CIPE Worldwide Update: Central and Eastern Europe

Can 'Market Reform Credentials'
Defuse Fixed 'Inside Deals'?

The Center for the Study of Democracy (CSD) (1995-1996)
Privatization on a Dual Track:
Mass & Market Based Privatization in Bulgaria

For Bulgaria, the fair and transparent transfer of property from state to private ownership is a key element in the transition to a market-based democracy. Nonetheless, the overall pace of privatization has been unsatisfactory to the public. As a result, the Bulgarian Socialist Party (BSP), which took office in January 1995, made the issue a central plank in the election campaign. Now the socialist government has declared mass privatization one of the priorities in its economic policy program to demonstrate both domestically and internationally its "market reform credentials" and at the same time to address the general discontent of its supporters with the growing social inequalities.

Even so, many Bulgarians are skeptical about the government's ability to manage the process in a transparent way, free from "inside deals" or corruption. Should the government -- or, more precisely, individuals with the ruling party -- take advantage of the situation to channel additional funds into firms they control (such as the so-called Multi-Group), this will further undermine public support for privatization and hamper creation of a real open market system.

Policy Analyses. The project has consisted of a series of policy analyses of the current legal framework for mass privatization and CSD's own understanding of the requirements for success, as well as dissemination and public outreach activities. The work has been conducted in consultation with both independent experts and members of the government's Mass Privatization Center and other policy-makers. For example, based on these analyses, CSD developed a draft policy recommendation paper to encourage the government to improve its privatization plans. This policy paper and others were distributed to selected groups of key Bulgarian opinion leaders and decision makers and major media. Results were discussed during a workshop and a final policy recommendation paper developed for circulation to the parliamentary economic committee, ministers and other government and business representatives.

Mass Privatization Brochure. In cooperation with a variety of government and independent experts (of whom some are quite critical of the record to date), CSD developed a brochure on mass privatization for distribution to the public which was also circulated to a much wider group of key government officials, parliament, ministries, economists, bankers and the media. Five thousand copies were published.

Opinion Polls. To reinforce its watchdog function CSD conducted a survey in November 1995 to monitor attitudes of the Bulgarian public toward mass privatization just prior to its start. The survey involved 2,652 face-to-face interviews in Varna, Plovdiv and Sofia. Findings indicated that the population's level of awareness was still low, although increasing. The readiness for participation in mass privatization was relatively high, but many people were skeptical that it would be a hidden process over which society will not be able to exercise sufficient control. Finally, there was a negative attitude toward the management of privatization vouchers by financial institutions. Survey results were published in CSD's Monitor of Privatization and Foreign Investment.

Debt-for-Equity. CSD tracked and analyzed the role for debt-for-equity swaps in the market privatization process in the upcoming year and studied Bulgaria's recent experience in the use of Brady bonds. Based on this analysis CSD then advocated that the government develop a series of regulations to implement the "Ordinance on the Terms and Conditions for Participation by the Use of Bulgaria's State External Debt Bonds."

Workshop with Impact. In October 1995 CSD held a workshop to analyze the existing legal framework for mass privatization and to suggest improvements. Attended by representatives of the Center for Mass Privatization, the Privatization Agency, and Council of Ministers experts, the discussions received broad press coverage. As a result of the discussion, a policy paper entitled "Mass Privatization Starts Amidst Apprehension" was prepared. Two of its major proposals for new texts in the laws were later incorporated into the final version of the Privatization Funds Act.

Municipal Privatization. In the area of municipal privatization CSD replicated its successful experience in the town of Bansko, where it was instrumental in establishing a special investment fund in 1994 for the proceeds of privatization, which helped popularize privatization at the local level. CSD disseminated information packets offering assistance in establishing and managing such investment funds to 12 municipalities. The municipalities were selected because they have the highest relative share of municipally-owned property in the country and because they are remote towns, far from major population centers, and have limited access to aid and assistance.

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Hari Srinivas -
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