THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE'S"CONSULTATIVE COMMISSION FOR INDUSTRIAL CHANGE"

ECONOMIC TRANSFORMATION PROCESS IN BULGARIA

MITKO DIMITROVINSTITUTE OF ECONOMICS AT BAS

"Bulgaria, Latvia, Lithuania and Slovakia – Comparison of industrial transition models".6-7 October 2008

Sofia, Bulgaria

SPECIFIC POINTS OF DEPARTURE OF BULGARIAN ECONOMY

AT THE END OF 1980s HYPERTROPHIC DEVELOPMENT OF INDUSTRY INDUSTRY – OVER 60% OF GDP MANUFACTURING – OVER 60% OF EXPORT

BUT OVER 75% OF EXPORT IS TO COMECON INCLUDING OVER 55% TO USSR 8-10% OF EXPORT IS TO DEVELOPED COUNTRIES INSIGNIFICANT SHARE OF MANUFACTURING

SERIOUS CHALLENGES TO THE BULGARIAN INDUSTRY

FOR ITS SUCCESSFUL INCLUSION IN THE INTERNATIONAL DIVISION OF LABOR

HOW DID BULGARIA MANAGE THE TRANSITION TO MARKET ECONOMY?

TWO CLEAR PERIODS AFTER 19891989-1996 – LONGEST PERIOD OF DECLINE AND LOWEST REACHED GDP LEVEL – 68% AND OF INDUSTRY – 48% COMPARED WITH 19891997-2007 – ECONOMIC STABILITY AND GROWTHREASONS – DELAYED RESTRUCTURING OF ECONOMY

PROGRESS OF THE REFORMS IN THE NEW EU MEMBERS COUNTRIES

IN 1996 BULGARIA IS THE COUNTRY WITH LOWEST REFORMED ECONOMYAFTER 1997 BULGARIA IS THE COUNTRY WITH HIGHEST PROGRESS IN THE REFORM

FIRST PERIOD – 1989-1996

SIGNIFICANT DELAY IN THE PROCESS OF REFORMING THE ECONOMY

Large privat

Small privat

Enterprise restruct.

Price liberalis.

Trade &

Forex

Compet. Policy

Banking reform

…

non-bank financial

institutions

infrastr. reform

BG 2.00 3.00 2.00 2.67 4.00 2.00 2.00 2.00 1.67 CZ 4.00 4.33 3.00 4.00 4.33 2.67 3.00 2.67 2.33 EST 4.00 4.33 3.00 4.33 4.00 2.00 3.00 2.00 2.33 HU 4.00 4.00 3.00 4.33 4.33 3.00 3.00 3.00 3.00 LA 3.00 4.00 3.00 4.33 4.00 2.00 3.00 2.00 2.33 LI 3.00 4.00 3.00 4.00 4.00 2.00 3.00 2.00 2.00 PO 3.00 4.33 3.00 4.00 4.33 2.67 3.00 3.00 2.67 RO 2.67 3.00 2.00 4.00 3.00 1.00 3.00 2.00 1.00 SLK 3.00 4.33 3.00 4.00 4.33 3.00 2.67 2.67 1.67 SLN 2.67 4.33 2.67 3.67 4.33 2.00 3.00 2.67 2.00

FOCUSES:CHANGE OF THE MEANING OF “CORPORATIZATION” OF THE STATE ENTERPRISESTHE STATE AS AN OWNER WAIVES THE CONTROL OVER THE MANAGERS „SOFT” BUDGET RESTRICTIONSLACK OF PRIVATIZATIONLACK OF FDI RESULT:MASSIVE DECAPITALIZATION OF THE STATE ENTERPRISESSIGNIFICANT DECLINE OF THE PRODUCTIONHIGH UNEMPLOYMENTMACROECONOMIC INSTABILITYSOCIAL AND POLITICAL INSTABILITY

SECOND PERIOD – 1997-2008

CURRENCY BOARD

ACCELERATING THE PROCESS OF REFORMING THE ECONOMY

ACCELERATED PRIVATIZATION

MASSIVE ENTERING OF FDI

MACROECONOMIC STABILITY

ACCELERATING THE ECONOMIC GROWTH

LOW UNEMPLOYMENT LEVEL

LABOR FORCE AND EMPLOYMENT

AREAS OF PROGRESS OF THE REFORMS IN BULGARIA

REFORMS ARE IMPORTANT FOR THE CHANGE OF THE ECONOMIC SYSTEMTHE ECONOMIC SYSTEM LOSES ITS EFFECTIVENESS AND DYNAMICS WHEN THESE CHANGES ARE COMBINED WITH DELAY OF THE REFORMS IN THE ENTERPRISE SECTOR

AREAS OF DELAY OF THE REFORMS IN BULGARIA

THE DELAY IS IN AREAS, WHICH ARE DIRECTLY CONNECTED WITH THE ENTERPRISE RESTRUCTURINGBIGGEST CONCERNING CEE AND THE EU STANDARTS IN THE STUDIED PERIOD THEY DO NOT REACH ANY PROGRESS

MANAGEMENT AND RESTRUCTURING OF ENTERPRISES MODERATE POLICY OF SUBSIDIZING SOME ENTERPRISES INSUFFICIENTLY GOOD PRACTICES CONCERNING THE BANCRUPCIES OF STATE ENTERPRISES INSUFFICIENT CONDITIONS FOR IMPROVING THE COMPETITIVENESS AND CORPORATE GOVERNANCE IMPROVING THE CORPORATE GOVERNANCE OF THE REMAINING STATE ENTERPRISES, ESPECIALLY OF THE NATURAL MONOPOLIES MASS AND WORKERS-MANAGERS PRIVATIZATION – PROTECTION OF THE MINORITY OWNERS

