The Challenges of the Upcoming Year

The AmCham Christmas Party

issue 95 december 2008

AmCham Events: U.S. Ambassador Outlines Strategies for Bulgaria to Attract Business AmCham Thanksgiving Day Dinner Raises 14,000 Leva

Interview: Maria Murgina, Executive Director of National Revenue Agency

Analysis: Bulgaria Weathers the Global Economic Meltdown Leaders 2.0 - the world after Greenspan The Challenges of the Upcoming Year

American Chamber of Commerce in Bulgaria

Business Park Sofia, Mladost 4 Area, Building 2, Floor 6, 1766 Sofia Tel.: (359 2) 9742 743 Fax: (359 2) 9742 741 homepage: www.amcham.bg e-mail: [email protected]

editorial

Dear Members and Friends,

2008 – what a challenging and exciting year for AmCham. We succeeded in developing our networking capabilities with the ‘meet the new members’ parties and the traditional sport and fun events; we enhanced the government-business dialogue within the US-EU transatlantic partnership events we organized in co-operation with the German and French chambers of commerce; we followed closely the historic US presidential elections and provided forum for discussion on how United States and Europe can address the global economic challenges; and our members were actively engaged in the many CSR activities we organized. We bid fare- well to our great partners – former US Ambassador to Bulgaria John Beyrle and the former U.S. Commercial Counselor James Rigassio and welcomed our new friends Ambassador Nancy McEldowney and the Commercial Attaché Scott Pozil. Now when looking ahead to 2009 and the uncertainties in the global economy it is of a paramount importance that the Chamber and its membership and the US Embassy should stay together and co-operate closely to meet the challenges of the future.

Merry Christmas and Happy New Year! Valentin Georgiev Executive Director AmCham Bulgaria Magazine July2008 Bulgaria MagazineAmCham

page 1 contents

issue 95 december 2009

AmCham Bulgaria Magazine is a primary forum for political and economic analyses, news, viewpoints as well as for the presentation of new business opportunities. The articles in the AmCham Bulgaria Magazine express the opinions of the authors and do not necessarily reflect the position of the American Chamber of Commerce in Bulgaria.

Publisher Writers: American Chamber of Commerce in Bulgaria Boyko Vassilev, Marina Tzvetkova, Business Park Sofia, Mladost 4 Area Mina Georgieva, Panayot Angarev, Building 2, Floor 6, Sofia 1766, Bulgaria Yuliana Boncheva Tel.: +359 (2) 9742 743 Fax: +359 (2) 9742 741 Advertising e-mail: [email protected] AmCham Bulgaria: www.amcham.bg Nadejda Vakareeva, [email protected] AmCham Bulgaria Magazine: Editor-in-Chief Milen Marchev, [email protected] Milen Marchev

Deputy Editor-in-Chief: The AmCham Bulgaria Magazine reaches a broad audience Christopher Karadjov of AmCham members, leading US, Bulgarian and international companies, US and Bulgarian decision-makers, all Senior Editor: AmChams around the world. Irina Bacheva Subscription is free of charge. If you would like to subscribe to AmCham Bulgaria publications, please contact the ISSN 1312-935X AmCham Bulgaria office.

2 AmCham Magazine Bulgaria 2008 July amcham bulgaria

Board of Directors of the American Chamber of Commerce in Bulgaria President Mr. Borislav Boyanov Borislav Boyanov & Co. Vice President Mr. Anthony Hassiotis Bulgarian PostBank Vice President Mr. Kenneth M. Lefkowitz New Europe Corporate Advisory Contents Treasurer Tanya Kosseva-Boshova Landmark Property Bulgaria amcham events Hundreds Celebrate at AmCham Christmas Party . 4 Members Mr. George Georgiev Motorola Bulgaria Mr. Thomas Higgins Balkan Accession Fund U.S. Ambassador Outlines Strategies Mr. Andon Ichev General Electric for Bulgaria to Attract Business ...... 6 Mr. Stefan Ivanov Citibank N.A. Mr. Bernard Moscheni BTC Ms. Dana Leff AbCRO Bulgaria AmCham Thanksgiving Day Dinner Mr. Chris Thompson Consultant Raises 14,000 Leva ...... 8 Ms. Elitsa Tsaneva Ideal Standard Bulgaria

Ex-Officio Member Mr. Scott Pozil US Senior Commercial Attache Budget-Related Laws Top Executive Director Valentin Georgiev Amcham Parliamentary Consultations . . . . . 10 analysis 3M (East) AG . AA KRES EOOD . ABB Bulgaria EOOD . Abbott Laboratories S.A. . AbCRO - Bulgaria . Accor Services Bulgaria . ACO Building Elements Ltd. . ACSIOR Ltd. . ADIS Ltd. . Advance International Leaders 2.0 - Transport (Balkan) EAD . AES Corporation . AFA OOD . AIG Bulgaria Insurance & Reinsurance Company EAD . AIG Life Bulgaria . AIMS Human Capital . Air France . Alcoa Packaging Bulgaria . Alexander The world after Greenspan (and Bulgaria in it) . . 12 Hughes Bulgaria OOD . ALEXANDROV GROUP CORPORATION . Alfred C.Toepfer International . Alliance By Boyko Vassilev One Tobacco Bulgaria . Allied Pickfords Bulgaria . Alter Ego Company OOD . American College of Sofia . American English Academy . American Resarch Center in Sofia . American University in Bulgaria (AUBG) . Anglo-American School of Sofia . Anton Preslavski, Liebert Hiross . APIS - BULGARIA Ltd. . APOLO The Color of (No) Money ...... 16 Ltd. . Aries Commerce . Ashtrom International Ltd. . Association Integra-BDS . Astra Zeneca UK Ltd. . Astral Holidays AD . AT Engineering 2000 Ltd. . Auditing Company Versi and Partners Ltd. . AVON By Mina Georgieva Cosmetics Bulgaria Ltd. . BAE Systems International Ltd. . Balkan Accession Fund . Balkan News Corporation Plc. . Balkan Star Automotive EOOD . Baxter AG . Bayer Bulgaria EOOD . BC Serdon . Berlitz Schools of Languages . BG Radio . BMG Ltd. . Bodyguard-Fire-K Ltd. . Borislav Boyanov & Co. . Bulgaria Weathers the Global Economic Braykov's Legal Office . British American Tobacco . Brown Forman Beverages Worldwide Sofia Branch LLC . Bulgaria Platinum Group EAD . Bulgarian American Enterprise Fund . Bulgarian Charities Aid Foundation Meltdown – for Now ...... 24 (BCAF) . Bulgarian Land Development EAD . Bulgarian Telecommunications Company AD . Bulgarian VIP Travel . Business Media Group . Business Park Sofia EOOD . CallPoint New Europe AD . Candole By Marina Georgieva Partners EOOD . Car Rental Bulgaria Ltd. . Carlsberg Bulgaria AD . Cefin Bulgaria EOOD (IVECO dealer) . Center for the Study of Democracy . CENTURY 21 Bulgaria . Chelopech Mining EAD . Chris Thompson, Independent Consultant . Cisco Systems Bulgaria . Citibank N.A.- Sofia Branch . City University of Seattle Policy Response to External Shocks: . Cleves EOOD . CMS Cameron McKenna EOOD . Coca-Cola HBC Bulgaria AD . Coface Bulgaria Credit Management Services EOOD . Colgate-Palmolive Adria . COLLIERS International . ConsulTeam Recruitment Growth Stimulus or Economic Stability . . . . .30 and Selection Ltd. . Cook Communications . Corstjens Worlwide Movers Group . CPM Consultancy Sllc . Curtis / Balkan Ltd. . D&IC (Dun and Bradstreet Representative) . DeConi International . Deloitte Bulgaria amcham interview OOD . DENIMAR Ltd. . Denkstatt . Devin AD . DHL Express Bulgaria Ltd. . Diageo Bulgaria Ltd . Diamed Ltd. . Dimitrov, Petrov & Co. . Djingov, Gouginski, Kyutchukov, & Velichkov . DLA Piper Weiss- Direct U.S. Investments to Increase Tessbach Branch Sofia . Dobrev, Kinkin & Lyutskanov Law Firm . Domaine Boyar International AD . Dr. Emil With Treaty Ratification, Benatov & Partners . Dr. I.S. Greenberg Medical Center, Ellen Ruth Greenberg, Ph.D. . DuPont de Nemours International S.A. . DynCorp International LLC . Economedia AD . Effekten Und Finanz - Sofia AD . Ekotoi says Executive Director of National - Service Ltd. . Electron Progress EAD . Eli Lilly and Company . Elido (Lamel Ltd.) . Elmec Sport Bulgaria EOOD . Elta consult AD associated partner of CB Richard Ellis for Bulgaria . Emerson Process Management Revenue Agency Maria Murgina ...... 32 AG . Emporiki Bank Bulgaria EAD . Encouragement Bank AD . Enel Maritza East 3 AD . Enemona SA . Engineeringservice Sofia Ltd. . Environmental Quality Management, Inc. . Epsilon Interactive International amcham news . Equest EAD . ERATO HOLDING Plc . Ernst & Young Bulgaria . European Bank for Reconstruction and Development (EBRD) . Faustina Group Ltd. . Flying Cargo Bulgaria Ltd. - Licensee of FedEx . Force Delta Amcham Facilitates Discussion Ltd. . Forem Consulting Bulgaria . Fortel Engineering LTD. . Forton International JSCo . Foster Wheeler On Bulgarian Bar Act ...... 34 Energia Polska, Branch Office Bulgaria . Foundation for Local Government Reform . G4S Security Services Bulgaria JSC . General Electric International . General Security ltd. . Genmark Automation Bulgaria Plc. . GlaxoSmithKline . Global Benefits Group GBGI CEE LLC Representrative Office . Goodyear Dunlop Tires Romania . Grand Hotel Sofia . Grenville Bulgaria . Grey Worldwide Bulgaria EOOD . HelmsBriscoe . Businesses See Charity Hewlett-Packard Bulgaria Ltd. . Hild Group . Hilton Sofia . Holiday Inn Sofia . Honeywell EOOD . As A Company Project ...... 35 Hotel Yastrebets Wellness & SPA . IBM Bulgaria . IBS Bulgaria Ltd. . Ideal Standard Bulgaria . Immo Industry Bulgaria . In Time Ltd. . Industrial Holding Bulgaria . ING Bank Sofia Branch . Interbrands Marketing & Distribution Inc. OOD . Interdean . International University College . Investbank Plc. . IP Consulting Ltd. . ISI Emerging Markets (Internet Securities, Inc.) . Johnson & Johnson Doo. . Johnson AmCham Green Project Controls Electronics Bulgaria . Junior Achievement Bulgaria . Kaliakra AD . Kamenitza AD . Kamor Auto Developments in 2009 ...... 36 EOOD . Katilin Popov Enforcement Officers . Kempinski Hotel Grand Arena Bansko . Kimimpex Trade and

