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Business
environment during UDF mandate
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.
1) The
IME Review of laws, accepted in 1998 and 1999 can be found
in the special publication: Administrative Barriers to Business
Activities, IME, Sofia, 2000
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).
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