ECONOMY

Bulgarian gov’t urged to accelerate opening up country’s public sector

SOFIA – Bulgaria, a poor, small country which had seemingly insurmountable economic problems five years ago, has achieved a great deal and is now on the road to EU membership, possibly as early as 2007. But, while the country boasts a debt to GDP level in line with the European Union’s strict Maastricht criteria and has low inflation thanks to its currency peg to the euro, it will have severe problems raising living standards to anything comparable to those of the EU. According to World Bank research, per capita income in 2001 was just $1,560, 31 percent of the EU average based on purchasing power parity, and poverty has doubled since the end of the economic crisis in 1997. The problem for Bulgaria is to translate its fiscal and monetary gains into benefits for the population and generate the kind of foreign direct investment that could lift its 8 million people out of poverty. The largest investor in the private sector in Eastern Europe and the former Soviet Union, the European Bank for Reconstruction and Development, said it would help by more than trebling its investments here to 200 million euros this year, but said Bulgaria needed to do more to help itself. «They need to attract investment in privatizations; it is crucial they restart this process,» EBRD President Jean Lemierre told Reuters in an interview on his first visit to the country. Bulgaria’s record on attracting foreign investment has been poor so far and key privatizations, such as that of state telecom company BTC, have run foul of the global downturn in the telecoms industry, as the company which was once valued in excess of $600 million is now worth just some $200 million. Another key privatization of the state tobacco company Bulgartabak is stuck in the courts after some of the bidders alleged the privatization agency had failed to complete the process fairly. Finance Minister Milen Velchev acknowledges the problems but pointed out that Bulgaria did not need the money and said the country had outperformed many of its targets under an International Monetary Fund program. «At this point, I am not at all confident that any of the deals will be completed this year. Negotiations are stalled on Bulgartabak and have barely started on BTC,» Velchev told Reuters in an interview. Velchev said the government would deliver on raising living standards. «In five to 10 years the country will be in a completely different league. Even three to four years from now people will see,» he said. Stalled deals Despite Velchev’s sanguine outlook, bankers at the EBRD and analysts are worried about the kind of message it sends out about the Balkan country. «This year, the government needs to step up that effort in order to attract FDI (foreign direct investment) inflows to… show investors its determination to stick to the principles of the free market economy,» investment bank J.P. Morgan said in a recent research report on Bulgaria. According to the EBRD’s Lemierre, there is a risk Bulgartabak could sour sentiment toward Bulgaria among foreign investors, although he stressed it was only one isolated and special case and noted successful sell-offs had been completed and that there was the potential for more. «They (Bulgaria) run a risk, but the assessment of risk should not be built on one case,» Lemierre said. Bulgaria’s National Electricity Company is close to an agreement with US energy company Entergy on a 648-million-euro power project. Bulgaria is also in the process of tendering a stake in its second largest bank, DSK, which is expected to generate large interest after the sale of Biochim bank to Bank Austria for 82.5 million euros, nearly twice the asking price. More reform needed But privatization is not the only concern. The EBRD believes the Bulgarian government has to free up cities to run local services, something its reluctance to do caused a minister to resign last week. Bulgaria, Lemierre said, has a poor record in absorbing EU funds and with reforms at the local level could gain access to more grant aid for local authorities to help it on the road to accession. «Bulgaria is a highly centralized country and that has made macroeconomic success possible, but the time has come to give more responsibility,» he said. If there is a willingness to reform, Lemierre believes Bulgaria could be a successful economy. «Bulgaria can be really good for investors who want to produce goods and services and sell them abroad,» he said.