Leasing Ltd. (2be) . Kolbis International Transfer Corporation . KPMG Bulgaria . Kraft Foods Bulgaria . July2008 Bulgaria MagazineAmCham LANDMARK Property Bulgaria . Lexim Sofia Ltd. . Lindner Immobilien Management EOOD . Lirex BG Ltd. new members ...... 36 . Lowe Swing Communications . M & M Air Cargo Service Bulgaria Ltd. . M3 Communications Group, Inc. Air France A Hill & Knowlton Associate . Magnetic Head Technologies . Maria Vranovska, MD, MBA . Marsh EOOD . MARTERN EOOD . Mathnasium (Rossimat Ltd.) . MBL Ltd. . McDonald's Bulgaria Ltd. . Mellon Bulgaria EAD . Merck Sharp & Dohme Bulgaria . Mercurius-Sofia . Microsoft Bulgaria . Miltech Ltd. . Mmd, Corporate, Public Affairs & Public Relations Consultants . Mobiltel EAD . Monbat Plc. . Moody Denkstatt International Ltd. . Moten Sport . Moto-Pfohe Ltd. . Motorola Bulgaria EAD . National DISTRIBUTORS . NATO Defense College Anciens' Association . NDT Equipment Supplies Ltd. . Neochimiki Bulgaria S.A. . member news Neterra Communications . Neumann International AG . New Europe Corporate Advisory . New Europe Directories Bulgaria . Nexcom Bulgaria EAD . On Bulgaria Ltd. . Opet/Aygaz Bulgaria EAD . Oracle East 2be Goes Online ...... 38 Central Europe Limited - Branch Bulgaria . Orbit Ltd. . Orkikem Ltd. . OSG Records Management . Outsource Partners International . Ozone Laboratories Bulgaria . PANDA - IP Ltd. . Pedersen & Partners . Penev & Partners Law Offices . Penkov, Markov & Partners OOD . Pfizer Luxembourg SARL, Representation Postbank Named Best Bank Office Bulgaria . Philip Morris Bulgaria EOOD . Pioneer Semena Bulgaria EOOD . Piraeus Bank Bulgaria page AD . Plesio Computers Jsc . Popov Legal Office . Postbank (Eurobank EFG Bulgaria AD) . PostPath 3 In Tourism 2008 ...... 38 . Praktiker EOOD . Pratt & Whitney . PricewaterhouseCoopers . Procter & Gamble Bulgaria . ProSoft . PSG Payroll Services Ltd. . Radisson SAS Grand Hotel . Reader's Digest EOOD . Regus Bulgaria Ltd. . Renault Nissan Bulgaria SRL . Rising Force Co., Ltd. . Rockwell/Intelpack . S&T Bulgaria . Sanofi Seven Companies Named - Aventis Bulgaria EOOD . Scandinavia Motors Ltd. . Schenker EOOD . Schering - Plough Central East Investors Of 2008 ...... 39 - Bulgaria . SEAF Management Bulgaria EOOD . Sheraton Sofia Hotel Balkan . Sherita M Ltd. . Siemens EOOD . Sienit Ltd. . SigmaBleyzer Investment Group LLC - Representative Office . SKE Bulgaria EOOD . Sofstroy AD . Soravia Bulgaria Ltd. . Stanton Chase International Bulgaria . Stefan Dimitrov, Norman Realestate Co. Ltd. . Symix Bulgaria OOD . TechnoLogica EOOD . TeleLink EAD . The Coca-Cola Renault Nissan Bulgaria Starts Third Company Bulgaria . Tishman Management Company Ltd. . Tissue Bank Osteocenter Bulgaria EAD . TMF Edition Of Student Contest ...... 39 . Totema Engineering . Trans Company Ltd. . TravelStoreMaker.com . Tumbleweed ® Communications Corporation EOOD . UniCredit Bulbank . Unimasters Logistics Plc . Unique Estates . Unisys Bulgaria Branch . United Bulgarian Bank . United Consulting Ltd. . United Healthcare Bulgaria Group of Companies humor . United Medical Communications . Vaptsarov Holding AD . Vector Management Bulgaria EOOD . Videolux Christmas Humor ...... 40 Holding / Technopolis . VIP Security Ltd. . VISA Europe . VM Finance Group . VSK Kentavar Ltd. . Welcome to Bulgaria . Westinghouse Energy Systems Bulgaria Branch . Winslow Developments . World Courier Bulgaria . WorleyParsons Europe Energy Services Ltd. . Wrigley Bulgaria EOOD . Xerox Bulgaria Ltd. . Yavlena EOOD . Zlati Dinev Studio in partnership with Outerbridge/Morgan . cover story

Hundreds Celebrate at AmCham Christmas Party

Have you ever been to a holiday party with no less than 500 bers, and many member companies, as well as leading jour- people? If not, next Christmas grab the opportunity to meet nalists. partners and friends at the AmCham Christmas Party 2009. By not, this traditional gathering has become known as the “party Two music surprises gave color to the evening. The well-known of the year.” The perfect venue for the function on Dec. 10, Bulgarian B.T.R. band entertained the guests, who also heard 2008, was the Royal Hall at Sheraton Sofia Hotel Balkan. “Jingle Bells” and other Christmas carols performed by Georgi Robev Choir. Adding to the Christmas mood, the guests were Echoed in the welcoming words of the AmCham leadership welcomed at the entrance with a small gift – a miniature Santa was the chamber’s recognition within a large community of Claus to be put under the Christmas tree, just to remind of the partners and friends, who came on that particular evening. joyful evening, and food vouchers for the ladies at the party This is a season of gift-giving and celebration, but the last provided by Accor Services. AmCham greatly appreciates the month of the year is also a time associated with the abun- kind support of Accor Services, Domaine Boyar, Johnnie Walker dance of social events where partners and friends meet to and Vivatel-BTC who contributed to the party great atmosphere. wind up the year and eventually initiate new projects. Among the guests were Angel Naidenov, chair of the Parliamentary Following the spirited introductions and the performance of Group of the Coalition for Bulgaria, Solomon Passy, chair of B.T.R., the AmCham party was the place to be as coworkers the Parliamentary Foreign Policy Committee, Stoyan Stalev, and friends gathered at the Sheraton, where the waiters filled Bulgaria Invest Agency, Asia Mihailova, MP, United Democratic glasses with assorted beverages and spirits remained high Forces, Stamen Tassev, BBLF, Alex Karagiannis, deputy chief until late into the evening. The fantastic music provided by of U.S. mission, Scott Pozil, U.S. commercial attaché, the B.T.R. drew the crowd to the dance floor where the entertain- ambassadors of Denmark and Finland, AmCham board mem- ment continued to the chimes of midnight. n

A family photo of AmCham members and friends: Hristo Drumev, NDK, Georgi Dimitrov, ORAK, Sasha Bezuhanova, Hewlett-Packard, Valentin Georgiev, AmCham Magazine Bulgaria December 2008 AmCham, Emilia Drumeva, Constitutional Court, Borislav Stratev, Deloitte The rock legend BTR band cover story

Valentin Georgiev and Borislav Boyanov, AmCham, and Alex Karagiannis, US A mix: Classic and Rock - Choir Georgi Robev and BTR Embassy wising happy holidays to the guests

The dancing stars of the American College: Natalia, Vlado, Nia and Mark

The strong competition on the dancing floor between Irina and Svetoslav from Apis, and the rest of the Amcham guests. 2008 December Bulgaria MagazineAmCham

page 5 amcham events U.S. Ambassador Outlines Strategies for Bulgaria to Attract Business

