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Economic Program - 2006: Bridging Criminal and Economic Policies, Promoting European Integration and Competitiveness
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In 2006 the Economic Program focused its work on three thematic areas:
informal economy, VAT fraud and corruption - bridging criminal and
economic policies; innovation and knowledge economy; European
integration and competitiveness.
2006 Highlights
I. Informal Economy and
Anti-Corruption
II. Innovation and
Knowledge Economy
III. European Integration
and Competitiveness
IV. Distance Learning
The
Economic Program continued to monitor the economic aspects of
informal economy and anti-corruption policies and practice in Bulgaria
and the European Union. Its policy analysis and advice contributed to
the introduction of new anti-fraud measures in the Bulgarian VAT system
and provided innovative economic instruments to complement criminal
justice policies in combating organized crime in the enlarged European
Union.
CSD coordinated the work and contributed for a second year to
the
annual report Innovation.bg 2007, which analyzes the functioning of the
national innovation system and makes recommendations for enhancing the
innovation performance of the Bulgarian economy. CSD continued its work
on the elaboration of a Regional Innovation Strategy for the South West
Planning Region in Bulgaria.
As a specific effort to improve Bulgaria’s capacity in
managing EU
Funds and reduce corruption incentives in public procurement CSD has
started an initiative on better regulation of public-private
partnerships (PPP) in Bulgaria. The initiative aims to make a
comparison between existing legislative practice on PPP in Europe and
the United States and propose an effective PPP solution for Bulgaria.
European integration and competitiveness was an important
focus of
the Economic Program in 2006. Through CSD contribution Bulgaria was
included for the first time in IMD’s Competitiveness Yearbook – the
most comprehensive reference book on competitiveness for international
investors. CSD representatives contributed to the second annual Report
for the Bulgarian President Bulgaria 2006: Convergence and European
Funds. CSD explored the necessary national instruments for effective
management of EU funds in the first years after accession and the
trends in the international competitiveness of the country.
In 2006 CSD continued to offer useful knowledge through the
Bulgarian Distance Learning Center of the World Bank’s Global Development Learning
Network. CSD became a regional coordinator for South-East Europe
for some of the programs offered by the network.
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I. Informal Economy and Anti-Corruption
In 2006 the Economic Program continued its work on policy assessment
and advice on the issues of informal economy and anti-corruption
focusing on specific issues such as VAT fraud, informal labor,
measurement, etc. In its brief A Painful Shift in Bulgarian Anti-Corruption
Policies and Practice CSD recaps Bulgaria’s track record in
anti-corruption policies and lists the remaining and new challenges in
this area after the country’s accession to the European Union in 2007.
The brief underlines that the most important shift in Bulgaria’s
anti-corruption policies in the run-up months to EU accession is the
move from “soft” (awareness-raising) campaigns to “hard” (prevention
and sanctions oriented) measures with immediate anti-corruption
effects. The brief outlines two areas of outstanding challenges: VAT
fraud and corruption in public-procurement. Success in these areas
require commitment on the side of the Bulgarian government to
independent oversight and better coordination of anti-corruption
policies between the legislature, the government and the judiciary.
Two areas remain critically important to curbing political corruption
in Bulgaria in the long-run:
public procurement - the European Bank for Reconstruction and
Development and the World
Bank have recently confirmedthefindingsofnational organizations
that public procurement remains the most corruption vulnerable area in
the economy.
VAT fraud – According to different estimates the Bulgarian
government loses up to EUR 450 – 500 million in VAT fraud annually.
While these numbers may be low compared to similar estimates in Germany
(EUR 18 – 20 billion) or Great Britain (EUR 10 billion) they represent
a much higher share of annual VAT revenues in Bulgaria (25 – 30%) than
in these EU countries (5 – 6%).
As a specific effort to improve Bulgaria’s capacity in managing EU
Funds and reduce corruption incentives in public procurement CSD has
started an initiative on better regulation of public-private
partnership (PPP) in Bulgaria. The initiative aims to make a comparison
between existing legislative practice on PPP in EU countries, the
United States and Canada and propose an effective PPP solution for
Bulgaria. CSD has held consultation on prospective PPP regulation with
the Bulgarian Ministry of Finance, the main body managing EU Funds
spending in Bulgaria and the Bulgarian Parliamentary Combating
Corruption Committee, which has set public procurement and PPP as a
focus of its work in 2007.
