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Georgi Paranov

Private sector
% of GDP


Bulgaria earned its independence from the Ottoman Empire in 1878, but having fought on the losing side in both World Wars, it fell within the Soviet sphere of influence and became a People's Republic in 1946. Communist domination ended in 1990, when Bulgaria held its first multi-party election since World War II and began the contentious process of moving toward political democracy and a market economy while combating inflation, unemployment, corruption, and crime. Today, reforms and democratisation keep Bulgaria on a path toward eventual integration into NATO and the EU - with which it began accession negotiations in 2000. 

Update No: 075 - (28/07/03)

Bulgaria on the US side over Iraq
As was entirely predictable, Bulgaria sided with the US and the UK over the Iraq war. As much as anything else it was an exhilarating exhibition of their new national independence to do so. For decades the Bulgarians were regarded as the most slavish of the Warsaw Pact members in their subservience to Moscow, Bulgarian secret services being tools of the KGB abroad. The US was the No.1 enemy and the UK No.2 enemy. That Sofia can now take their side in a major international crisis shows that they are free at last.
The Bulgarians were among those rebuked by Chirac for Sofia's pro-war stance earlier this year. He told them, along with other signatories of a round-robin letter of 10 governments in all, that they had missed "a fine opportunity to shut up." Such high-handed diplomacy only boomeranged.
Consequently public opinion is swinging more and more behind the US. After success in Iraq, public support for setting up US military bases in Bulgaria has increased to 35 per cent from the previous 17 per cent, recorded at the end of last year. US senior military have indicated that Bulgaria may become a location of American military bases after it joins NATO next year along with six other East European countries. Shivko Georgiev of the Sofia-based BBSS Gallup International said that 53 per cent of Bulgarians support participation of their country's army in peace-keeping operations abroad, albeit largely nominal. 

Economy needs FDI
The economy is not in great shape, despite GDP growth of four per cent annually for some time now. Unemployment is 15% of the work force and one third live below the official poverty line.
Bulgaria has attracted far less foreign direct investment (FDI) than Hungary or other Visegrad countries to the north. It stands at barely US$2bn.
An obvious way to encourage FDI, a big stimulus to the economy elsewhere, is to introduce special industrial zones with tax perks. But opposition to the idea has come from within the government itself.
Despite initial optimism for the establishment of industrial zones in the wider regions of Bulgaria, latest developments have shown that the idea is doomed to face opposition. Initially the ministers had approved the notion last October, but it failed to enter parliament. When it seemed that everything would end with another bill drafted by the economic ministry to stimulate production investments in certain industrial districts, new obstacles appeared.
According to Banker Weekly, the latest opposition came from Finance Minister, Milen Velchev, and Minister of Labour and Social Affairs, Lidia Shouleva.
According to the weekly, the two ministers are opposed to the provisions of the draft bill which stipulates tax and insurance privileges to businessmen who invest in these special districts. The objections became known at a recent press conference, when the Foreign Investment Agency (FIA) announced its operating results.
Should these objections be taken into consideration, investors will be deprived of the biggest temptations proposed by Vice Premier and Minister of Economy, Nikolay Vassilev and his team. The economic ministry proposed that for a 10 year period, the state would exempt from 50 per cent of the due profit tax companies which invest over 10 million Bulgarian levs in the Bulgarian economy, and 30 per cent of the due insurance payments for workers employed in the future industrial districts.
According to FIA Director, Pavel Ezekiev, the two ministers opposed these privileges when the government discussed the draft bill. The document will replace the currently effective Foreign Investment Encouragement Act, adopted in 1998.
The news that there has been a governmental debate on the issue appeared surprising, as the topic had never been included in the Council of Ministers' official agenda. The cabinet's press service described the event as "an informal discussion." The ministries are currently coordinating the bill, the press service later explained.
Velchev has hardly changed his opinion since the time he said no agreement on tax preference in the zones had been reached with the IMF and the European Union. In turn, Shouleva told the Banker Weekly, she was not acquainted with the bill in detail and could not comment on it. She neither denied nor confirmed the information that she disagreed with the exemption of companies from insurance instalments. She explained that the issue was not currently on the agenda.
Ministry of Economy representatives claim they are ready to make a compromise and withdraw the clauses that stipulate return of insurance instalments paid by investors.
Regarding the tax incentives, they will obviously concern only investments in any of the 100 municipalities with high unemployment, where the tax on profit is zero. If the zones are established in more developed areas of the country, investors will have to pay the entire amount of the tax.
However, authorities seem optimistic about the amount of foreign investment that may come by the end of 2003. FIA Director Ezekiev told the media that he expected foreign investments to reach US$500m this year. 

