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Economic Program - 1995

Privatization and Debt Conversion

1995 Highlights

 I. Privatization and Private Sector Development in Bulgaria

In 1995, CSD was able to keep the privatization debate alive and continued to assist the policy-making process. The project aimed at achieving three main objectives, namely to:

  • Assist the enacting of specific legislative actions and pilot privatization projects in order to accelerate privatization;
  • Enhance the understanding and support for privatization and private business development among policy-makers, the business community and the general public;
  • Address the lack of information on privatization available to the public and to policy-makers.

The results of the project were presented in a policy paper which set forth a number of recommendations to policy-makers concerning the techniques of mass and market-based privatization, municipal privatization, post-privatization control of enterprises and debt-for-equity swap mechanisms.


National Representative Public Opinion Survey

Conducted in March 1995, the survey's main objectives were to measure public attitudes towards different forms of privatization, the population's readiness to participate in the mass privatization program, and to reinforce CSD's watchdog role. It allowed CSD to track the evolution of public attitudes towards privatization, comparing results with the data collected during earlier surveys. The survey data were also an important basis for the development of the project policy recommendations. The data were provided both to the media and to the Center for Mass Privatization, thus assisting the government in improving its program and contributing to public education on these issues.

Study of Post-Privatization Behavior of Enterprises: Second Phase

This study was included in the project because mass media and the state authorities had no information about the behavior of enterprises after the conclusion of privatization transactions. The political and administrative debates typically focus on the conditions of the transactions rather than on the results of privatization transactions, or the behavior of privatized enterprises in the difficult macroeconomic environment.

The study provided information with respect to the financial performance of privatized enterprises. The collected data clearly indicated a speedy recovery and restructuring of the enterprises, expansion of their activity following privatization, positive effects of privatization on employment and labor organization. The principal conclusions of the survey analysis revealed a remarkably good financial condition and flexible market behavior of the privatized enterprises.

The recommendations formulated on the basis of the study included the institutionalization and regulation of post-privatization monitoring, and the exercise of closer control over commitments to privatization contracts. As a result, the Privatization Agency undertook several studies finding that some of the buyers were not entirely fulfilling their obligations. The final paper on post-privatization behavior of enterprises was also presented at the

Annual Meeting of the OECD Advisory Group on Privatization in March 1995.

Private Sector Research

The objective of this research was to outline the main tendencies in private sector development at the outset of the reforms and during the transition to a market economy, and to provide the rationale for some basic policy recommendations in this field.

CSD carried out its analysis of some 450,000 officially registered private sector enterprises and created a comprehensive body of information on the Bulgarian private sector. The analysis included the structure and size of the private sector by branches, legal status

and regional distribution. It also focused on the regulatory and legislative framework of private sector development and analyzed its efficiency. The research results were incorporated into a widely distributed report.

Dissemination, Education and Promotion

Mass Privatization Seminar

The seminar was held on March 28. It was attended by experts from the Council of Ministers, the branch ministries, the Privatization Agency and independent consultants. Discussions centered around the government's mass privatization program presented by the experts from the Center for Mass Privatization as well as the conditions for participation in this process, both of investment funds and of the general public.

The discussion conclusions were summarized and provided, together with recommendations concerning the initial stage of mass privatization, to the Parliamentary Economic Committee and the Subcommittee on Privatization, to the Center for Mass Privatization at the Council of Ministers, and the Ministry of Economic Development.

Media Coverage of the Project Activities

As CSD deems encouraging public debate a key aspect of its research and advocacy activities, careful consideration was given to publicizing the results of the project. The various project activities received wide coverage in a total of 51 newspaper articles and 13 broadcasts on radio and television. This prompted broad public discussion, and contributed to general public education on privatization issues. A number of privatization success stories were also published and widely advertised, helping to generate public support for the process.

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II. Privatization on a Dual Track: Mass and Market Based Privatization in Bulgaria

Independent research, analysis, and public discussion are essential to ensuring that mass privatization is conducted effectively, transparently and competitively. At the same time, it is essential that independent institutions like CSD continue their research and advocacy work for market-based privatization - a form of privatization that should be intensified at the same time as the mass privatization plan is implemented.

Taking this into consideration, CSD determined the main objective of this project: to assist the efforts of government institutions in the preparation and implementation of mass privatization and to assist the acceleration of market privatization.