The Economic Program continued to explore anti-corruption and informal
economy in 2006. It identified the types and modus operandi of VAT
fraud – primary the abuse of tax credit. The CSD working paper Fighting
VAT Fraud: the Bulgarian Experience analyses the elements of tax design
permissive to VAT abuses and discusses the possible solutions in the
light of the international and domestic experience and the capacity of
the Bulgarian tax administration. The study concludes that the possible
solutions lie with optimizing risk management and the principle of
joint liability rather than with tighter controls at entry and on the
conduct of business. The Bulgarian Parliamentary Commission for
Prevention and Countering of Corruption invited CSD experts to testify
on hearing on countering VAT fraud and to present the main conclusions
and recommendations from the CSD report Corruption and Tax Compliance.
Policy and Administration Challenges. Most of the recommendations
outlined in the report were implemented in policy and legislative
changes by the end of 2006.
Another area of research related to better governance and started by
the Economic Program in 2006 was Healthcare Reforms in Bulgaria. The
CSD working paper shows that low compliance by both customers
(contributors) and service-providers (contractors with the National
Health Insurance Fund) in Bulgaria leads to excessive regulation and
control, crowding out of the private sector and an increase in the
incentives for corrupt behavior. The outcome is a system that is
increasingly driven by administrative controls at the expense of market
incentives. Based on this analysis the paper identifies the relevant
policy implications and opportunities for moving the stalled health
reforms out of the institutional impasse and improving the system’s
governance. CSD will publish an extended analysis on anti-corruption
policy alternatives for the Bulgarian healthcare system in 2007.
On 23-24 June 2006 the Center for the Study of Democracy organized an
international conference Corruption and Organized Crime: Bridging Criminal and
Economic Policies. The conference aimed at reviewing the range
of effective policy instruments and proposing integrated solutions to
governments, international institutions and civil society. The
discussion focused on the use of socio-economic policies against
organized crime.
In October and November CSD experts were invited to participate in the
design of an EU-wide feasibility study on monitoring informal labor.
CSD’s system for monitoring the dynamics of informal economy in
Bulgaria developed and tested in the period 2002 – 2006 was approved by
the working group on the feasibility study as one of the model-studies.
II. Innovation and Knowledge Economy
In 2006 CSD continued to promote and support policy-making in the area
of innovation and knowledge economy. CSD representatives took part in
the elaboration of the Innovation.bg
Report, which analyzes the national innovation system and makes
recommendations for enhancing the innovation performance of the
Bulgarian economy. The last edition of the report made a review of the
European innovation policy and the opportunities for development it
offered to Bulgaria. The report was enhanced with the elaboration of a
special Innovation Index of the Bulgarian enterprises, based on the
results of the annual surveys of the Innovation Relay Center, Sofia and with a profile
of the Bulgarian innovative companies based on panel data and in-depth
statistical analyses. The Innovation Index of the
Bulgarian enterprises indicated that most of them (over 65%) had not
implemented any innovation during the period 2005 - 2006. The index
showed that Bulgarian companies have low ability to combine several
types of innovation and that their innovations have low degree of
novelty compared to EU levels.
CSD took an active part in the work on elaborating a Regional
Innovation Strategy for the South West Planning Region in Bulgaria (RIS
BRIDGE) in 2006. A cornerstone in this work was the exchange of
practical ideas on developing a workable regional innovation system.
Between 28 and 30 May 2006 representatives of the Center for the Study
of Democracy, the Applied Research and Communications Fund, and the
governors of Sofia, Blagoevgrad and Pernik Districts of Bulgaria, the
deputy governors of Kyustendil and Blagoevgrad Districts, as well as
representative of the Bulgarian Ministry of Regional Development and
Public Works took part in a study visit to Thessaloniki, Greece. The
Bulgarian governors got exposure to both practical policy advice on
developing regional innovation policy and specific examples of results
from projects financed under the EU funds – a university technology
transfer office and an innovation business incubator and technology
park in Thessaloniki.