EU beckons by 2007
The main focus of Bulgaria's economic engagement with abroad, however, remains EU membership, due by 2007. Good progress is being made, a fact widely acknowledged in the European Community.
European Union accession is progressing favourably for Bulgaria after the recent closure of one of the most difficult chapters. European Affairs Minister Meglan Kuneva, presented Bulgaria's accomplishments in transport policy during her recent address to the Convention of the European Union session on harmonisation of legislation, and the readiness of the country to participate in the transport services market after its accession to the EU, a Foreign Ministry statement said.
Transport and Communications Minister, Plamen Petrov, said that the most difficult issue in the negotiations on transport was maritime safety. He said that 12 per cent of all good practices, which were applied in the EU and which Bulgaria was required to adopt, were in the field of transport.
Kuneva emphasised the progress made by Bulgaria in the relevant legislation and said that the country was ready to apply it even before it joins the Union.
It is recalled that Bulgaria has 24 chapters closed and has reached a high level of readiness to close the remaining technical chapters by the end of 2003.
Whilst in Germany, Kuneva and German Foreign Minister, Joschka Fischer discussed EU enlargement and Bulgaria's prospects of participating in the Convention on the Future of Europe, the Bulgarian Foreign Ministry said.
Fischer underscored the Convention's role as a "counterforce to centrifugal pressures" within the EU. The emergence of a strong and stable Europe, united under a single constitution, would be crucial for the effective performance of the EU when it would include 27 or more members, Fischer said, adding that Bulgaria's accession to the EU in 2007 has already been decided.
"Bulgaria was expected to honour its commitments and to complete its commitments and to complete its preparations, but the process was irreversible - the goal had been set and there were no grounds to call into question Bulgaria's future membership," Fischer said.
"Bulgaria's accession to the Union will proceed under financial terms that will be based on the accession principles applied with regard to the 10 new members," he concluded.

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Bulgaria boosts electricity exports to neighbouring countries

As from 1st July, Bulgaria exports 700m kWh of electricity to neighbouring countries, BTA News Agency has reported. 
This amount is 200m kWh more than in July 2002, before the suspension of supplies to Turkey, Energy and Energy Resources Minister, Milko Kovachev, said on 1st July at a meeting with the CEOs of the Maritsa East thermoelectric power stations and coal mines, the Stara Zagora Electricity Distribution Company, representatives of the trade unions, and Stara Zagora Regional Governor Maria Neykova. 
Bulgaria accounts for 46 per cent of the region's electricity exports, the Energy and Energy Resources Ministry said in late June. The National Electric Company (NEC) exports electricity to Macedonia, Greece and Montenegro. The ministry projected that new contracts signed would increase NEC's share in overall exports to 65 per cent as from 1 July.

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IMF completes review of stand-by agreement with Bulgaria

The Board of Executive Directors of the International Monetary Fund (IMF) completed the third review of the implementation of the two-year stand-by agreement between Bulgaria and the Fund BTA News Agency learnt after a briefing by the Finance Ministry on 8th July. The decision of the board makes it possible for Bulgaria to receive the sixth tranche of US$36.5m within three days. 
The positive decision of the board is a result of the steady macroeconomic indicators reported by Bulgaria. It was stressed that the country has considerable foreign currency reserves and the foreign debt/GDP ration is being continuously reduced. The board also made some recommendations to Bulgaria related to restoration of the pace of the structural reform and further improving of the business climate in order to promote investments and maintain competitiveness.

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Bulgarian company orders feasibility study of second nuclear plant project

The Belene n-plant Consortium will execute the terms of reference for a technical and economic feasibility study of the Belene nuclear power plant project, the National Electricity Company (NEC) said on 14th July, BTA web site has reported. 
The decision was made by the NEC Board of Directors. The n-plant Belene Consortium includes Atomenergoproekt, Enprokonsult and Risk Engineering. These companies are without any rivals in conducting feasibility studies and research in atomic energy, NEC said. 
The consortium will get 41,250 leva for the technical terms of reference. Since the execution of the terms of reference is of a scientific nature, the procedure for its assignment established by the Public Procurement Act is assignment by negotiations. According to NEC, the product will be usable for a technical and economic feasibility study only.
The construction of Bulgaria's second n-plant at Belene was frozen back in 1990. At the end of 2002, the government decided to unfreeze the project.

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Bulgarian companies get ready to list of NYSE

New York Stock Exchange CEO, Richard Grasso, offered to introduce Bulgarian firms to the US stock market. The offer came during a meeting between the US official and Finance Minister, Milen Velchev, in the course of the latter's visit to the US, New Europe has reported.
Commenting on Grasso's statement, Velchev stressed that such a move would be a great opportunity since it would present Bulgaria to more than 50 leading US companies.
Grasso and Velchev also discussed the possibility for a number of Bulgarian firms and banks to run their stock in circulation on the US market, novinite reported.
It is worth noting that Grasso is known for making the reopening of the US stock market possible only six days after the terrorist attacks in the US in September 2001.
Bulgaria's finance minister also said that some US investment banks have shown interest in purchasing Iraq's debt to Bulgaria. Velchev said that so far the prices offered by the banks were not favourable for Bulgaria and it would be better if the country waited for the Iraqi authorities to establish their influence.
Velchev and his deputy, Krassimir Katev, were on a working visit to the US. They held a series of talks with US administration officials in Washington on the options for settling the US$1.7bn Iraqi debt to Bulgaria.

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