CORRUPTION IS BULGARIA'S BIG PROBLEM
Wolfgang Roth, EIB BoD Vice Chairman, to the BANKER weeklyMr. Roth, almost half a year passed since the European Union (EU) was enlarged by the accession of ten countries from Central and Eastern Europe. Do you think they already feel the benefits of their membership?- This question cannot be given a definite answer. In my opinion, however, the real benefits for the ten new members which joined the EU in the beginning of May 2004 became a reality not after the enlargement but prior it. The reforms effected by their governments during the pre-accession negotiations with the European Commission increased the trust of foreign investors and led to investments in their economies. I shall not deny that the processes in these countries after they became EU members are of great importance, but the real work has to be done before that. Bulgaria is now in a similar situation. You have to do more work till your eventual accession in January 2007. But one way or the other, big western companies are aware that Bulgaria will certainly join the EU and that fact renders it attractive for them. At the same time it should be noted that the process of EU enlargement eastwards outlined still more clearly the problem of the great regional differences between the old and new members.Do you believe a balanced regional development - the goal set by the EU - is achievable?- Overcoming the differences in the economic development between old and new member countries will take a long time. That cannot be achieved within five or ten years. Look for instance at the situation in Germany. Despite the two republics united there are still economic differences between the various provinces. Those from the eastern part account for just 20% of the Federal Republic's gross domestic product (GDP). Something of the kind happens in the EU as well. With the accession of the new members from Central and Eastern Europe its population went up by 20% and its territory increased by 23 per cent. But the GDP growth of the unified internal market was only 5 per cent. These figures are indicative of the problem and the challenges we face within a community of 25 and in 2007 of 27 countries. This was one of the major issues we discussed at the annual forum of the European Investment Bank (EIB), held in Poland, October 14 and 15. How do you look upon EIB's future role for encouraging the economies of the countries from Central and Eastern Europe? - The same as it has been until now. I dare claim that the EIB has been so far the main and most important source of external financing to the economies in transition. Within the 1990-2003 period alone the bank allocated EUR27MN to the ten new EU members. Currently, these countries have access to the EU structural funds and its Cohesion Fund, which renders out task much more easier. The new members will get a free grant of EUR24MN from the funds alone from 2004 till 2006. Nevertheless, the EIB will continue to provide the necessary co-financing of projects, using money from the EU funds. Would you specify the loans that could be drawn from your institution?- We extend several kinds of credits. The so-called individual loans are intended for big projects worth EUR25MN-plus and are directly lent by the EIB. Direct crediting from the bank includes also group loans for smaller projects, as well as framework loans, in which state administrations usually participate. I would like to mention as well the global loans earmarked for small and medium-sized enterprises, which as a rule are released by a EIB partner bank.During the EIB annual meeting in Warsaw it was stated that the construction of Transeuropean road networks and partnership between public and private structures will be among your priorities.- As our BoD Chairman Philippe Maystadt underlined in his speech during the meeting in Warsaw, the EIB is ready to finance the construction of European transport corridors by loans of about EUR50MN till the year 2010. Most of these investments will be in the new member countries, including Bulgaria after its EU accession. Better infrastructure will allow the countries from Central and Eastern Europe to play adequately on the unified internal market. It's just not normal to speak about economic and social convergence and not have a high-speed trunk road - say between Berlin and Prague. It is especially important here that the private sector undertakes its part in the construction of facilities. That is why we stake heavily on the partnership between public and private structures, i.e. cooperation between the governments and business representatives. The application of that scheme will not only allow to overcome the difficulties created by the high requirements to member countries for maintaining low budget deficits, but also to use private companies' resources. It would be interesting to hear your appraisal of the business climate in Bulgaria.- I think the volume of attracted foreign capital is the best indicator. As far as I know, foreign direct investment in Bulgaria amounted to some USD1.4BN in 2003, and the sum is expected to exceed USD2BN this year. In Bulgaria, however, there are apprehensions that remaining outside the first wave of EU enlargement has placed the country in a more disadvantageous position than the states which have already joined the EU...- I would certainly disagree with such a statement. As I said in the beginning of our conversation, it is important for investors to trust that Bulgaria and Romania will soon become EU members. Regarding your country, the international business community is convinced that will happen in 2007. The fact that the Government in Sofia has finalized the negotiations with the European Commission is indicative in that respect. This practically means that Bulgaria has already adopted most of the EU legislation, which does not hold true about Romania. How would you comment the so-called precautionary clause, which could bring to a postponement of Bulgaria's membership by one year?- I'll again repeat that for the leading western companies that would readily invest in Bulgaria it is more important if and not exactly when your country will join the EU. It is also necessary to maintain political stability in the country and improve the work of the administration to the appropriate level. If problems arise your membership could be delayed, but I do not believe things will develop that way. Speaking the truth, I am acquainted with the criticism directed to you by the European Commission with regard to corruption in the country. This is a serious problem and you probably know that better than me. But if that may be a consolation for you, corruption is not typical of Central and Eastern European countries alone. The same problem exists and is even sharper in some of the EU members from the western part of the Continent. The EIB finances some of the big Bulgarian projects in the sphere of infrastructure. Are you acquainted with their implementation?- As Vice Chairman of the bank, responsible for Bulgaria, I pay frequent visits to your country to inspect the projects we finance. Right now I could not speak in detail about each of them. I'll only tell you that the total amount of credits extended to Bulgaria since 1990 has totalled EUR1,176,000,000 which is not a negligible sum. As you know, we finance projects together with the EU's ISPA programme for improvement of road infrastructure, telecommunications and power engineering. The bigger loans we allocated were earmarked for the Plovdiv-Svilengrad railroad, the Trakiya motorway, and the water treatment stations in Stara Zagora, Dimitrovgrad and Haskovo. I'll also point out our good cooperation with the Bulgarian National Bank (BNB), Encouragement bank, First Investment Bank, Raiffeisenbank (Bulgaria)...Your strategy for 2004-2006 projects financing in the sphere of IT research. In Bulgaria a debate is going on about Finance Minister Milen Velchev's idea for the establishment of an educational board. Would you support such a project?- Why not. Provided that it meets the bank's criteria. We very much rely on the development of universities, higher education, high technologies and scientific studies. Therefore, I believe we could close a framework agreement for the promotion of Bulgarian education as we have already done in other countries of the region.After joining the EU Bulgaria will automatically become a shareholder in the EIB. How shall the amount it will have to pay be calculated?- The share of each EIB member is calculated on the basis of the respective country's GDP. For instance, the ten new members are to deposit about 5% of the bank's capital in eight equal instalments, which is absolutely bearable. We'll apply a similar principle to Bulgaria as well.