In 1995, the research team's interest continued to focus on the issues of municipal privatization with the goal of replicating the positive results accomplished in the joint project with the Bansko municipality concluded in the previous year. An important practical achievement of the project was the assistance provided to the Dobrich municipality. CSD experts participated in a town hall meeting, and provided comments on procedures associated with the different stages of the mass privatization process. The experts also provided know-how to local government officials and the local business community on the establishment of a regional privatization fund.

A series of sociological surveys on mass privatization and economic reforms, carried out within the framework of the project, allowed CSD to accumulate crucial data for both research and monitoring purposes. The results of the surveys were also used to raise public support for privatization, as well as to heighten public awareness in general.

Expert Training

Post Privatization Management of Investment Funds I

The first course took place in Prague on August 18 through September 4. It was attended by 20 participants. The pending start of mass privatization and the lack of qualified experts to work in investment funds preconditioned the organization of this training program. The idea for a similar course was first proposed by the Privatization Project of the Central European University, whose representatives contacted CSD in view of its long-standing experience

In research and education in matters of privatization. The training course participants included representatives of investments funds, commercial banks, consulting companies and the Privatization Agency.

Post Privatization Management of Investment Funds II

This follow-up course took place in Velingrad, Bulgaria on November 26 through December 7. The program focused on the following issues:

  • Investment fund regulations in Bulgaria;
  • Company analysis;
  • Industry analysis;
  • Financial instruments and markets;
  • Portfolio design;
  • Workshops with Czech investment funds;
  • Corporate governance.

The feedback received from the participants indicated a high degree of evaluation for the organization and the content of the courses.

Institutional Contacts and Networking

Workshop on the Legal Framework of Mass Privatization in Bulgaria

The purpose of this workshop, held on October 3, was to analyze some problematic aspects, deficiencies and inconsistencies in the legal framework of mass privatization, and to recommend options and solutions for its improvement. The workshop was attended by experts from the Center for Mass Privatization, Council of Ministers advisors, and experts from the branch ministries. Some consultancies, investment funds and companies, researchers and journalists showed interest in the workshop discussions.

As a result of the workshop, a document entitled Mass Privatization Starts Amidst Apprehension was developed. It set out recommendations for amendments to the legal framework of mass privatization regarding the issuing of shares by privatization funds and the prospective development alternatives for privatization funds. The document was presented to the Parliamentary Economic Committee, the Center for Mass Privatization, the Ministry of Economic Development and the Privatization Agency. The key impact of this part of the project was that its recommendations were incorporated in the final version of the Privatization Funds Act adopted by the National Assembly in December 1995.

Privatization and Foreign Investment Monitor

In July 1995, CSD renewed the regular publication of the Monitor of Privatization and Foreign Investment. Its distribution was broadened in comparison with the previous years. This allowed the project to provide a watchdog or oversight mechanism to maintain the public awareness of how the privatization process is proceeding, and to let officials know that an independent think tank was tracking their performance and encouraging improvements.

Media Coverage of the Project Activities

The media coverage was designed to reach two major groups: policy-makers, experts, and the business community, on the one hand, and the general public, on the other. With the purpose of reaching the first group, a number of articles on the legal framework and procedures of mass privatization, foreign debt conversion, and other professional topics were published in selected newspapers. Another set of articles of a more general nature were published in newspapers with wide circulation ensuring coverage of about 50-70% of the country's population aged 18 years and over.

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III. Debt Conversion Program: Guidelines for Bulgaria

Following the initial phases of the Debt Conversion project and the reevaluation of its priorities, in 1995 the project team continued working on the elaboration of the final product which consists of a detailed DES program for Bulgaria. This program established practical procedures for implementing DES mechanisms and transferring ownership rights, along with rules and criteria for the selection of applicants and certification of ownership of external debt bonds by buyers.

The project was coordinated by Dr. Mariana Todorova, a leading Bulgarian economic expert, currently with the Economic Development Institute of the World Bank.

Recommendations to the Ministry of Economic Development on Debt Conversion Related Issues

Drawn up on the basis of in-depth critical analysis of the experience of government institutions in charge of debt conversion, this paper provided valuable suggestions and recommendations supported by concrete arguments. The recommendations were approved by Mr. Entzislav Harmandjiev, Deputy Minister of Economic Development.

