(D)-Suppressed to avoid disclosing data of individual companies Source: U.S. Department of Commerce, Survey of Current Business August 1990, Vol. 70, No. 8, Table 13 Bulgaria's economy since World War II has been developed on a centrally-planned model, operating within the Council for Mutual Economic Assistance (CMEA), centered on the Soviet BULGARIA Union. The effect of this has been to limit possibilities for U.S. exports to Bulgaria. Within recent years, limited efforts have been made to re-orient Bulgaria's economy to a more market-directed way of operating, but considerable work remains to be done. The transformation to democracy now underway includes with it the understanding of virtually all political forces that an economy based on free market principles is an essential step. The severe economic crisis now underway in Bulgaria (a moratorium on hard currency debt repayment; massive gas shortages; daily power outages; rationing of basic food products) serves to compel reform efforts to move quickly. The government of "experts" or coalition government has proposed an economic reform program which, if implemented, would radically change the economic framework. Membership in the IMF, World Bank, and other international organizations should also serve to encourage positive changes. This report has been written based on the situation to date, but extensive changes seem inevitable in the near future. Fiscal policy has been typical of centrally planned economies. The deficit has grown in recent years, and more information has been made public. For the past five years, there has been considerable borrowing from foreign commercial banks, and payments on principal and interest have been suspended since late March, 1990. The domestic deficit has apparently been financed through printing money, and suppressed inflation has grown rapidly. The deficit has been a result of a combination of factors, including military spending, financing exports to third world countries, some of which are proving to be poor credit risks, and spending for domestic subsidies to producers and consumers. There are significant disincentives to domestic private investment including massively excessive regulation, very high tax rates, and lack of tax incentives for investment, generally. The money supply is a function of government policies, and has been expanded to meet current expenditure needs with little consideration for other effects. The discount rate has not been adjusted for a number of years. The government is anticipating implementation of a western-style central bank system, but this is not yet functioning fully. 2. Exchange Rate Policies Bulgaria has multiple exchange rates. As of November 1, 1990, the National Bank of Bulgaria quoted the following: Black market rates offered in Sofia range from 10 to 20 lev per dollar. Some West European banks offer lev for sale at a rate of about 17 lev per dollar. The government plays a role in allocation of foreign exchange for imports. Import and export of lev and foreign exchange without permission is illegal. Lack of foreign BULGARIA exchange is a significant impediment to increased U.S. exports to Bulgaria. Decree 56, of January, 1989, was a significant advance decreasing, in theory, monopoly control by the government over parts of the economy, including foreign trade. A large number of small individually-owned firms has been formed since then, but their development has been hampered by lack of reforms in other areas. Prices, for instance, are still largely controlled by the government. About 20 percent of prices were decontrolled in the first half of 1990, and further decontrol has been promised. Changes in tax policy are under discussion, but taxes remain at high levels. There has been little effect on U.S. exports to date from these changes. While they are potentially significant over the medium term, many other changes will have to come before the full effect of reform is felt. For instance, government licenses for imports and exports are required, and sometimes these are refused. The moratorium on the foreign debt has had a chilling effect on foreign trade that far overshadows the positive effects of changes implemented thus far. 4. Debt Management Policies Bulgaria's foreign hard currency debt has grown rapidly, from a low of around $4 billion in 1984 to $10.4 billion at the end of March 1990. The overwhelming majority of the debt is with commercial banks, primarily non-U.S. OECD countries. A large part of the debt was short term (less than one year), contrary to usual circumstances. The moratorium on debt service payments in place since March, 1990, includes payments on short term debt, and thus has had a major negative impact on trade activity. A committee of banks, headed by Deutsche Bank, is negotiating on Bulgaria's request for restructuring its debt. Bulgaria joined the IMF and World Bank in September 1990, and is seeking expeditious approval an economic reform program which could benefit from access to IMF resources. 5. Significant Barriers to U.S. Exports Import licenses are a formal requirement for many types of imports. As a practical matter, most foreign trade is still conducted by government enterprises, and government trade policies are more important than licensing requirements. Services barriers have not been formally necessary because the overall unfriendly environment for business has precluded many foreign providers of services from entering the market. There is no local stock exchange, though one is envisioned. Foreign banks are permitted under Decree 56. least one foreign air courier company recently opened an office in Bulgaria. At Barriers to foreign investment are numerous, and there is in fact little foreign investment, despite considerable government discussion of ways to attract foreign investment. BULGARIA Government approval is needed for certain levels of equity investment. Repatriation of profits is restricted by the limited availability of foreign currency. Export is often the only way to obtain foreign currency. Land ownership is prohibited to foreign entities (and often severely limited for Bulgarians). The pervasive role of the government in the economy serves to severely reduce the attractiveness of investing in Bulgaria. Government procurement has not even emerged as an issue, as almost all government needs are fulfilled through state-owned entities. The government uses a wide range of subsidies, both domestically and to promote exports. Price structures are extremely distorted. Preferential financing is provided to favored enterprises, multiple exchange rates are used, and prices are manipulated. Exports to CMEA countries have been promoted by all of these measures; in addition, these countries enjoy mutual duty exemptions. Bulgaria's application to join the GATT is pending. 7. Protection of U.S. Intellectual Property Bulgaria is a member of the World Intellectual Property Organization and is party to the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure and the Universal Copyright Convention. Bulgarian laws provide little protection for domestic intellectual property, in accordance with general CMEA practice. Bulgaria is actively reviewing its patent and other intellectual property protection laws. In late 1990, a U.S. company expressed concern over possible infringement of industrial agreements regarding an industrial product. A wide number of Bulgarian firms have commented that they produce items under license from a Western company. Some pirating of audio tapes has been noted. New technologies infringement has long been presumed to exist in connection with efforts to evade COCOM controls, but little concrete information is available. Bulgaria's intellectual property practices are more an impediment to U.S. investment than to trade. Losses to U.S. companies due to pirating or counterfeiting are believed to be minimal. |