of private property rights is the interference of the State financial control in cooperatives (which are unique among all organizations, based on contract between individuals). Some of the decisions of the Constitutional Court on property rights were also unfair. Branch politics are the weakest point in the economic policy. Most of the actions in this field are either plain populism, or they create unreasonable privileges for particular state and private companies, or resemble an echo from the central planning era. A typical for those kinds of privileges is the change of import taxes for fertilizers in 2000 and 2001. Controversial, but rather favorable, is the progress in the administrative environment. We can see a reduction of license and permission regimes. The tradition and regularity of discussion about changes in the tax legislation can be estimated as extremely positive. Since the end of 1999 some draft laws became accessible for the affected citizens, though in late stages - after their acceptance by the Council of Ministers. Despite that, the Parliament demonstrates sincere disrespect of many rational economic proposals made by the citizens and by their representative organizations. Following a proposal made by a "Euroleft" Member of Parliament, the Economic Commission prohibited the opinion statements of non-members during the hearings, and the Social Policy Commission rejected the proposals of Bulgarian Chamber of Commerce and Industry and Bulgarian Industrial Associationfor changes in the Labor Code. The acts concerning the work of the state administration made also favorable impact over the general environment. Far from perfection and sometimes with straightforward undemocratic subacts, these laws created stability in administration and helped the creation of government history and the access to information collected by government. The regulation of public procurement has had a strong positive impact, which was not hard to achieve after nine years of reforms without any rules in this field. "The details" in this area are also controversial. For example, the reluctance of the Council of Ministers to implement its obligations as of article 36 of the Act for Cooperatives hindered seriously the work of microeconomic institutions. At the same time the establishment of the single center for business services (one-stop shop) in Vidin is a great success for the Agency for Small and Medium-sized Enterprises. As it was already mentioned the analyzed developments are positive, and this is seen in economic statistics. In 1999 the costs of compliance with legislation were 2.3 times higher than non-compliance costs, totaling about 12% of GDP. We expect that in 2001, if favorable trends continue, operating in the "shadow" would cost 1.5 times less than to comply relevant legislation, and costs of dealing with the government will be about 10% of GDP. And this would be more than significant progress. The new government should take into account the progress of the former, especially from 2000 and 2001. This would depend to a great extent on public attitudes. Universal business associations (BCCI, BIA, Employers' Union) will have to rethink their message to the government from the first half of 2001. Our analysis shows that most of these demands are unreasonable or plain stupid. Whatever the next government is, the Institute shall continue (3) to monitor the developments in the business environment in the country.
2) The provisional amendments to the Civil Procedure Code supported by commercial banks and BIBA were presented to members of the Parliament in mid-1999, but remained outside the legislative program so far. 3) We use the opportunity to show our gratitude to the main sponsors of our work so far: MSI and GMF. We would be grateful if our readers support us with donations. You are welcome to contact IME executive director Krassen Stanchev (stanchev@ime.bg). |
