Банкеръ Weekly



Peter Stella, so far resident represenative of IMF for Bulgaria, to the BANKER weekly

Mr. Stella, you had the chance to meet the members of the new Bulgarian Government and get acquainted with their opinion on the country's economic development. Do you assess as realistic their intentions to relieve of taxes reinvested companies' profits and at the same time try to attain no budget deficit?
- When the International Monetary Fund (IMF) mission arrives in Bulgaria in September and considers the 2002 draft budget, it will make an assessment of the possibilities for tax reduction. I would personally recommend the Government to smoothly cut down the tax on corporate profits and direct its main efforts to decreasing the companies' labour costs by reducing the rate of social insurance provisions. In my opinion the tax-exemption of companies' reinvested profits would be chiefly to the benefit of big firms which net considerable profits. However, they have sufficient finances and I do not believe its them that are in need of tax relief. Preferential tax treatment should rather be enjoyed by companies with a greater number of employees, those that are struggling to get profits, and newly established firms which are making investments and pay significant depreciation allowances. It would be better to assist these companies by reducing the rate of social insurance provisions they have to pay, which will enable them to cut down labour costs.

The IMF was insisting on the introduction of VAT on tour operators' services. The new Government, however, intends to postpone the introduction of that tax burden by one more year. Is it possible for that issue to impede the negotiations on a new stand-by agreement between Bulgaria and the IMF?
- The IMF will not forget this problem only because I'm leaving Bulgaria. I cannot see why a certain industry as tourism in this case should be granted a tax privilege while the other branches are not favoured. I do'not think the IMF will agree to accept a new postponement of the introduction of VAT on these services. That would not be in harmony with the European Union's regulations on leisure industry.

How would you comment on the idea of placing Bulgarian customs offices under international supervision?
- I believe the governors should first of all try to improve the work at the customs and proceed with the implementation of that idea only in the last resort. The assignment of customs management was practiced as far as about 300-400 years ago, when kings and princes used to sell to somebody the right of collecting taxes and customs duties in their estates. I have described that in detail in one of my publications. My conclusion was that the State should undertake the responsibility for administrating taxes and customs duties. Of course, there are activities that could be assigned to the private sector. For example, if the court decides that someone has unpaid liabilities to the customs, private firms might be allowed to collect them. But the methods for that should be strictly regulated. The management of customs and tax administartion, however, should remain in the State's hands.

Fighting corruption is one of the highlights in the new Cabinet's programme. Which are the most urgent measures to be undertaken by the executive power with a view to solving this problem?
- The IMF believes that administrative procedures should be simplified to the utmost and made completely transparent. If our advice is accepted, the operation of businesses will be facilitated and the possibilitiies for corruption reduced. If taxation and customs laws are simplified, for instance, the employees will have less opportunity to make personal estimations in cases regarding the application of legal stipulations. This would cut down adminsitartive expenses, inspection of the employees' would be easier, and the preconditions for corruptuion would be limited.

What financing could Bulgaria expect from the IMF in case of successful negotiations?
- Our officials' reports always include forecasts about your country's payment balance and a special part on the financial deficit. The amount, extended by the IMF for Bulgaria, depends on that assessment. In our latest analyses of March 2001 we did not foresee a large deficit for 2002. So, it will not be justifiable to lend you a great loan. It is even possible that the country will not need credits from the IMF. If in the course of negotiating the programme (which will be for 12 or 18 months) with the IMF the Government says it would issue eurobonds - say worth USD200MN - and would sell part of its shares in the Bulgarian Telecommunications Company and Bulgartabac Holding, I'm sure there will be no deficit at all for the IMF to cover. However, we should not rule out the possibility for a change of the situation. The forecasts for the year-end could show that the country needs financing from the IMF. In that case if the Government succeds to close an agreement with the IMF in September, it could be approved by our Executive Board by end-2001 and Bulgaria might immediately receive the first tranche of the agreed credit.

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