From Left: George Gueorguiev, Country Manager Motorola Bulgaria, US Ambassador Nancy McEldowney, and Borislav Boyanov, Amcham President. Praising AmCham Bulgaria as an extraor- The envoy quoted an estimation of account deficit of 25 percent of the GDP, dinary organization, which had helped Standard and Poor’s that in a single as well as a heavy reliance on foreign much for the conclusion of the Treaty for 24-hour period on Oct. 6-7, global stock direct investment to cover that deficit. To Avoidance of Double taxation, and as a market losses exceeded $6.5 trillion. The overcome these issues the ambassador real partner to extend the commercial economy situation that all governments in defined three main strategies for Bulgaria relations between the United States and the world are facing is a difficult one that would make it the most attractive Bulgaria, U.S. Ambassador Nancy because it is unpredictable and the slow country on the Balkans for doing busi- McEldowney opened on Nov. 12 a busi- down of the economy together with the ness: drawing more foreign investors, ness luncheon with the AmCham com- challenges on the labor market should improving the economy and successfully munity at the Sheraton Sofia Hotel Balkan. force the governments to take more dealing with corruption and organized The envoy elaborated on the topic aggressive strategies and growth policies crime. “Economic Partners and Global in the near future. Uncertainties” in front of 100 business and The Bulgarian economy was praised for media representatives. The good news for Bulgaria is that the the very impressive performance in recent analysts in Bulgaria and the United States years reaping some very important bene- Addressing the topic of financial crisis have come largely to the same conclusion fits: Bulgaria is a commercial success consequences, the ambassador pointed that Bulgaria will not have as heavily story, an attractive market with a skilled out to the fact that on Jan. 20 the new impact as many other countries. This is workforce, a strategic location, and an U.S. president-elect will enter White partly due to the size and level of devel- extremely favorable tax structure. According 6 House facing an extraordinarily set of opment of the economy, but it is also due to Ambassador McEldowney, these are problems than no new president has to sound policies, including heavy capital- very important assets. faced in recent history. The way that ization of the national bank, strict adher- President-elect Barack Obama deals ence to the currency board, and mainte- "In order for my vision for Bulgaria to with this economic crisis, the policies nance of fiscal surpluses. become reality there is a need of some- that the new administration puts into thing more than just foreign investments; place, may well prove to be one of the At the same time the ambassador men- the economy must improve. There is, how- factors that define his entire presidency, tioned there are still factors that are of ever, a third element - to put an end to AmCham Magazine Bulgaria December 2008 the ambassador said. concern, including a very high current corruption and organized crime. And I am amcham events not just talking about plans, work groups and public discussions; I am talking about real action. The oligarchs who behave like they are above the law, must be put behind bars," the ambassador said.

The same applies also to senior government officials, whether they are in the executive, the legislature, or the judiciary, who are guilty of misusing their power and betraying the public trust need to be punished in a way that is commensurate with their crimes.

McEldowney concluded that she hoped to see Bulgaria well on its way to reforms - with an economy based on knowledge, with a public policy to generating new ideas, capabilities and decisions. She envisaged the country as a transportation and distribu- From Left: Borislav Boyanov, AmCham president, Nancy McEldowney, US ambassador to Bulgaria, and tion hub, a country that is dynamic and is Dimosthenis Baroutsos, Postbank driving what happens in the economic scene throughout the broader region.

In her address, the U.S. envoy talked much on the need for governments to adapt more aggressive programs than have been implemented in the past, even more aggressive strategies and policies for growth and development. In the Bulgarian case there is a need of implementation of a more aggressive program to attract new investors and that is a program of incentives, McEldowney added.

Those incentives would include expansion of the first class investor program and a lowering of the 70 million Leva requirement. Additionally, the expansion of incentives would include maximum use of national The envoy elaborated on the topic “Economic Partners and Global Uncertainties” in front of 100 businesses and EU incentives, suc h as subsidies and and media. grants under the structural and cohesion funds, as well as exemptions from customs duties and VAT taxes. AmCham Bulgaria Magazine December 2008 December Bulgaria MagazineAmCham

The Bulgarian government should immediately resolve outstanding commercial disputes with companies already invested here, and according to the envoy, many of these disputes have continued for too long.

The ambassador emphasized much on the page importance of assisting SME-s. “One 7 immediate step that could help small- and medium-enterprises is greater transparency in public procurement. Simply putting out systematically and in advance, basic information about tenders and timelines and technical requirements would have a significant impact on small companies,” McEldowney said. n Among the guests were Ognian Minchev, political analyst, and Ivo Indjev, free lance journalist. amcham events AmCham Thanksgiving Day Dinner Raises 14,000 Leva

On that particular evening of November 20 more than 100 designated guests participated in the event held at the Radisson SAS Grand Hotel.

AmCham Bulgaria is thankful to all the generous contributors and bidders who provided their help for the beneficiaries at the Thanksgiving Beneficiaries sixth annual family Thanksgiving Dinner on Nov. 20. The fundraising for charity purposes succeeded in gathering 14,355 Protected homes projects Leva, with 7,555 Leva collected during the open and silent The projects of “Protected Home Together” in Gurmazovo, auction bidding during the Thanksgiving evening. The rest of Sofia; Integra Sofia and Samaritans Stara Zagora will be the money was raised from entrance fees and special contri- supported. Help is needed for the functioning of home-like bution from AmCham July Fourth party. institutions, where 18+ years-old youngsters can live for up to 12 months and learn, to attend vocational training and On that particular evening, more than a hundred distinguished meet employers. guests participated in the event held at Radisson SAS Grand Hotel. The guests contributed with special prizes for the fundraising in favor of three organizations: “Protected Home proj- Scholarships for 12 grade orphan-stu- ects,” scholarships for 12-grade orphan students in Bulgaria, dents and “Step for Bulgaria project.” In attempt to replace the missing parental care, the project will support through monthly stipends the last school year Live music performance by a string quartet from New of orphans throughout Bulgaria with excellent school Symphony Orchestra welcomed the guests at the Radisson’s score to prepare for university admission tests. The restaurant and bar on the mezzanine. In his welcoming words Foundation for Orphans (“Sirak”) will distribute and man- to the members, AmCham President Borislav Boyanov said he age the payments. is very happy that the family of the AmCham is celebrating Thanksgiving together. “At Thanksgiving Day we thank God for 8 what he has given to us throughout the year and we wish to AmCham support for Step for Bulgaria lend a helping hand to our brothers and sisters in need,” Project Boyanov said. AmCham has participated in Step for Bulgaria 2008 and will be happy to continue supporting the initiative aiming AmCham has many reasons to be grateful for all the opportu- to present children-orphans with opportunities to learn nities given to achieve high-quality performance level,” he English, computers, arts; to meet the managers of well added. Boyanov expressed his gratitude to AmCham members, established companies and expand their dreams about a and the U.S. Embassy and thanked cordially to: the former AmCham Magazine Bulgaria December 2008 U.S. ambassador to Bulgaria John Beyrle and the current brighter future. amcham events envoy Nancy McEldowney, former commercial attaché Jim Rigassio, and current attaché Scott Pozil, and to Alex Karagiannis, deputy chief of the U.S. mission.

As a special guest at the Thanksgiving dinner, the U.S. envoy Nancy McEldowney said that this is a day when people show gratitude to God by expressing thankfulness and humility. The charity efforts will accrue to the benefit of everyone presented at the dinner, the ambassador said. She pointed out the importance of how we define ourselves through family, as except for its charity essence, Thanksgiving Day is spent with the family and close relatives.

As the Master of Ceremony David Hampson recollected, too, A traditional Thanksgiving dinner, but in Sofia. that Thanksgiving Day is a joyous family festival celebrated with a lot of enthusiasm in the United States, appointed on the fourth Thursday of November.

Marianna Popova, the Bulgarian jazz singer, added her brilliant voice to the mix of welcoming words, cozy atmosphere and delicious meals prepared by the Radisson chefs. There was the traditional for the day turkey served with cranberry sauce.

From Left: David Hampson, the master of Thanksgiving ceremony, Snejanka Natcheva, Rising Force together with US Ambassador Nancy McEldowney who later on signed the Fender guitar. Selection of trimmings was served in an individual dish: there were mashed sweet potatoes, steamed spinach, broccoli gra- tin, corn on the cob tossed with herbs sauce. To add to that diversity, a variety of desserts was also served: American From Left: Borislav Boyanov, Amcham President, Ivan Lissikov, managing pumpkin and sweet potatoes pie and American apple pie. director development licensee McDonald’s, Scott Pozil, US Commercial attache, Although far from its roots, the Thanksgiving essence was truly and Alex Karagiannis, Deputy Chief of US Mission. felt in Bulgaria. n AmCham thanks fundraising

contributors and supporters 2008 December Bulgaria MagazineAmCham By lending their helping hand, AmCham Beverages Worldwide Sofia Branch Hotel, Rising Force Co. members and guests generously con- LLC, Norwegian Embassy, CMS tributed or bid for various items of the Cameron McKenna, HILD Bulgaria, Special thanks to the silent auction open bid and silent auction. AmCham is Legal Independence, AES Corporation. contributors as well: Philip Morris thankful to: Borislav Boyanov, AmCham Bulgaria EOOD, Allied Pickfords president, Ivan Lissikov, managing direc- Additionally, the chamber extends its Bulgaria, AVON Cosmetics Bulgaria, tor development licensee McDonald’s gratitude to Enel Maritza East 3 and Balkan News Corporation, CenTransit.

