|Capital Makets and Protection of Shareholders' Rights |
In 1997, CSD
continued to monitor the economic policy process and to provide expert
assessments. CSD was in the position to build a coalition of NGOs and
was the institution that brought together policy makers, government officials
and analysts to reach consensus and draft the necessary amendments in
the regulatory framework of the economy.
Program activities for 1997 assisted the government in its efforts to
speed up privatization and promote the development of small and medium
size enterprises. Activities involved drafting legislation, preparing
alternative analyses and policy recommendations based on research results,
monitoring of public attitudes and behavior, public education, and widely
reaching dissemination activities. One of the important issues in this
respect was the active involvement of CSD in the preparation of the Credit
Rating Presentation of Bulgaria in September 1997.
I. Economic Restructuring
In 1997, two
discussions were organized by CSD, the Open Society Foundation and the
New Bulgarian University. They both covered the problem of economic reform
alternatives for Bulgaria and received wide coverage in broadcasts on
the National Television and private TV and radio stations:
of Prof. Jeffrey Sachs and Top Bulgarian Economic Experts (March 8, 1997)
was focused on basic problems of the current stage of economic reforms
- conditions and principles of the currency board implementation;
- restructuring of the Bulgarian economy and conditions
for long-term economic growth;
- reform in the budget sphere.
in the meeting were: Prof. Jeffrey Sachs, Director, Harvard Institute
for International Development, Mr. Alexander Bozhkov, Deputy Prime-Minister
and Minister of Industry, Petar Andonov and Krassimir Angarski, Advisers
to the President, senior officials from the Council of Ministers, ministers,
prominent Bulgarian economists, and representatives of private businesses.
The intense exchange of opinions and information was particularly useful
in relation to the necessity for revising the logic of reforms in Bulgaria
and their decisive acceleration.
of Prof. Leszek Balcerowicz and Top Bulgarian Economic Experts (April
point of the discussion with Prof. Leszek Balcerowicz (Chair, Center for
Social and Economic Research, Warsaw) was the comparative analysis of
reforms in Central and Eastern Europe. The exchange of opinions and information
was particularly useful with respect to the comparisons between reform
practices in Poland and Bulgaria.
was attended by: Mr. Alexander Bozhkov, Deputy Prime-Minister and Minister
of Industry, Petar Andonov and Krassimir Angarski, Advisers to the President,
senior officials from the Council of Ministers, prominent Bulgarian economists,
and representatives of private business.
2. Policy Recommendations for Speeding Up Privatization
As a result
of the joint initiative of CSD and Bulgarian Association of Management
Consulting Organizations (BAMCO), a set of recommendations (Policy Document)
was submitted to the Structural Reform Council with the Council of Ministers.
In October 1997, the Policy Document (Strategy for Accelerating the Privatization
Process 1997-1998) was
adopted by the Council of Ministers.
recommends the implementation of a coherent privatization strategy for
Bulgaria including a more market-oriented approach for overcoming the
pitfalls of the first wave of mass privatization. The main conclusions
and recommendations are as follows:
(i) The delay in privatization is primarily due to
the social and political climate in Bulgaria which hampered the use of
existing legislature's potential and the practical implementation of all
mechanisms envisioned by law. Acceleration of privatization on this basis
necessary even before the passing of amendments to the Privatization Law
and the connection with secondary legislation.
(ii) A change in the principles of legislation is
needed in the direction of:
- Creating new statute and functions for the institutions
involved in the management of property and privatization;
- Diversifying the approaches and methods of privatization;
- Introduction of incentives and sanctions for speeding
(iii) Wider implementation of the internationally
proved practice to use consultants and mediators (both Bulgarian and foreign)
in the preparation procedures, marketing, and sale of state-owned enterprises.
of Privatization in Bulgaria (International Conference, Dresden, January
was of great importance for disseminating of detailed positive information
about the prospects of economic reforms and privatization in Bulgaria.
The Bulgarian experts and representatives of state institutions exchanged
ideas and received valuable recommendations from their foreign colleagues
who are professionally involved with the problems of the countries in
transition. A collection of the conference materials, including all participants'
reports in English, was published and distributed in Germany, Bulgaria,
and other European countries.
was co-organized by the Society for South-East Europe (Munich) and CSD.
It was attended by Bulgarian experts and scientists from Germany, Italy,
and the United Kingdom. An international conference focused on Bulgaria
like this, had not been organized for the last 4-5 years.
3. Municipal Privatization
Assessment of Municipal Privatization
conducted by CSD and the Privatization Agency experts contains analyses
of the following issues:
- Progress of municipal privatization in 1995 and 1996;
- Differences in privatization among regions and municipalities;
- Necessity for, and forms of technical assistance in
showed that municipal privatization is still much more dynamic than privatization
of state-owned enterprises. Municipal privatization transactions are three
times more than that of state-owned enterprises. A marked positive development
is observed in terms of time limits, purchasing prices, and in the level
professionalism of the municipal privatization officials.
