Банкеръ Weekly



Deputy Premier and Minister of Economy Lidiya Shouleva to the BANKER weeklMs. Shouleva, the protests, scandals and disagreements, accompanying the discussions on the 2004 budget, created the impression that something with the State's finances was not in order. What was the reason for these problems?- The approval of the budget has always been accompanied by discussions and disagreements, some even say scandals. In my opinion, this is normal and democratic, because the budget is a reflection of the country's policy. The discusssion is the same this year as in all previous ones. As Minister of Economy I put several requirements to the budget. The first one was that the corporate tax in 2004 should be at the level, projected in the strategy called Taxation Policy 2003-2005, i.e. 20 per cent. A 19.5% rate of the corporate tax was approved, as compared to 40.1% in 1997. Thus, the profit tax for companies next year will be almost twice lower than six years ago. I believe this will give an impetus to the development of economy. My second requirement was to project resources under the Encouragement of Investments Act and it was also satisfied.The third problem, which arose in the last moment, was connected with the taxation of the reserve, accumulated from revaluation of assets if they are written off or devaluated. On the insistance of business organisations which are members of the Coucil for Economic Growth, we changed the procedure for tat taxation. The Ministry of Econony demanded that the accumulated reserve should be remised to the firms if they decided to invest in new assets. However, necessity to discuss the matter appeared in the last moment and we agreed with the Finance Ministry that the tax would be due, but its payment was rescheduled for three years. Within that time we'll be able to consider how much this burden affects the firms and if they can bear it. Finally, an amendment in the use of funds from tourist fees was approved with the package of taxation laws. For years on end proceeds from tourist fees were accepted as taxes and could be spent on any needs of the municipalities. But as this is a fee, charged on the overnights of each vacationer, its only normal to offer a service against it. This service will be good infrastructure, good advertising, and better opportunities for offering tourist products. The fact that it was approved for tourist fees to be spent on leisure industry alone, is an expression of the Government's policy for the development of this branch of the country's economy. Under which item of the budget have the resources for encouragement of investments been projected? Do you expect them to increase next year?- The money has been planned under the structural reform fund. Measures for alleviation of administrative procedures and for a quicker utilization of greenfield investments were mapped out during the recent session of the Council for Encouragement of Investments. Currently, years have to pass until the State or the municipalities manage to build the adjacent infrastructure. In the first ten months of 2003 foreign direct investment exceeded USD1.2BN. The upward trend will continue in 2004 as well.

Is it true that the idea for construction of motorways with money from the fiscal reserve is yours?- I have never claimed authorship on that or any other idea. It's normal for the individuals in one team to have various viewpoints. What is important is the concensus and creativity. In my opinion, infrastructure is extremely important for the business and its development should be financed. If we look at the proceeds from privatisation, we'll see that they go to the fiscal reserve. Therefore, it's normal that the creation of new state assets is financed by the same source. The important thing is that these assets bring future revenues and replenish the reserve. So, there is no problem for infrastructure and especially motorways, which have a potential to bring proceeds, to be financed from the fiscal reserve. The most serious doubts concerned the transparency of spending these finances.- There are no problems in that respect. The idea is to capitalize the company which builds motorways in the country. In addition, private capitals will be attracted as well. When such capitals are attracted the control on the spending of funds is important. In all cases the money will be spent in compliance with the Public Procurement Act. Do you intend to make changes in the Privatisation Agency (PA) after it became apparent that the political medling in its operation yield contoversial results? During the discussion on the strategy for Bulgartabac's divestment, you drew analogy between the forthcoming deal and the undisputably succeeful sales of the last two state-run banks, carried out by the Bulgarian Consolidation Company (BCC).- It's difficult to make a definitive evaluation about PA's work, especially after it began handling all ministries' deals. Faults could be always found in such huge and varied operation as the PA carries out. I would say that the BCC was closing boutique deals. There is nothing wrong with having a variety of good practices and together with the deals effected by the PA, holding structures to be also legally entitiled to engage in such practice. Bulgartabac, for example, is a holding company which could independently sell out its assets in compliance with the Commercial Code and the Public Offering of Securities Act. The existence of the Privatisation Act does not mean that assets should be sold only according to it. That type of sale - from the State to natural persons is permitted by other Bulgarian laws as well. Will the proceeds from the privatisation of Bulgartabac's subsidiaries be spent rationally?- The banks were sold out without a strategy, but that did not hinder their successful divestment, neither did it create problems with wrongful spending of the received money.The banks were not subjected to such pressure...- Leave the social pressure alone. There are various accusations that the proceeds from Bulgartabac's sale would be spent on different things, luxury to the executives including. Nothing like that happened during the privatisation of banks. Some of the ministers who were on the BoD of the BCC are members of Bulgartabac's Supervisory Board, too. This is the first guarantee that the proceeds from the company's sale would be rationally spent. The second one is that the holding is a public company with more than 2,000 shareholders. When dividends are distributed and when the financial report is approved, the interests of these 2,000 people will be a sufficient guarantee against wrongful spending of the proceeds from the sale of Bulgartabac's subsidiaries. Will the other shareholders be glad of using the proceeds from the subsidiaries' sale to set up a fund for assistance of tobacco growers and development of alternative means of living?- In thw first place, small shareholders have a representative in the holding's Management Board and at any moment they have precise information about what Bulgartabac's proceeds have been spent on. Secondly, such a fund can be set up in various ways. On one hand, the State may establish it at the expense of its proceeds from dividend. On the other hand, any respectable company sets aside sufficiant funds for social programems. This is the normal practice. Therefore, I do not see any contradiction between the interests of Bulgartabac's shareholders and the creation of various programmes, earmarked for its workers. When will the Bulgarian Telecoomunications Company be sold out?- My only comment is that this is court privatisation. That is, the telecom will be sold in compliance with the court's ruling? - This is outside the scope of my authority. Will you continue the negotiations with the four companies, applying for a manager of the investment fund, which was to be set up with money from the fiscal reserve?- The analysis showed lack of a clear strategy about the operation of the investment fund. The candidates' offers did not include sufficient guarantees for the State's money. The strategy for diversification of portfolios was neither clear. Moreover, several venture capital funds, established with private capitals, are already operating in Bulgaria. That is why we decided that the establishment of an investment fund with state participation would be inefficient. It would be better to use the State's limited financial resource for improvement of the public services.

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