Bulgaria Ltd., Lyudmil Lalov, Lexim Philip Morris Bulgaria who kindly sup- bg & Bistrilitza Houses, DEVIN AD, page Sofia Ltd., Vladimir Borachev, country ported the party. AES and BTC bought Domaine Boyar AD, Economedia AD, 9 manager, Avon Cosmetics Bulgaria, two tables for their companies’ employ- Grand Hotel Sofia, Hilton Sofia, Hotel Aurelio Calicchia, managing director, ees. Yastrebets Wellness & SPA, Integra Ericsson Telecommunications, Roumen Association, Mountain Dream Hotel, Mihailov, 3M, Snejanka Nacheva, Rising AmCham is thankful to the contributors Radisson SAS Grand Hotel, Reader’s Force, Philip Morris Bulgaria, Neochimiki of items for the open bid: Brown Forman Digest, Rising Force Co., Sheraton Bulgaria, Northridge Capital, Enel Beverages Worldwide, Integra Association, Sofia Hotel Balkan, St. Sofia Golf Club Maritza East 3, Brown Forman Motorola Bulgaria, Radisson SAS Carlton & SPA. amcham events Budget-Related Laws Top Amcham Parliamentary Consultations

From Left: AmCham Bulgaria board of directors – Ken Lefkowitz, Amcham vice president, Tanya Kosseva-Boshova, executive director Landmark Property Bulgaria, Borislav Boyanov, Amcham president, together with Plamen Mollov, chair of the NDSV Parliamentary group (middle), Solomon Passy, chair of the Foreign Policy Parliamentary Committee (third from right), Valentin Georgiev, AmCham executive director, and George Gueorguiev, Country Manager AmCham president Borislav Boyanov meet with Yordan Tzonev, chair of the Motorola Bulgaria. Parliamentary Economic Committee and members of MRF parliamentary group.

The AmCham Board of Directors held were to reduce the investment thresh- AmCham member companies continue two-day consultation meetings on Nov. olds for first-class Investors consider- to experience difficulties in obtaining 12-13, 2008, with the leadership of the ably lower than 70 million Leva; to visas and work permits for their parliamentary caucuses of Coalition regard mortgage credit interests as tax employees-third country nationals, for Bulgaria, the National Movement expenses, to introduce a mechanism for which was another important topic of Stability and Progress and Movement quick return of VAT; to avoid gaps in tax discussion. At the same time, AmCham for Rights and Freedoms, to discuss legislation regarding outsourced staff, Board of Directors and MPs congratu- the tax laws and the 2008 budget, as bio fuel and aromatic products with lated each other with the successful well as the legislative priorities until alcohol content over 1.2 percent excise completion of the ratification of the the end of their term in office. duties; as well as measures combining Treaty for the Avoidance of Double tax law implementation and combating Taxation between Bulgaria and the Borislav Boyanov, AmCham president, software piracy. AmCham representa- United States. Kenneth Lefkowitz, vice-president and tives also advocated for increasing the Public Affairs Committee chair, Tanya financial thresholds in the Competition Upon invitation by the parliamentary Kosseva-Boshova, treasurer, George Law to match the GDP growth and the caucuses and following consultations Georgiev, Membership Committee inflation rates, as well as relief dividend with members, AmCham submitted member, and Valentin Georgiev, execu- taxation of subsidiary entity. concrete legislative text proposals in a tive director, shared with the MPs the timely manner between the first and major areas of concern to AmCham Also discussed were legislative initia- the second hearing of the 2009 State 10 members and their proposals related tives in the area of environmental Budget and the tax laws in Parliament. to stabilizing the economic and invest- policies, Water Act, Waste Treatment Many of them were proposed by party ment climate in the country in 2009. Act, concessions on mineral water caucuses and discussed at the sec- bottling. AmCham Board members ond hearing of the Parliamentary The main focus of the discussion were expressed their firm conviction that Budget Committee. AmCham remains budget-related laws: amendments to the the Aarhus Convention should be hopeful that the voice of the multina- VAT Law, Corporate Tax Law, Law on applied consistently, thus subjecting to tional business will be heard thus Investment Promotion, Law on Excise comprehensive public discussions optimizing the tax law regulations for AmCham Magazine Bulgaria December 2008 Duties. Among the proposals of AmCham environment related bills. the benefit of all. n amcham events

AmCham proposals for tax legislation amendments l Introduction of efficient VAT tax recovery regime to provide liquidity to tax-registered subjects; l Introduction of tax relief for mortgage credit interest; l Amendments to VAT and Corporate Tax Laws to stimulate tax-registered entities to comply with the national IPR legislation; l Amendments to the VAT and AmCham Bulgaria board of directors met with the Parliamentary Group of The Coalition for Bulgaria. Corporate Tax Laws to facilitate conditions for hiring personnel from HR agencies; l Introduction of corporate tax exemption for first-class investors for a period of three years; l Synchronization of the excise duties of bio diesel and aromatic products with over 1.2 percent alcohol content with the relevant EU directives; l Allowing discarding products based on internal company standards in addition to normative requirements; l Taxation of profit obtained from Discussions with NDSV Parliamentary group. sales of investments in filial associations, as well as taxation on

dividends from such associa- 2008 December Bulgaria MagazineAmCham tions; l Improving of the tax control on the transfer pricing, wide spread usage of electronic invoicing and archive making, as well as administrative concessions which are explicitly allowed in the European law; page 11 l Increase of non-taxable food voucher limits from 40 Leva to 60 Leva; l Preserving of the tax relief for donations of non-governmental organizations with the public purpose registration. AmCham president Borislav Boyanov meets with Angel Naidenov, chair of the Parliamentary Group of The Coalition for Bulgaria. analysis Leaders 2.0 The world after Greenspan (and Bulgaria in it) By Boyko Vassilev

A White House handout picture shows US President George W. Bush (L) and President-elect Barack Obama

Dmitrii Medvedev, Gordon Brown, tics. In order to calculate the efficiency Medvedev. He was expected to remain Nikolas Sarkozy, Barack Obama. of the Leaders 2.0, one should divide in the shadow of Vladimir Putin. And by two instead of multiplying. Medvedev did not disappoint – by half. The leaders of 2008 have a common Yes, Russia’s president looked like a characteristic – they have promised Imagine it like this: you inflate the bal- stuffed bear in the hands of the prime 12 sweeping changes, and completed loon to double its normal size. Then, minister, known for his ability to tame barely half of what they promised. The while you tie the string, half of the air tigers. But in a surprising speech test for the first three on the list came leaks out. This is the same principle, Medvedev criticized his predecessor’s this year. The fourth still has to be which is applied to Leaders 2.0. They heritage – the passivity of the bureau- tested, but is there a reasonable per- are twice as small as their media cracy, tame media and public inertia. son, who would expect that Barack images; they seem like they are always Yes, it is true that for a long time he Obama will fulfil even a tenth of the in some “half” form. pretended that there is no crisis. Yes, expectations heaped on him? These he behaved like a hardliner with the AmCham Magazine Bulgaria December 2008 are, after all, the natural laws of poli- Let us take for instance Dmitriy Georgians and stuck the “Iskander” analysis missiles in the collective face of the ing, right?” I asked his European Affairs West. And still he invited “Deep Purple” Minister Caroline Flint. „I know how to the Kremlin. He seems to be like concerned ordinary people are, and Putin, and at the same time seems to they responded positively to Gordon’s be different. Half-disappointment, half- leadership initiative,” she said. You surprise. A genuine Leader 2.0. would think he is already way down, while he is actually way up – and vice- Or let us take Gordon Brown. The for- versa. A genuine Leader 2.0. mer chancellor of the exchequer has been in waiting for the crown for so The Sarkozy balloon is a very interest- long that he was left with no energy to ing issue. Two electoral victories and reign. His supporters had barely had several successful moves had inflated time to rejoice that Blair’s rational the balloon to the point of an imminent financier had moved into No. 10, blow-up. It was not enough that he won Downing Street the presidential post in a spectacular manner; he also managed to form a and then the crisis struck. government of his own. It was not enough that his ex-wife Cecilia released It was Brown, who made the biggest the Bulgarian medics – he dumped her blunder by lying about the cause to and married an even more spectacular refrain from scheduling early elections woman – model-singer Carla Bruni. – while, surprisingly, Great Britain was Well, next comes deflation: the ambi- wallowing in gold at the Olympic tious idea to retire the 35-hour working Games in Beijing. Gordon’s New Labour week failed to emerge as a panacea. had just lost London and the British His intention to make France work proclaimed him to be a loser – and his harder was drowned in compromises. anti-crisis measures started to make Local elections brought disappoint- effect. ment. Popularity drowned into unpopu- lar moves with the administration and At the same time when his ratings col- the media. Even Carla Bruni is not lapsed, the British prime minister start- helping much. “She makes him look Russian President Dmitry Medvedev ed to share his mind on economic like a small man with mid-life crisis,” cycle, mobile communications, Internet, issues with the rest of Europe. „Even if GQ editor-in-chief Dylan Jones told Skype and most of all by Facebook. they hail him as the savior of Europe, me. They do not differ substantially from it would not be enough to save his rat- Margaret Thatcher, Helmut Kohl and And now – Obama. The fanfares of Ronald Reagan but with an exception history celebrated his victorious march. – they cohabitate the world of today’s But in January we will understand that miraculous media technologies. It is he, despite being unquestionably the these technologies that generate their best choice for America and world at public images. large, will not immediately pull out the U.S. troops from Iraq and that he does Historians are bound to recognize after not have the magic wand to fend off a hundred years that the triumph of the economic crisis, and that he will Facebook was the event of 2008. This AmCham Bulgaria Magazine December 2008 December Bulgaria MagazineAmCham not be able to deliver on all of his tax social network demonstrated in no promises. After all, we were expecting ambiguous terms how the virtual that his victory will inspire replaces the real – virtual friends, virtual rendezvous, virtual business, and a divine freshness into the virtual money. With Facebook at the stock exchange? top, the 2008 list is filled by Obama, the financial crisis, the Olympic Games; Yes, it did inspire … by half only. The these are actually the personifications markets livened up for a while, and of global politics, economy and sports, page then started rolling down again. For the modelled by virtual technologies. The 13 time being the image, the dream, seem second-generation politicians should to work but without making miracles. rather be called the Facebook politi- The miracles remained in 2007. cians. Welcome to the Matrix.

