IMF SHOWED A YELLOW CARD TO THE GOVERNMENT
The Government's vanguard economic ideas for 2003 were disliked by the IMF Mission, lead by Jerald Schiff. From September 16 to 25 the experts of the international financial institution were inspecting the fulfillment of the state's revenues and expenditures for 2002 and the preparation of the 2003 budget.At the press conference, given by the IMF Mission Leader for Bulgaria together with the Finance Minister Milen Velchev and the BNB Governor Svetoslav Gavrijsky, it became clear that the only point on which the Finance Ministry had reached an agreement with the IMF, were the figures in the macroframe for next year.In the beginning of the press conference Mr. Velchev hurried to admit that his ministry and the IMF had different stances regarding the projected amount of 2003 budget revenues from VAT and social insurances, and about the expenditures, planned for health care. In the words of Mr. Schiff, IMF's experts do not share the Finance Ministry's enthusiasm, which forecasts a steep incerase of the proceeds from the above-mentioned taxes. Revenues from VAT into the Treasury for 2003 are projected at BGN3.1BN, up from BGN2.8BN for 2002, or BGN300BN more from this year.I do not believe that the companies' conscientiousness has increased so much that proceeds into the budget from VAT would rise so much as the Government projects, Mr. Schiff said.If his apprehensions that the Government has overestimated its forecasts for proceeds from VAT (which is the backbone of the budget) prove right, then all other calculations of the Finance Ministry will be seriously dicredited. In addition, IMF's experts have not yet voiced their stance on the idea that firms investing in regions of high unemployment, would be exempt from paying profit tax. In fact, this is a cover version of the pre-election promise of the National Movement Simeon II (NMSII) for a zero tax rate on profit. However, it was attacked by the IMF and soon forgotten. Now, the Government is timidly trying to revive it, but the Finance Minister himself seems to have reconsidered his stance. Mr. Velchev causiouly declared that analyses were still going on if the conditions with which this tax preference is bound, would give a sufficiently good protection against attempted frauds. For example, one might register a firm with five employees in Madan and evade paying profit tax.Jerald Schiff was adamant that the subsidies for health care, projected by the Cabinet, were incorrectly distributed. The IMF expected that most of the hospitals, which are municipal or financed by municipal budgets, would get BGN100MN, or the bulk of the BGN170MN, to be additionally released by the budget. But the Treasury is projected to spend for the health care establishments BGN70MN more in 2003 as compared to 2002. And the National Health Care Insurance Fund will get BGN100MN in additional subsidies.The IMF Mission Leader for Bulgaria underlined that the health reform was not going on at the necessary speed. According to him, the reduction of the number of hospitals is delayed and therefore, the budget expenses won't be cut down, as planned in the 2003 draft budget. But the Minsiter of Health Care Bozhidar Finkov claims that the State cannot close down health care establishments through administrative channels. Finally, a conclusion can be drawn from Mr. Schiff's words that both him and the IMF experts are seriously concerned about the possibility that the 2003 budget might be approved in its version, planned by the Government. But then the danger of not collecting the revenues in it and the expenditures exceeding the projected amount, can become real. In other words, the budget may fail and the fiscal discipline, which the Government is so proud of, may collapse like a sand castle. Such a thing has nor happened since 1997.Jeral Schiff did not miss to underline in front of the jornalists that he was sceptical about the Cabinet's idea to get BGN100MN from its fiscal reserve and create a fund for financiang share participation in small and medium-sized enterprises. This is the so called venture capital fund, on which the Deputy Premier Nikolai Vassilev counts for attracting greefield investments.The idea for establishing such a fund was acclaimed by Ahmed Dogan, Leader of the ethnical Turks' Movement for Rights and Freedoms (MRF), after the meeting between the leadership of the parliamentary groups of NMSII and MRF on September 23, when the 2003 draft budget was discussed. Through the investment structure, to be created by the State's money, Mr. Dogan believes he would attract money to the underdeveloped regions, populated by a great part of his electorate. At the press conference with IMF representatives the Finance Minister Velchev announced that this fund would be managed by experts in venture investments, who would be picked up by competition. He underlined that the fund would be investing money in projects, in which the prevailing part of the financing would be by private capital. However, his words did not placate Mr. Schiff, who hurried to say that he did not see any common sense in increasing the State's participation in Bulgaria's economy.And although during the present visit of the IMF Mission the very beginning of talks on the budget and economic policy to be implemented by the Government in 2003 was laid, the outcome seems difficult. The situation was similar during the negotiations in end-2001 when the Cabinet of Premier Simeon Saxe-Coburg-Gotha succeeded to close the two-year stand-by agreement with the IMF after having to give up many of its unfulfilled pre-election promises in the economi sphere.