PROTECTION OF COMPETITION IMPROVING THE ACTIONS AGAINST MANIFESTATIONS OF MARKET POWER SUBSTANTIAL REDUCTION OF THE BARIERS FOR ENTRY MAINTAINING COMPETITIVE ENVIRONMENT FOR FIRMS ACTIVITY PROTECTION OF THE AGRICULTURAL PRODUCERS FROM THE NON-ECONOMIC

FORMS OF IMPACTS

SECURITIES MARKETS AND DEVELOPMENT OF NON-BANK FINANCIAL INSTITUTIONS

STOCK EXCHANGE THERE IS NO EFFECTIVE MARKET OF CORPORATE CONTROL SOURCE OF INVESTMENTS, ESPECIALLY FOR PRIVATE ENTERPRISES

INSTITUTIONAL INVESTORS DO NOT PLAY ACTIVE ROLE IN THE CORPORATE GOVERNANCE ARE NOT IMPORTANT PARTICIPANTS IN THE TRADING AND INVESTMENTS

UNREFORMED AREAS – RESTRAINTS TO: THE DEVELOPMENT OF ENTERPRISES AS MARKET SUBJECTS CORPORATE GOVERNFNCE AND MANAGEMENT EFFECTIVENESS MORE AND VARIOUS SOURCES OF INVESTMENT IMPROVING THE COMPETITIVENESS

PRIVATIZED ASSETS AS A PERCENTAGE OF TO BE PRIVATIZED ASSETS OF THE STATE ENTERPRISES 1995-2004

FOREIGN DIRECT INVESTMENTS (NET, IN MILLIONS USD)

SHARP ACCELERATION OF THE FDI INFLOW AFTER 1997 1997-2002 – ANNUAL AMOUNT OF FDI IS BIGGER THAN TOTALLY FOR 1990-1996 THE MACROECONOMIC STABILITY AND THE COMING EU MEMBERSHIP ACCELERATE THE FDI INFLOW 2006-2008 ANNUAL AMOUNT OF FDI PER CAPITA EXCEEDS 1000 USD

483 507 537 802 998 803 876

2,070

2,879

4,003

7,333

8,154 7,937

1990-96 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

FDI

STRUCTURAL CHANGES

GDP Structure

CHANGES IN THE INDUSTRY STRUCTURE

2003 2006 Mining and quarrying of energy producing materials 1.9

53.7

1.3

41.0

Food products, beverages and tobacco 16.7 13.6 Textiles and textile products 8.3 6.6 Leather and leather products 1 0.7 Pulp, paper and paper products; publishing and printing 3.9 3.1 Chemicals, products and man-made fibres 6.1 4.7 Electricity, gas and water supply 15.8 11 Wood and wood products 1.7

13.5

1.5

13.0

Machinery and equipment n.e.c. 6 5.8 Electrical and optical equipment 4.4 4.2 Transport equipment 1.4 1.5 Mining and quarrying, except energy producing materials 2.3

32.8

3.7

46.0

Coke, refined petroleum products 10.7 13 Rubber and plastic products 2.4 2.8 Other non-metallic mineral products 3.9 5.4 Basic metals and fabricated metal products 11.3 18.3 Manufacturing n.e.c. 2.2 2.8 Total 100.0

100

.0 100.0

100

.0

CHANGES IN THE IMPORT STRUCTURE

2.6 7.2

44.8

26.2

7.6 8.4

3.2 2.4 6.5

18.9

35.7

17.3 15.5

6.8 0.9

13.5

32.9

18 16.7

8.3 9.7

Agriculture Metals Ма, Ме and Еl Energy Chemistry Cellulose-paper Industry, Light and Food Industry

Construction materials, Wood, Glass, Porcelain

1989 1996 2006

CHANGES IN THE EXPORT STRUCTURE 2.

2

2.1

4

60.2

10.5

1.6

12.3

7.1

2.4 17

8.4

14.7

28.1

6.6 16.4

6.4

3.3

29

16

16.6 22

.3

6.1

5.5

1.2

Agriculture Energy,Metals

Light Manufact. Chemistry Constr.,Wood,Glass,

Paper…

Food Other

1989 1996 2006

CONCLUSIONS:

THE PROBLEMS OF THE ECONOMIC DEVELOPMENT TILL 1997 WERE RESULT OF THE ABDICATING OF THE STATE FROM ITS OBLIGATION TO CARRY OUT A PRO-REFORMATION INDUSTRIAL POLICY

THE ACCELERATION OF THE REFORMS AFTER 1997 LED TO MACROECONOMIC STABILITY, CONSIDERABLY HIGH RATES OF GROWTH, RESTRUCTURING AND RESTORATION OF THE INDUSTRY, INCREASE OF THE NUMBER OF EMPLOYED AND DECREASE OF THE UNEMPLOYMENT TO NORMAL LIMITS

THE FURTHER MORE SUCCESSFUL DEVELOPMENT OF THE BULGARIAN ECONOMY CAN CONTINUE, IF THE REFORMS ARE CONCLUDED, ESPECIALLY IN THE AREAS, WHICH IMPROVE THE ENVIRONMENT FOR FUNCTIONING OF THE BUSINESS AND WHICH SUPPORT THE IMPROVEMENT OF ITS GOVERNANCE

THANK YOU!