Assistance to the Ministry of Economic Development and the Foreign Investment Agency

CSD provided assistance to the Ministry of Economic Development and the Foreign Investment Agency in the preparation of an information package on the terms and conditions for the use of Bulgarian Brady bonds in privatization. The material was among the official documents presented by the Bulgarian delegation at the Annual Meeting of the EBRD on April 8-11, in London.

Workshop on Privatization and Debt Conversion in Bulgaria

Representatives of commercial banks, the Bulgarian National Bank, the Privatization Agency, USAID, the Ministry of Finance, Members of Parliament, independent analysts and experts participated in this event held on April 25. The workshop was the concluding public presentation of the results of the project. The economic team of CSD presented for open discussion the main results and findings of several months of research. The exchange of views and opinions among the participants was extremely helpful for the project team in drafting the policy recommendations and the final study on debt conversion in Bulgaria.

Preparation and Dissemination of the Final Study

The final study of the debt conversion project incorporated the results of the comprehensive efforts of researchers. Its main objective was to propose a fully-fledged debt conversion strategy, envisaged as an integral part of the overall national privatization program. It provided a thorough assessment of the Bulgarian debt-for-equity swap model as well as a detailed analysis of the regulatory framework and institutional arrangements for debt conversion.

The final document was presented to government agencies involved in the management of Bulgaria's external debt and the process of privatization. It was sent out to over 100 correspondent institutes of the International Center for Economic Growth around the world.

An occasional paper on The Use of Bulgarian Foreign Debt Bonds in Privatization was prepared by Sophia Kassidova and Iliya Avramov, Research Fellows at CSD. The paper analyzes the experience in privatization deals where Bulgarian Brady bonds are employed as a payment instrument. It also contains a detailed analysis of the dynamics of the price of Bulgarian Brady bonds.

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IV. Southern Tier Business Association Training Program

The training course was held on May 21-27, 1995 in Bistritza, Bulgaria, by the Center for International Private Enterprise (CIPE), Washington, DC, with the assistance of CSD. Representatives of business associations and chambers of commerce from five countries of south eastern Europe - Albania, Bulgaria, Croatia, Macedonia and Romania - in which CIPE has projects, participated in the training course. The lectures were presented by experienced American experts and consultants with knowledge on the incorporation and functioning of business associations.

During the course of the program, the trainees attended lectures and participated in practical exercises on subjects such as strategic planning and programs of work, membership development, sources of non-dues income, public policy advocacy and government relations, communication techniques, the role of business associations in a democratic society, and small business development.

The participants pointed out that they considered it particularly important that such a course was organized for representatives of the countries in the region since market institutions, including business associations in south eastern Europe, were less developed by comparison with those in central Europe.

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V. International Business Club

The International Business Club (IBC) is a joint initiative of CSD and the Ministry of Trade. It was formally inaugurated on June 17, 1993 by Mr. Valentin Karabashev, Deputy Prime Minister and Minister of Trade, in the presence of ambassadors, diplomats and trade envoys to Bulgaria, along with bankers and managers of local and international companies. The principal objective of IBC is to encourage business contacts, to popularize business opportunities in Bulgaria, and to promote favorable development in trade and foreign investment. IBC organizes regular breakfast meetings to which it invites prominent figures from the government, financial institutions, and private businesses as guest speakers.

The guest speakers and topics of the IBC meetings in 1995 were:

Dr. Dimitar Stefanov, Chairman of the Supervisory Board of the Privatization Agency: "The Privatization Program of the Government";

Dr. Roumen Getchev, Deputy Prime Minister and Minister of Economic Development: "The Foreign Investment Policy of the Bulgarian Government";

Mr. Dimitar Kostov, Minister of Finance: "Budgetary and Financial Policy of the Bulgarian Government";

Mr. Mladen Tchervenyakov, Minister of Justice: "Legislative Priorities of the Government and the Problem of Law Enforcement";

Mr. Atanas Paparizov, Chairman of the National Assembly Economic Committee: "Bulgaria's Current Foreign Trade Policy".

Members of 42 diplomatic and trade missions to Bulgaria, along with 10 international organizations and foreign companies based in Sofia. Bulgarian businessmen and bankers are regular visitors as well. 

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