It is high time to explain who they are, I hope you will bear with for one more this new generation of leaders. Actually, metaphor. Yesterday’s world was the French President Nicolas Sarkozy and his wife, they are the same as Leaders 1.0, how- world of Allan Greenspan, who stood former model Carla Bruni-Sarkozy ever upgraded by the 24-hour TV for a long period of time at the helm analysis

of the U.S. Federal Reserve Board. business sector – the high technolo- in high technologies and the problem- This was an ambitious, maximalistic, gies. And will spare no efforts to avoid atic agriculture. improbable world. In this world you losing the only global advantage it has could buy a house, you could not been left with. In one of the rare occasions in history afford, on credit, which you could not when Bulgaria had plenty of money, it afford either. One could endlessly China will benefit from the crisis, but was spent on business centres, hotels increase dividends with the miraculous not as much as everybody expects. and lifestyle. The state not only lacked power of constantly emerging new The cheap Chinese production is feed- priorities (we have commented on this financial instruments. Economy was ing America, while American dollars on several occasions in the AmCham on the rise, as it could not but grow, and securities are feeding China – Magazine), it not only failed to invest in and technologies offered the next hence no major clashes should be education and high tech, but at the miracle in line by simply obeying the expected while these connections con- same time it remained passive while omnipresent natural laws. tinue to exist. uncoordinated and corrupt business interests were actually sawing through But the bubble burst, in the end. After Russia will lose from the crisis, but not the branch they were sitting on. The we had to realize that we were living in that much. Yes, oil prices are going vivid midnight lifestyle in piano bars a virtual Matrix we were so frightened down and the foreign currency reserves and folk-music discotheques was de- that our fear turned the whole world are thawing; after all, this is the price capitalizing the “businessmen,” the inside out. Our money started to vanish that should be paid for getting rich on concrete jungles along the Black Sea – initially only virtually, then in quite a raw materials. Russia, however, still has shore were destroying nature, which real manner. Retired Greenspan offered a lot of oil, natural gas, titanium and was the very reason the monstrous a dramatic public repentance. The god- manganese and much more – in a constructions were built in the first father of liberal reforms and monetar- world of diminishing raw materials lev- place. The cities are already full of ism Milton Freedman died in 2008 els this is a serious advantage. Japan malls, which created the feeling that before he could be forced to see will also lose, but not as much as it lost 10 year ago – Tokyo has learned its no one is producing but the ghosts of John lessons, applying slowly and tentative, everybody is selling. Maynard Keynes and Karl the Japanese way, measures designed Marx to pull itself out of the virtual econo- After the virtual economy and the vir- my. tual boom came virtual politic: parties ascending to his glorious throne – the no one pays attention to, and a barren first being a fan of state interference, Europe announced it is in a recession, political debate. And on the top of it, and the second enemy No. 1 of capi- which, however, will also be just half a emigrants, chased by the crisis started talism. The term „bail-out” conquered disaster. France and Germany demon- coming back from Western Europe, the headlines. strate a stable performance, and the seemingly to utter the final cue, “The euro is stable as well. The initial call party is over.” Republicans in the United States lost “everybody take care of themselves” everything they could lose. The fear was sobered by the contagious bank- Still, things are only half bad – that is from the crisis elected Barack Obama, ruptcies in Iceland and Hungary, which what we have already agreed about, gave a breath of fresh air to Gordon demonstrated that the crisis virus does right? Accumulated money stays in Brown, frightened the European not recognize any national borders. Bulgaria, and a sudden enlightenment Commission, tied the knots of the fam- The European leaders finally recog- just might steer this country to the ily budgets and even caused the emer- nized that “united we stand, divided we shores of prosperity. gence of forecasts spelling the end of fall.” the Internet. The world of Greenspan Will Bulgarian Leaders 2.0 – I will was narcotic, next came the hangover. What about Bulgaria? The world of refrain from listing their names – be And 2008 was the delimiter of every- Greenspan gave it an unprecedented capable of doing this? Just like thing – this was the year, in which we 10-year Asian-style growth, fat budget Medvedev, Brown, Sarkozy and Obama, understood that the leaders, the ideas surpluses, malls and British citizens Bulgarian leaders are only half suc- and money are virtual – either half full buying homes in the villages. cessful and only half failures. Facebook or half empty. is modelling their images into a pas- 2008 also brought sionate Balkan mix of emotions, per- Following the logic of Leaders 2.0, it Sobering-up 2.0 sonal wrongs and folk music. And the 14 would not be difficult to forecast the world after Greenspan is constantly Changes 2.0. The crisis, for instance, Bulgarian economic boom revealed its testing their responses. will not be as devastating as everybody strategic and structural faults: empha- expects – just half as devastating. The sis on foreign investments, tourism, And now – the biggest reassurance: United Stated of America will not col- money earning emigration, building 2008 indicated not only that there is lapse completely; Detroit will lose but constriction and real estate. These, nothing as good as it looks. The oppo- not the Silicon Valley. In other words, however, could not compensate for the site turned out to be true as well - America will lead not by its automobile neglected industry, collapsing educa- things are not so bad as we initially AmCham Magazine Bulgaria December 2008 industry, but with the most important tion and sciences, the lack of interest thought they are. n

analysis The Color of (No) Money Blocked EU funds is not news anymore, but Bulgaria stands to lose more if its government does not undertake urgent action By Mina Georgieva

Bulgarian Prime Minister Stanishev and the Minister for European Funds Meglena Plugcheiva during a meeting with Franz-Hermann Bruner, head of the European Anti-Fraud Office (OLAF) in Sofia. Both Stanishev and Plugchieva said, that the stopping of EU Funds fro Bulgaria was a surprise for the government.

The fact that the EU has stopped disbursing funds for Bulgaria lose this money as there will be no time for the amount is no news anymore. A small piece of news could be found in to be spent – the deadline expires at the end of this the fact that today the EU has stopped several hundred million month. Euro from the pre-accession funds, and may soon start sus- pending billions from the main EU funds. We should not even “Regrettably I have to announce that the EC is not in a hope for the funds expected to finance road construction, position to restore the accreditation of the two agencies, infrastructure, power efficiency, environment and competitive- which were suspended last July. We hope that Bulgaria ness projects. Everything that has ever been promised will will initiate urgent measures to improve the management fade away due to the irresponsibility of the Bulgarian state. of European funds,” spokeswoman Christina Nagy told journalists at a briefing in Brussels. The European Commission confirmed late November it blocked payments to Bulgaria because of suspected fraud. So the bottom line is that the 220 million Euro are irre- The issue is directly related to the suspended accreditation versibly lost. The PHARE program expires at the end of 16 and the ultimate stopping of the funds to two PHARE program this month. Another 340 million Euro are suspended and agencies – with the Ministry of Finance and with the Ministry there is a danger that these funds may also be lost for of Regional Development. good.

This decision, however, means that The European Commission explained that the decision was made after monitoring and analysis of all data and Bulgaria will lose 220 million Euro, facts, which were received from Bulgaria during the last several months. „We recognize that certain steps have AmCham Magazine Bulgaria December 2008 which was to be allocated earlier. This country stands to been initiated to improve management and control, but analysis most of these amounts to promises for future actions. "There are no specific results for the time being," the European Commission announced. The decision was motivated by ongoing irregularities, abuse and conflicts of interest, as well as with the lack of qualified personnel to manage and control the spending of European funds.

Besides, due to the increased risk to have all these events recurring in relation to the operative programs, and in order to avoid this risk, the EC has decided to preserve the sanctions against Bulgaria with the objective to protect the interests of both European and Bulgarian taxpayers.

Enlargement Commissioner Olli Rehn also formulated the main reasons for the decision: “There is a very high level of irregularities. Latest inspections have found some new irregularities as well. The risk of political interference has nor been recognized and accounted for completely, although this is the necessary first step to have this problem solved.”

