THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE'S "CONSULTATIVE COMMISSION FOR INDUSTRIAL CHANGE" ECONOMIC TRANSFORMATION PROCESS IN BULGARIA MITKO DIMITROV INSTITUTE 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 – LONGEST PERIOD OF DECLINE AND LOWEST REACHED GDP LEVEL – 68% AND OF INDUSTRY – 48% COMPARED WITH – ECONOMIC STABILITY AND GROWTH REASONS – DELAYED RESTRUCTURING OF ECONOMY

PROGRESS OF THE REFORMS IN THE NEW EU MEMBERS COUNTRIES IN 1996 BULGARIA IS THE COUNTRY WITH LOWEST REFORMED ECONOMY AFTER 1997 BULGARIA IS THE COUNTRY WITH HIGHEST PROGRESS IN THE REFORM

FIRST PERIOD – SIGNIFICANT DELAY IN THE PROCESS OF REFORMING THE ECONOMY

FOCUSES: CHANGE OF THE MEANING OF “CORPORATIZATION” OF THE STATE ENTERPRISES THE STATE AS AN OWNER WAIVES THE CONTROL OVER THE MANAGERS „SOFT” BUDGET RESTRICTIONS LACK OF PRIVATIZATION LACK OF FDI RESULT: MASSIVE DECAPITALIZATION OF THE STATE ENTERPRISES SIGNIFICANT DECLINE OF THE PRODUCTION HIGH UNEMPLOYMENT MACROECONOMIC INSTABILITY SOCIAL AND POLITICAL INSTABILITY

SECOND PERIOD –  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 SYSTEM THE 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 RESTRUCTURING BIGGEST 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

FOREIGN DIRECT INVESTMENTS (NET, IN MILLIONS USD)  SHARP ACCELERATION OF THE FDI INFLOW AFTER 1997  – ANNUAL AMOUNT OF FDI IS BIGGER THAN TOTALLY FOR  THE MACROECONOMIC STABILITY AND THE COMING EU MEMBERSHIP ACCELERATE THE FDI INFLOW  ANNUAL AMOUNT OF FDI PER CAPITA EXCEEDS 1000 USD

STRUCTURAL CHANGES GDP Structure

CHANGES IN THE INDUSTRY STRUCTURE

CHANGES IN THE IMPORT STRUCTURE

CHANGES IN THE EXPORT STRUCTURE

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!