CSD further explored the relationship between competitiveness and
innovation in a discussion Ireland’s Road into the EU, held on 1 June
2006, with guest speaker Mr. Andrew McDowell, Chief Economist and
Manager of the Competitiveness Division of Forfas – the Irish
government’s policy and advisory board for enterprise, trade, science,
technology and innovation. Mr. McDowell’s speach focused on Ireland’s
policies of using EU funds to propel the economic and technological
development of the country from the last to one of the first places in
Europe. He highlighted the EU impact on Ireland’s economic
transformation in areas such as macroeconomic stability, investment
climate, implementing effective competition and regulatory reform, as
well as achieving improvements in governance. Bulgarian guests, among
which MPs and former deputy-prime minister,were particularly interested
to understand the institutional and administrative processes Ireland
used to improve its competitiveness in Europe.
III. European Integration and Competitiveness
Another highlight on CSD’s agenda in 2006 was the support to Bulgaria’s
European integration process. CSD representatives contributed to the
elaboration of the second Report for the Bulgarian President Bulgaria
2006: Convergence and the European Funds. The report was
officially presented on 22 January 2006. It focuses on the influence of
the European Funds on the Bulgarian economy regarding the convergence
of the Bulgarian with the European economy, and on the possibilities
for decreasing regional discrepancies in the country. CSD contributed
in two important areas – improving governance and the development of a
knowledge based economy in Bulgara’s regions.
On 10 May 2006 the Center for the Study of Democracy organized in the
Bulgarian Parliament a round table For Effective Management of EU Funds in Bulgaria -
Necessary National Instruments in the First Years after the Accession.
During the event members of parliament, ministers and high-ranking
administrative officials discussed the financial instruments and
measures needed for increasing the capacity of Bulgarian organizations
for preparing competitive bids under the EU funds. The low level of
readiness of the small Bulgarian municipalities and firms to prepare
projects, and hence to use effectively the 307 bln. euro envisaged for
Bulgaria through the EU’s Structural and Cohesion Funds for the period
2007-2013, proved to be the major problem in this context.
With the partnership of CSD this year Bulgaria was included for the
first time in the world’s oldest and most comprehensive annual report
on the competitiveness - the World Competitiveness Yearbook of IMD (International Institute for
Management Development). In the Yearbook Bulgaria was ranked 47th
among 61 other national and regional economies – scoring better than
Italy, Romania, Poland and Croatia. The comparative advantages of the
Bulgarian economy (positions among the
firstten)werethestablemacroeconomicenvironment, high per capita
economic growth, low taxes, export of services, budget balance,
remuneration of labor, unit labor cost and investment in
telecommunications as percent of GDP. In May 2006 CSD together with the
Bulgarian Small and Medium Enterprise Promotion Agency and the Invest
Bulgaria Agency organized a press conference to present Bulgaria’s
position in the Yearbook.
IMD’s World Competitiveness Yearbook 2006 highlights the areas, in
which Bulgaria urgently needs to implement adequate measures in order
to improve its position:
Investments in infrastructure and energy efficiency;
Encouragement of innovation and high-technology export;
Implementation of long-term national policy for development of
human capital, focusing on the reforms in healthcare and education
sectors;
Resolving chronic problems with administrative discretion, red tape
and corruption.
IV. Distance Learning
In 2006 CSD continued its work with the Global Distance Learning Network (GDLN) through
its Distance Learning Center. The Center carried out videoconferences
on a number of topics: social entrepreneurship, industrial clusters,
accounting and auditing, global issues, development of SMEs and access
to finance,review of regional competitiveness and investment climate
improvement.
The Center stayed committed to promoting civil society development in
Bulgaria and in Europe. In the framework of the DLC on 30 May 2006 the
Center for the Study of Democracy organized a round table discussion on
the past, present and future of civil society. Guest speakers at the
event were Mr. Michael Edwards, Director of Civil Society and
Governance at Ford Foundation and Mr. Martin Butora, Honorary President
of the CEE Trust for Democracy. Later on CSD organized within the
GARNET network of excellence a workshop (10 - 12 November 2006) to present the
role of non-state actors and civil society in the global regulatory
framework. The objective of the workshop was to examine the global
public sphere and the global civil society. |
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