Commissioner Rehn adamantly refused to provide details about the risk of political interference and its source, and refrained from comments on whether the outstanding problems in Bulgaria have emerged as a result of a deficit of political will or of management capacity, the Bulgarian National Radio said in a news commentary. EU Enlargement Commissioner Olli Rehn – the man that always says “Be The news followed an earlier decision of the European Careful!” to the Bulgarian Government and no one listens. AmCham Bulgaria Magazine December 2008 December Bulgaria MagazineAmCham

page 17 analysis

Commission to stop payments to Bulgaria due to suspi- of serious concern. cions of corruption. At the bottom line this means that Bulgaria will have to fund the payments due for effective Bulgaria suspended payments on 10 road construction contracts. projects after the audit reports of the international auditing company KPMG on the performance of the “Republican The European Commission has Road Infrastructure” fund were released on June 18. At that time, Deputy Finance Minister Dimiter Ivanovski said frozen some 560 million Euro that after the KPMG audit of the “Republican Road Infrastructure” fund, which was submitted to the prosecu- allocated to Bulgaria from various pre-accession pro- tion, a total of 10 road construction projects worth about grams, the latest 220 million Euro being a portion of this 88 million Euro have been fully stopped. Five of the proj- amount. In its report released on July 23 the EC ects were related to the rehabilitation of sections of roads announced it has suspended the rights of two Bulgarian connecting Bulgaria to Greece. The financing for the con- agencies to manage European funds within the PHARE struction of the approach road to the Rudozem check program. It became clear at that time that the total point on the border with Greece was also stopped, as well amount in question could be as high as 600 million Euro. as the financing of the rehabilitation of sections of the The EC stressed in its report that there is no will to deal Pleven-Nikopol and Montana-Lom roads. Financing for the with financial fraud in Bulgaria and that the lack of results construction of a second parallel tube of the tunnel on the in combating corruption and organized crime is a source ring road in Dupnitsa was also suspended. n The others about us The decision of the European the first time. its surprise and disappointment regard- Commission to irreversibly withdraw, ing the decision of the European because of Sofia’s failure to deal with The European Union took the unprec- Commission to block irreversibly 220 corruption, 220 million Euro from its edented step to strip Bulgaria of 220 million Euro because of Sofia’s failures funds initially allocated to Bulgaria, million Euro of European financing, in combating corruption, but neverthe- was reported in several major Western stating, in practical terms, that this less promised to spare no efforts in newspapers. Balkan state is too corrupted and this aspect, the French “Le Monde” prone to fraud, in order to be eligible reported. Together with the ”International Herald to receive these funds, the “International Tribune” and “Le Monde,” the issue Herald Tribune” wrote. "The decision has disappointed the was commented on by the British Bulgarian authorities. It was not “Financial Times” and “Times.” For the first time ever one of the 27 expected by Bulgaria, which applied member states will irreversibly lose tremendous efforts and has achieved Bulgaria lost a total of 520 million Euro money because of deficit of confi- good results” during the last six of European funds, as it failed to deal dence it would make the best use of months, Deputy Prime Minister with fraud and corruption among top them. This step reflects the concern of Meglena Plugchieva said. She was officials appointed by the Socialist-led officials, diplomats and fraud investiga- adamant that the Bulgaria authori- coalition government. For the first time tors as to how capable are the ties will continue to work at the ever, the European Commission Bulgaria authorities to prevent orga- same rate as before and apply reversed funds from a member state in nized crime to drain billions of European European rules and procedures to such a manner, the “Financial Times” funds, the newspaper wrote. guarantee the transparent utilization noted. of European funds, “Le Monde” Bulgaria’s Prime Minister Sergey wrote about the position, expressed Now, the poorest EU member state lost Stanishev said in Berlin that Bulgaria by Deputy Prime Minister Plugchieva 220 million Euro from pre-accession is implementing the EU programs “in a and circulated by the government’s funds, and the government will have to very ambitious manner” and causti- press office. use budget money to cover another cally stressed that “membership is not 300 million Euro, which was frozen by reduced only to issues related to the Speaking to Bulgarian media, however, the EU last July because of suspected judiciary and the internal affairs", the she described the approach used by 18 fraud, the newspaper wrote. newspaper wrote. When Bulgaria the European Commission as “unac- joined the EU in 2007, many people ceptable and improper” and reminded Bulgaria was punished for its persis- were warning that the country is that several missions dispatched from tent inability to solve the corruption poorly prepared, and the European Brussels have already testified that issue by withdrawing 220 million Euro Commission introduced special mea- Bulgaria has made some progress. of Brussels funds, wrote the "Times." sures for monitoring of the reforms, the The government has been claiming The newspaper also highlighted the “International Herald Tribune” wrote. lately that it expects some of the fro- fact that the EU has resorted to such zen assets to be partially released, the

AmCham Magazine Bulgaria December 2008 a measure against a member state for The Bulgarian government expressed newspaper wrote.

analysis

most drastic, according to the authors, cases of improper Bulgaria may lose another 220 use of the European taxpayers’ money.

million Euro of SAPARD money The Bulgarian cases are not among those at the top of After the PHARE shock, another 220 million Euro of the list – they have been ranked on the 17-th position. SAPARD funds, which has been frozen as well, may well These cases include the notorious scandal with leaking not be released due to conflicts of interests and mistakes funds by using criminal schemes within the SAPARD pro- made by the management of the pre-accession program. gram, in which Bulgarian, German and Swiss citizens were A report drafted by the “Agriculture” Fund and circulated involved. The report states that two businessmen, Mario among regional heads of the Technical Inspection Office Nikolov and Lyudmil Staykov, seen as being close to indicates that officials of the Fund have been employed Bulgaria’s president, have managed to draw some 9 million by Deloitte to inspect projects, financed by SAPARD Euro of European funds by using falsified documents. funds. The officials have practically been inspecting their own work, which is a rude form of a conflict of interests, Further down the fraud list it is stated that the European experts were quoted as saying. Commission had been forced to suspend hundreds of million of euro allocated to Bulgaria due to suspicions of wide-spread corruption and links between the cabinet and The ultimate victims of the decision to stop the payment organized crime. The paper states also that tax fraud of 220 million Euro from European funds are the Bulgarian related to subsidies have also been exposed. citizens, who are still Former Interior Minister Rumen Petkov resigned under suffering from corruption and fraud, European pressure after it became known that a drug traf- ficking gang had been receiving confidential information Dutch member of the European Parliament Yuls Maaten from the interior ministry, while illegal producers of alco- was quoted as saying by the “Volkskrant.” The newspaper holic beverages had been paying to high ranking represen- reported in detail the decision of the European Commission tative of the special services for inside information and for to stop the payment of the 220 million Euro, stating that the destruction of material evidence, “Open Europe” wrote this country is not doing enough to curb fraud and cor- in its report. ruption. The European Parliament deputy expressed his hope that the Bulgarian government will react with due One of the two other Bulgarian cases described in the concern to the news from Brussels. Yuls Maaten added report is related to the prosecution, which had been allo- that the EC decision will serve as an efficient warning for cated 1.8 million Euro for the acquisition of a computer EU candidates like Croatia and Serbia. In his comments system. It was been established that the purchased 37 of the EC decision, Maaten said also that the EU has working stations had been stored unpacked in a store changed its policies towards a more serious compliance room. with its own rules. “Volkskrant” quoted the statement made by European Commissioner Olli Rehn that the According to the NGO report, the European Revenue Bulgarian government has recently initiated certain mea- Service found in 2007 that almost half of the money allo- sures, which however are more of a promise for the future. cated to Bulgaria and Romania had not been used “We want to see specific results,” an European Commission according to the targeted objectives. official was quoted as saying by the Dutch daily. The paper quotes as an example an unused center for the The conservative opposition party of former Prime Minister accommodation of refugees, a bridge to nowhere with no Ivan Kostov, Democrats for Strong Bulgaria (DSB), urged roads leading to it, and border patrol boats, which are the cabinet to resign. “It is a disgrace that the European unusable under local climate conditions. Commission is the only institution, which protects the Bulgarians, including from its own government,” Bulgaria has been under strict monitoring in several sec- “Volkskrant” wrote in comments on the party’s position. tors ever since it joined the EU on Jan. 1, 2007, namely, the judiciary system, European funds utilization, food The liberal party of the former King, Simeon II, which is a safety and aviation safety. Despite the fact that a definite member of the ruling coalition, described the Brussels’ improvement has been achieved in the last two sectors, decision as “excessive.” the remaining two continue to be a permanent target of criticisms within the 27-member bloc. 22 Bulgaria is quoted in Bulgaria and Romania are the last two states admitted to four out of the top 100 European funds the European Union. And the fact that these two states fraud cases are also the two poorest members of the “European Club” seems to be not only causing concern to the more opulent list, drafted by the British non-governmental organization partners but also makes them feel like they have to pun- “Open Europe.” The list was compiled from European ish the two state for their fate – with sanctions, which are funds fraud cases in a number of member states and in not exhausted by a strict monitoring motivated by the AmCham Magazine Bulgaria December 2008 some of the European institutions, as well as from the existing problems. n

analysis Bulgaria Weathers the Global Economic Meltdown – for Now

Politicians and economists spare no effort to warn about the impact of the global crisis on the economy and financial system of Bulgaria. For the time being, however, the exact parameters of the emerging stagnation are nothing more than guesswork. By Marina Georgieva