Privatization and Local Economic Development Workshop: Currency Board
and Municipal Privatization (April 22, 1997)
In 1997, the
Municipal Privatization and Local Economic Development Workshop focused
on the prospects of municipal privatization from the viewpoint of local
economic development in the context of the forthcoming implementation
of a currency board in Bulgaria. Representatives of about 20 Bulgarian
municipalities (at the level of Mayor, Deputy-Mayor, and Head of Privatization
Department) took part in the workshop. Among the participants were also
senior officers from the Council of Ministers, the Privatization Agency,
consulting firms, and journalists.
was based on the report of Mr. Petar Antov, Chief Expert, Privatization
Agency, entitled Tendencies in the Municipal Privatization in 1996.
Mr. Dimitar Batchvarov, Head of the Structural Reform Department with
the Council of Ministers, made an overview of the intentions of the Government
in the area of structural reforms and the expected role of local authorities'
in this process. According to Mr. Batchvarov, the potential of municipal
privatization for a fast introduction of market relations on the regional
level is still insufficiently utilized. Mr. Batchvarov also shared ideas
regarding the use of the resources of municipal privatization funds, among
which the preferential development and support for small and medium businesses.
4. Mass Privatization
Trade Shares from Mass Privatization
How to Trade with Shares from Mass Privatization by Doncho Barbalov, CSD
Research Fellow was published in 5,000 issues in October 1997. This is
the fourth successive publication from the CSD series of brochures on
privatization. The brochure was disseminated at the Bulgarian Investment
Forum (Sofia, October 22-24, 1997) and throughout the country by the information
offices of the Center for Mass Privatization. Due to the large interest,
a second release is planned for 1998.
the Results of the First Wave of Mass Privatization in Bulgaria
In 1997, CSD
conducted two qualitative and one quantitative survey which were part
a of long-term strategy aimed at monitoring economic reform developments
and performing a watchdog function. Data and results from the 1997 surveys
have been incorporated in the Policy Recommendations Paper on mass privatization.
All survey results have been provided on a regular basis to:
- The Chairman of the Economic Committee of the National
- The Legal Department and Structural Reform Department
of the Council of Ministers;
- The Center for Mass Privatization, from where a letter
of acknowledgment was received.
The 1997 surveys
disclosed a complex and controversial picture of the implementation of
the first wave of mass privatization (MP) in Bulgaria:
(i) In principle, the mass privatization is perceived
as a positive, although belated and not altogether perfect process.
(ii) Shortcomings related to how the first wave of
MP was conducted include: the controversial and inconsistent behavior
of the state, the changes in the originally announced program of the government,
the changes in the privatized enterprises' capital between the separate
auction sessions and the poor protection of the minor shareholders' rights.
(iii) The information collected shows that the preferred
way for participation in mass privatization is through privatization funds.
privatization funds do not enjoy a high level of trust after the first
wave of MP.
(iv) The respondents do not have sufficient information
about the enterprises they have acquired shares from.
(v) The general awareness about the second round of
mass privatization is relatively low. Compared to earlier surveys, there
is declining awareness and interest towards the privatization process.
The level of information regarding the model of implementing the second
wave of MP is even lower.
II. Corporate Governance, Capital Markets and Shareholder Rights
Governance Agenda for Bulgaria
the implementation of a long-term information and training Program on
the problems of corporate governance targeted at the general public and
selected professional groups. The Program sets the corporate governance
agenda for Bulgaria and is supported by all concerned institutions. The
agenda envisions the following activities:
- Research and analysis of the specific problems of corporate
governance in privatized enterprises and privatization funds;
- Joint activities with the privatization funds' associations;
- Study of foreign experience in the field of protection
of shareholders' rights;
- Introducing corporate governance concepts to the Bulgarian
the Implementation of Corporate Governance Principles: Shareholders' Register
On July 3,
1997 the Council of Ministers made a decision recommending that branch
ministries introduce a Shareholders' Register with unified format and
maintenance rules for the enterprises with a majority state ownership.
of the Shareholders' Register was developed by CSD experts and presented
to the Center for Mass Privatization. The following sections of the Shareholders'
Register have been elaborated in detail:
- graphic format of the original register;
- format of the duplicate (electronic) copy of the register;
- officials responsible for registration of the shareholders
and updating the information;
- regularity of entries and information updating;
- conditions for keeping and restoring the original register
and the duplicate copy.
With the preparation
of this document in coordination with the relevant state institutions,
CSD facilitated the procedure of entering new shareholder rights, and
the implementation of the corporate governance principles and practices.
of Small Investors to Their Rights as Shareholders
On May 15,
1997 a Town Hall Meeting on corporate governance and capital markets issues
was held in Veliko Tarnovo. The meeting was organized by CSD and conducted
in cooperation with the Veliko Tarnovo municipality, Sever privatization
fund, and the consulting firm Fynsis. The objective of the meeting was
to bring the topics of corporate governance and shareholders' rights into
public view. At the Town Hall Meeting, short
were made by a number of speakers including representatives of the following
institutions: Center for Mass Privatization, Securities and Stock Exchanges
Commission, Central Depository, Stock Exchange, managers of to-be-privatized
enterprises, managers of privatized enterprises, and Privatization Funds.
of the Town Hall Meeting was an introduction of small investors to their
rights as shareholders and to the mechanisms of the capital market. For
the first time in Bulgaria, the broad public learned about the possibilities
for their participation in the management of the privatized enterprises.
a Shareholders' Union (April 10, 1997)
CSD was instrumental
in the establishment of a Shareholders' Union in Bulgaria. The Union was
founded as a non-governmental organization in April 1997 and CSD is one
of the founding associate members. The Shareholders' Union sets as its
primary goal the facilitation of achieving a broader, more effective,
and less risky investment environment in Bulgaria.
