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
• 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 publicprivate
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. |
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 policiesin the run-up months to EU accession
is the move from ”soft” (awarenessraising)
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.
The Bulgarian government should work on its good progress in improving the
internal (within the executive) and external (to the judiciary and the legislature)
coordination of anti-corruption measures. The complexity of the coalition
government creates additional possibilities for watering down political and
administrative accountability, hence the increased need for coordination
between different anti-corruption agencies and players. In this regard the
government’s Commission for Prevention and Countering of Corruption
remains understaffed and has yet to demonstrate capacity to pro-actively
generate anti-corruption policies.
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 confirmed the findings of national
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 € 450 – 500 million in VAT fraud annually. While these numbers
may be low compared to similar estimates in Germany (€ 18 – 20 billion) or
Great Britain (€ 10 billion) they represent a much higher share of annual VAT
revenues in Bulgaria (25 – 30%) than in these EU countries (5 – 6%).
Source: CSD Policy Brief No 10 A Painful Shift in Bulgarian Anti-Corruption Policies
and Practice, 2006.
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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 publicprivate
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 –
primarily 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 anticorruption
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 modelstudies.
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 latest
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 speech focused onIreland’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:
Prof. Giorgios Tsiotras, Secretary General, Regional Authority of Central Macedonia (left)
and Mr. Todor Modev, Governor of the Region city of Sofia and Chairman of the Steering
Committee of the Regional Innovation Strategy for the South-West Planning Region
during an interview in Greece, May 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"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 7 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.
Mr. Plamen Oresharski, Bulgarian Minister
of Finance highlighted the necessity
of strengthening and stabilizing the
Bulgarian budget in 2007 to guarantee,finance and support for the elaboration
and implementation of projects under
the European funds. He underlined the
importance for Bulgara’s competitiveness
of good coordination betweenfinancial instruments, directed towards
the development of science and innovation
at na-tional and European level –
the National Innovation Fund, the
National Science Fund, EU Structural and
Cohesion Funds, the Seventh Framework
Programme for Science, Technological
Development and Demonstration and the
Competitiveness and Innovation Program
of the EU.
Ms. Lidia Shouleva, Member of the
Economic Policy Committee and the
Budget and Finance Committee of the
Bulgarian Parliament, and Observer
in the European Parliament proposed
the establishment of a national fund
to support project development at
Bulgarian municipalities, which would
ensure the equal participation and access
to EU funds of the underdeveloped
municipalities. She also proposed the
establishment of similar project facilities
for support of SMEs.
With the partnership of CSD 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
Ms. Lidia Shouleva, Member of the Economic Policy Committee and the Budget and
Fnance Committee, and Observer in the European Parliament and Mr. Plamen Oresharski,
Minister of Finance
economy (positions among the first ten) were the stable macroeconomic
environment, 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.
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.
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 hightechnology
export;
• Implementation of long-term national policy
for development of human capital, focusing
on the reforms in healthcare and education;
• Resolving chronic problems with administrative
discretion, red tape and corruption. |
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