One of the governors of the Bulgarian banking systems are concerned, we must Bank and other institutions and plead for National Bank (BNB) gave recently a bril- behave responsibly, as the issue has help, Finance Minister Plamen Oresharski liant explanation why Bulgaria will not be major psychological implications. People said. affected by the financial crisis in the should be spared any fears in case these United States and Europe. “A computer fears are unfounded. The after-effects of The best guarantees on savings and cor- virus plagues the world, but we are still the financial crisis are indirect, hence porate finances, however, are not related pecking at typewriters and therefore “there is no need the measures initiated to isolated government decisions, but to immunized against it,” said a senior man- by countries in Europe and in the United the stability of the system as a whole. It is ager of the national treasury. The conclu- States to be mechanically adopted and an interesting fact that – on the back- sion is quite clear – Bulgaria must pro- applied, as Bulgaria and the Bulgarian ground of the incumbents’ placidity - duce “real” products instead of focusing banking system are very stable and pre- on shares, bourses and real estate. The dictable,” the prime minister went on to the opposition predicts a more important aspect of the story is that say. financial Apocalypse. Bulgaria must, at the same time gradually integrate into the global economy and Stanishev was adamant that the Bulgarian According to Ivan Kostov (Democrats for technology. Regardless of all the talk government will support any bank that Strong Bulgaria, DSB) the vicious cycle coming from both politicians and econo- may encounter liquidity problems. He of economic crises will start repeating mists, Bulgaria is still far from the anxiet- added that the treasury has the potential itself every 7 to 8 years. The DSB leader ies, which have shattered everyday life in to intervene. Bulgaria may count on the urged the cabinet “to reign in the state 24 rich countries - as far behind as the width support of the European Central Bank as and the administration” and to initiate of the gap between Bulgaria and devel- well, but the major advantage this country reforms in order to raise the level of trust oped economies. has is the fact that it does not rely on in this country. Otherwise, he added, it is such a support, as – due to prudent mac- possible that businesses will be deeply Curbing the impact of the external finan- roeconomic and fiscal policies Bulgaria disappointed, which might cause a deep cial crisis to a bearable minimum is a has sufficient reserves in order not to be recession. serious challenge for the Bulgarian politi- forced to start knocking at the doors of cal elite, Prime Minister Sergei Stanishev the European Commission, the International The former prime minister added that the AmCham Magazine Bulgaria December 2008 said. “As far as the financial and the Monetary Fund, the European Central non-banking system is stable to a certain analysis

extend only, and that the banks have bor- Bozhkov, co-chairman of the Centre for high as the rate of increase of productiv- rowed some 13 billion Leva from external Economic Development (CED). ity. The unfounded increase of incomes sources, which has caused an increase affects the current account deficit, as the Bulgaria of interest rates and has limited crediting. Large companies will suffer more from the money is spent on imported goods while Interest rates rose by almost a quarter, economic crisis than the small and medi- the export growth rate claimed by the which collapsed the investment plans of um businesses. This will result in changes Ministry of Economy and Energy is noth- people, who have taken credits and are in the large companies’ programs, which in ing but illusory. Weathers now forced to sell their businesses. its turn will result in lower exports. According to current forecasts, the export Simple accounting would indicate that the The global financial crisis is posing seri- of Bulgarian products will shrink dramati- increase of the revenue from export comes the Global ous problems for economy experts. Only cally next year. These products will remain from the higher prices and not from a few dare to make forecasts, all the here, which will lead to lower prices for increased volumes. For instance, fuels more so after most of the predictions some of the products. account for 12 percent of the export, non- Economic made over the last couple of years ferrous metals account for almost the same turned to be wide off the mark. Another effect of the global economic amount, and ferrous metals account for crisis on Bulgaria may be another 10 percent. There is a dramatic The new 2009 will be difficult for Bulgaria’s drop in the prices in the three sectors, Meltdown – economy. The country’s banking system is the slower rate of increase however, which means that their combined stable. There might be a slight increase in of salaries. share of some 34 percent will drop dra- the rate of unemployment, and Bulgaria matically. This means that the target cur- for Now will not be able to preserve its high eco- According to data released by the rent account deficit as set in the budget for nomic growth rate next year. The reason Bulgarian Industrial Association (BIA), the next year, 22 percent, will be exceeded, for this is the fact that there are no “free average gross salary in 2007 was by 67 and may be as high as 28 percent. money wandering around the world and percent higher compared to 2002, while coming to Bulgaria”. Direct foreign invest- the added value for an employed person At the same time company managers ment will be lower as well. This fact will, rose by 34 percent over the same period. should not rely on negotiating the crisis by in its turn, generate problems with the cur- This means that the rate of increase of simply cutting jobs in the hope that they rent account deficit, said Alexander the average gross salary was twice as will manage to preserve the level of pro-

The banking system and the crisis Data for September 2008 indicate that: currency board arrangement.

l The profit of the banking sector continues to grow, reaching The monetary and supervisory policies of the central banks 1.1 billion Euro, up by 29 percent compared to the same within a currency board arrangement, in effect for more than period of last year. Annual banking sector profit is expected 11 years, may and will manifest themselves in a supporting to reach 1.5 billion Euro by the end of the year. role only during the process of adjustment of the Bulgarian l Return On Equity (ROE) and Return On Assets (ROA) economy to the influence of negative external factors. rates are at a fairly good level, 24.5 percent and 2.32 percent, respectively. The main contribution of the BNB in countering the crisis l The portfolio quality remains good, with the percentage of would be to maintain and support the sustained functioning properly served credits virtually the same as at the end of of the currency board arrangement. The currency board is

2007 - 95.04 percent. a major policy instrument, which eliminates a source of 2008 December Bulgaria MagazineAmCham l Capital to assets ratio also remains high - 14.35 percent. economic insecurity as powerful as the exchange rate fluc- l The liquidity of the banking system remains high at 22.3 tuations, which is a major boost for economic agents in their percent. decision making.

September 2008 data indicate that the unfavourable devel- With the tools at the disposal of the BNB, Bulgaria has man- opments on a global scale have still not affected the portfo- aged to act against the extreme effects of economic cycles. lio quality and the profit levels of the Bulgarian banking In an environment of a rapid economic growth and a strong system. Besides, this positive performance generates sub- optimism displayed by households, companies, and foreign page stantial buffers (in terms of capital and liquidity), which may investors, the BNB stuck to its policy to tighten supervisory 25 be used in 2009 in such a way that the potential slowdown regulations in order to assure a more stable capital base and of economic development would not result in a substantial buffers to the banking system and limit credit growth rates. pressure on the financial stability of the country. In a future period, which will be marked by a lower eco- It is important for households, businesses, and foreign inves- nomic growth and a slower influx of capitals, the central tors to know that regardless of any changes and tremors in bank is expected to initiate measures aimed at preventing a the international environment, the required adjustments of credit slow-down to the private sector, thus introducing a the Bulgarian economy will be carried out under the existing stabilizing factor to calm down interest rates growth. analysis

every enterprise will have to draft its own anti-crisis plan.

According to Bozhidar Danev of the BIA, businesses will have to cut investments programs and reduce expenses in a stag- nating market, and in order to find some fresh money, the state will have to take measures to shorten the period for restor- ing VAT to companies and accelerate budget payments, as the budget is among the biggest debtors in the sphere of intercompany settlements.

BIA forecasts call for inflation rates next year lower than the level set by the Cabinet in the budget framework, mainly because people will redirect their money to deposits, which demonstrate higher interest rates, rather than spending. This will push prices downwards, while at the same time the available cereals reserves allow for an additional reduction of the prices of basic foodstuffs.

At the same time, both the low and the high liquidity of the banking system are dangerous for the country’s economy. The reason for this is the danger that the savings of the Bulgarians will be exported to the mother companies abroad, hence BIA urged the BNB to monitor strictly these Bulgarian Minister of Labor and Social Policy Mrs. Emilia Maslarova and the Prime minister Sergey transactions. Stanishev during a meeting on the government anti-crisis measurements. duction with a smaller personnel. It may be expected that the labour market in Bulgaria will stagnate next year as a result Threats against the tourism sector of the global crisis. Even now many enter- The State Tourism Agency is drafting an action plan to alleviate the effects of prises are reducing their personnel, which the financial crisis on the tourist sector. According to Anelia Krushkova, Head of will raise the level of unemployment, the State Tourism Agency, the action plan will be implemented by tourist opera- which is currently estimated at about 5 tors, who will have to rely on the fact that Bulgaria is still considered a cheap percent. This will affect also the attitude destination and that people with reduced income might opt for having a holyday that it is possible to work only a little and at such a place rather than going elsewhere. be paid a lot of money. The reduction of the workforce and the decreased salaries across Western Europe The 2008 current account deficit is will inevitably have an effect on choosing tourist destinations. The main issue is to expected at 25 percent of the GDP, while position Bulgaria in the focus of possible options for tourists, who would rather the trade balance will be negative by 30 save some of their money instead of spending as much as they can. percent, said Professor Ivan Angelov of the Economic Institute with the Bulgarian The budget for state-sponsored advertising dedicated to Bulgaria’s tourism will Academy of Sciences (BAS). He expects not be increase next year. According to a Noema survey on summer holiday that Bulgaria’s export will drop steely next preferences, Bulgarians, who spend their vacation here, as well as foreign visi- year as most of the recipient countries will 26 tors, recommend more efforts to keep tourist environment clean, a more friend- be experiencing a recession. ly personnel and a better infrastructure.

