Economic Policy Review ISSN 1313 - 0544

The minimum capital requirement has been finally removed

Author: Dr. Krassen Stanchev / 02.11.2009
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A few weeks ago, a law amendment was passed, which results in a change of the minimum capital requirement for companies to the symbolic 2 Leva (1 Euro)

This reform was first proposed in Bulgaria in 1996. The first publications, which uncovered the prohibitive role of minimum capital requirements and showed its unfair social function, were published in the UK in the eighties. The creator was Graham Bannock, then associate at the Economist Intelligence Unit (http://www.economist.com/index.cfm) and consultant at the Institute of Economic Affairs (http://www.iea.org.uk/), founded after an idea of Friedrich Hayek. Co-author of such publications, which became very popular, is the current vice-premier of Bulgaria, Mr. Simeon Djankov.

In his previous work, he observed and promoted such reforms in more than 80 countries, so it was expected that he will remove the minimum capital requirement in Bulgaria, when appointed to his new office. Since 2005, our ex-colleague Martin Dimitrov has tried to convince other representatives in the parliament of the necessity of this reform. He failed, even though he was ready to make some compromises.

It is obvious that this reform is a positive step, and those who made it should be praised.

In many other ex-communist countries this change took three to four years to happen - from the proposal, justification, and discussion and to the enforcement. Bulgaria needed 13 years. But why?

The main reason is following: when the minimum capital requirement is removed, citizens become more independent from politics and government, and those who already have a business will face more competition. Those interest groups in Bulgaria were much stronger than the economic and democratic logic, and the supporters of the reform were weaker.