As a founding
member, CSD will work for the achievement of the following objectives:
- Facilitating the activity of state and public bodies
and lobbying at the stages of preparation and adoption of regulatory
documents related to investment and protection of investors' rights;
- Developing information and educational programs and
publishing activities aimed at elevating the investment culture of the
Union members and the public at large;
- Analysis of real and potential conflicts between different
groups of investors and suggesting of measures for their more effective
Governance and Protection of Shareholders' Rights Workshop (November 14,
The main objective
of the event was identifying the major problems in Bulgarian practice
after the first wave of mass privatization and the start of capital market.
Based on the broad discussion on the workshop, some important decisions
were outlined based on the experience of USA, Germany, Great Britain,
and other countries:
- Corporate governance (Accountability, Board Composition
and Separation of Functions between the General Director and the Chairman
of the Board, Qualifications of Nominees to the Board, Conflict of Interest);
- Shareholders' rights (Agenda for the Annual General
Meeting, Majority vs. Minority Shareholders, Voting Rights Restrictions
and Restricted Shares, Conversion of Open JSC into Closed Type).
was attended by 25 Bulgarian experts recruited in cooperation with the
Union of Investors in Bulgaria. Mr. Geoffrey Mazullo- US consultant, Multinational
Strategies, New York also participated in the workshop providing valuable
advise and expertise. Mr. Mazullo has extensive experience in implementing
corporate governance projects in Poland, Russia, Moldova and other countries
in the region.
5. Policy workshop: Enhancing the Development of the
Institutional and Policy Framework of Capital Markets in Bulgaria (July
The main objective
of the workshop was to provide a consensus Policy Document including the
legislative agenda for the institutional development of capital markets
in Bulgaria. In this respect the Policy Document identified the following
three major problem areas:
- Development of a System to Support Market Infrastructure;
- Supply and Demand of Securities, Primary Market Development;
- Preparing the Legal Infrastructure for a Self Regulatory
In terms of
content the Policy Document outlines the most important action lines associated
with each problem area. The important features of the Policy documents
are that it is:
- Based on the consensus of the major actors in the field
of capital markets on the most important problems that have to be resolved;
- Presents a comprehensive overview of the status of
the legal and institutional framework of capital markets;
- Serves as an effective management and outreach tool
that sets the policy priorities and enables the effective tracking of
important features of the Policy Workshop on capital markets is not only
the result (the Policy Document) but also the multistage "production
process". At the initial stage CSD formed an expert group including
representatives of business associations, senior government officials,
financial experts, representatives of the private sector and other concerned
At the second
stage the draft document, which was not only a result of expert work but
also included consultations between the relevant actors and institutions,
was discussed at an expert level workshop. The most important result of
the policy workshop was the endorsement of the recommendations proposed
which provided a complete working document supported by the major stakeholders
in the area of capital markets development.
At the third
stage, after a new round of consultations (conducted by CSD task force
members and including members of Parliament, senior officials at the Council
of Ministers, representatives of self-regulating organizations, financial
experts from the private sector and other relevant institutions), the
Policy Document was revised and published as a policy recommendations
paper: Institutional and Policy Framework for the Development of Capital Markets in Bulgaria.
was widely distributed in Bulgaria and abroad and also provided a useful
reference for the Financial Times Seminar on the Development of Capital
Market in Bulgaria (October 23, 1997; Sofia).
III. Business Associations Executives Training
was co-organized by CSD and the Center for International Private Enterprise
at the International Management Center in Bistritza (May 4-10, 1997).
Representatives of sixteen associations and seven chambers of commerce
from all parts of the country took part in the seminar.
topics covered were strategic planing, finance & budgeting, project
design, and proposal writing. The program gave the participants a unique
opportunity to acquire new knowledge and skills as well as to develop
valuable contacts and share experience with colleagues from the sector.
of the event exceeded the expectations of both organizers and participants.
At the final test, the majority of trainees received a certificate for
successful completion of the Business Associations training. There is
good reason to believe that participants will implement the acquired theoretical
competence into practice.
IV. International Business Club Meetings
In 1997 the
International Business Club organized three meetings with the following
Mr. Alexander Bozhkov, Deputy Prime Minister, "Priority
Areas for the Caretaker Government" (March 18, 1997)
Mr. Stephan Sofianski, Prime Minister, "Preparing
Accelerated Economic Reforms in Bulgaria: The Three Months of the Caretaker
Government" (May 8, 1997)
Mr. Valentin Vassilev , Minister of Trade and Tourism,
"Privatization in Trade and Tourism" (June 17, 1997)
The IBC meetings participants included the foreign trade
envoys and the representatives of International businesses in Bulgaria.