For the specific Bulgarian conditions, the Some 64 percent of the foreigners and roughly the same share of Bulgarians problems lie in the markets, where the said they are completely satisfied with their holiday here last summer. Foreigners prices of basic raw materials are falling spend some 20 Euro per day on average for an average stay of nine days, after sharply and it is becoming increasingly having paid in advance a package price of 256 Euro. The average stay for difficult to have them sold. This limits the Bulgarians is 4 to 5 days, which costs 180 Euro plus an additional 20 Euro per options for financing the companies, day. AmCham Magazine Bulgaria December 2008 which means that Cleves_AmCham_page.pdf 19/11/08 10:17:24

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economist from the BAS Economic Macro-accounts Institute said. The major challenge to Budget 2009 is to minimize the negative effects of the The banking sector in Bulgaria has started global financial crisis, Finance Minister Plamen Oresharski said when presenting to borrow more funds from abroad, while the draft for next year in Parliament. Nevertheless, social policies will remain in at the same time the official government the focus of the budget framework, he added. reserves seem to be on the rise. This situation could not be sustained forever An all time record allocations on healthcare and education are planned for next and must be reversed, financial analysts year – 3 billion Leva for each of these two priority sectors. Low taxes will be claim. Such a reversal could be achieved preserved. At the same time the draft provides for measures aimed at setting off if the foreign banks reduce the amount of the negative effects of the crisis. credits extended to their daughter operations in Bulgaria. This, however, could Capital expense will top by a billion the funds allocated this year, according to have a negative impact on employment the draft Budget 2009. The other major targets of the bill are a 4.7 percent and economic activities. economic growth, a 6.7 percent annual inflation rate, and a minimum salary of 240 Leva. The draft budget provides for a 3-percent surplus with a buffer option The restrictions imposed on portfolio to have the surplus reduced and allocate funds for additional investment projects. investments, as evidenced by the fall of Direct foreign investments are targeted at 5 billion Euro. Finance Minister stock exchange indexes, pose another Oresharski stressed that a liquidity influx into the economy is planned for 2009 problem. There is a decline in the amount through the Development Bank, with funds directed mainly to small and medium of foreign investments as well. This could businesses, as these are the companies, which are most vulnerable to the crisis. be attributed to the crisis on the real The amount used to raise the Development Bank capital will be used exclu- estate market, which has manifested itself sively for credit lines extended via commercial banks. in Bulgaria as well.

Other measures to support businesses in 2009 provide for the establishment of Forecasts indicate that the demand abroad a network of business parks, investments in amelioration projects, amendments for Bulgarian products next year will drop to the regulatory framework, the elimination of some of the regulatory regimes, as a result of the shrinking markets in the and a general improvement of the administrative services for businesses. EU member states. The consequences of economic crises are usually worse for A possible tax vacation is discussed as a suitable measure for large investors, peripheral states like Bulgaria, which are but according to Finance Minister Oresharski such a move would not have a affected with a delay of one or two years. substantial effect on attracting investments. Currently, investors are scared, and These consequences may be related to a cannot be motivated by tax incentives. Besides, large inceptors are usually slower economic growth – a factor, which relieved of corporate tax for the first couple of years as they write off the may create problems with servicing bank invested funds as depreciation of assets and rarely report any profit. loans. The international financial The crisis will start to raise the ceiling of the guaranteed crisis has a positive effect weathering out in late 2009 deposits to 50,000 Euro in all member on inflation states as of next year. In compliance with or early 2010, this decision, the Bulgarian cabinet Lower inflation due to the falling oil prices announced on Oct. 9 that the same ceil- was a bonus brought by the international if the new U.S. administration manages to ing of deposit guarantees will be applica- financial crisis. Prices of other goods, reign in the financial crisis by the end of ble in Bulgaria as well. including foods, may also go down. The the first six months of next year. The crisis crisis does not have any direct influence started in the United States and unless it Economists claim that urgent measures on the Bulgarian commercial banks, is overcome there, it would be unrealistic and actions are necessary to improve the engaged in conventional banking. "We are to expect that it would be overcome in competitiveness of Bulgaria’s economy. not concerned about banks, especially Europe or in Bulgaria, BIA experts These measures include efforts to pre- regarding their balances", BNB Governor warned. serve the highest possible growth rate, and Ivan Iskrov said. Banks, of course, are to preserve and/or retain direct foreign proceeding more cautiously and refuse All Bulgarian economists and politicians investments at a relatively high level. For project financing not because they lack 28 are adamant that there is no danger of all practical purposes, the state will have the funds but because they are reassess- bankruptcy for any Bulgarian bank. There to engage in measures and actions that ing their business strategies and rely on is also no risk that the deposits will “burn should have been initiated a long time security and predictability. Otherwise, out.” But in order to project tranquillity, the ago. Bulgarian banks are in an exceptionally cabinet had to announce long before the good condition. It is the stock market that ECOFIN meeting that it is ready to guar- If Bulgaria succeeds in attracting all for- was hit the hardest. The effect of the antee private deposits. The ministers of eign investments it could realistically crisis on the banks was manifested by a economy and finances of the EU member expect, then the country will not suffer 2 to 2.5 percentage points increase of the AmCham Magazine Bulgaria December 2008 states, who met on Oct. 7, 2008, agreed from the impact of the global crisis, interest rates on credits. n

analysis Policy Response to External Shocks: Growth Stimulus or Economic Stability The local economy is already facing significant external shocks from the global financial crisis and more impor- tantly from the economic contraction in the US and Western Europe that have urged the government and the central bank to approve measures for boosting investment activities. The draft budget for 2009 envisages some fiscal loosening on the expenditure side while the central bank has taken steps to support interbank lending. However, both measures contain risks of destabilising the macroeconomic framework, which is already quite fragile in regard to the country’s external position. Large external imbalances are still calling for risk averting measures rather than keeping high growth rates, as the cost of potential failure of the central bank to keep the present exchange rate peg to the euro could be very high in the long run in compassion with a temporary slowdown or recession in the real sector. Growth Performance and Outlook

The GDP growth slowed to 5.6% y/y in Q3 and 6.5% y/y in year but there are growing risks that the process could be Jan-Sep from 7.1% y/y in H1, according to flash estimates delayed until 2010. More pessimistic assumptions for the of the national statistical institute. Quite expectedly, the world economy could even pull down the country’s growth industry and service sectors slowed to much weaker growth to about 2% next year as exports of goods and services rates of 4.3% y/y and 3.5% y/y in Q3, respectively, while the account for about two-thirds of GDP (67% in Jan-Sep). agricultural index surged by 37.8% on the back of one-off Combinations of adverse weather shocks in the agricultural base effects stemming from severe weather damages in the sector and inadequate policy reactions to global challenges same period last year. The economic performance in Q4 is could bring even more radical scenarios. expected to have a similar structure of steep agricultural hikes and further weakening in the industry. However, the External Balance Risks positive base effects on the side of agricultural supplies will cease to exist as of next year while the negative external The current account (CA) gap in the balance of payments shocks in the industry and related services would further widened by 38% y/y to EUR 5.4bn in Jan-Sep but shrank expand. This will lead to a dramatic slowdown next year. So by 1.2% to EUR 536mn in September alone, according to far, the figures are consistent with our projections for a GDP preliminary data of the central bank. The 12-month period growth of more than 6% this year and 3-4% next year but ending in September shows that the CA gap moderated to recent reports from business associations and companies 23.7% of GDP from about 24% in August. However, it is not suggest that the pace of deterioration may be more signifi- clear yet whether the narrowing will continue in the following cant. Many construction and metal processing firms have months as the merchandise trade deficit is still rising and already announced plans for large downsizing of production the balance of payments contains a large net outflow of and workforce as a result of weaker external demand. EUR 256mn booked as errors and omissions in September Manufacturers of car parts and investment goods are facing that could be partly related to unregistered imports. The big difficulties. The tourist sector will also suffer from the pace of foreign trade gap widening narrowed to 29.5% y/y global slowdown and the economic recession in the EU. Our in Jan-Sep from revised 31.5% y/y in Jan-Aug but remains 30 growth projections for next year are based on the IMF sce- a major concern about the country’s external balance sus- nario that the world economy will start to recover in H2 next tainability. On the trade financing side, the net inflows of

This article is based on extracts from ISI Emerging Markets IntelliNews publications: Bulgaria This Week and Bulgaria Country Report. For more detailed information please contact ISI Emerging Markets office in Sofia at +359 2 8160404

AmCham Magazine Bulgaria December 2008 or [email protected] analysis

GDP breakdowns in constant prices (%, y/y) 2003 2004 2005 2006 2007 Q1/08 Q2/08 Q3/08 Jan-Sep/08 Agriculture -2.3 2.3 -9.4 -1.0 -29.7 -1.6 11.7 37.8 21.0 Industry 5.7 4.1 4.8 7.8 14.0 7.7 7.2 4.3 6.2 Services 4.8 5.7 8.2 7.1 7.5 8.3 5.8 3.5 5.7 GDP 5.0 6.6 6.2 6.3 6.2 7.0 7.1 5.6 6.5 Consumption 5.9 5.4 5.3 7.3 4.9 4.7 4.8 3.0 4.1 Investment* 13.9 13.5 23.3 14.7 21.7 15.5 28.6 10.9 18.3 Exports 10.7 12.7 8.5 8.7 5.2 9.2 5.1 3.9 5.8 Imports 16.4 14.6 13.1 14.0 9.9 5.8 13.7 2.9 7.4 Source: Statistical Institute, preliminary data for 2007 and 2008, flash estimates for Q3 2008 * Investment growth refers to fixed capital formation and does not include change in inventories

FDI tumbled 42.3% y/y to EUR 315mn in September and 29% y/y to EUR 3.2bn in Jan-Sep. They covered only 60% of the CA in Jan-Sep from more than 100% in the past several years. The overall balance of payments remained on a large surplus of EUR 2.7bn in Jan-Sep but flows cer- tainly reversed in October in views of the reported decrease in the foreign reserve accounts for the month.

The worst case scenarios of very steep economic slowdown in 2009 will have large negative impacts on consumer demand and employment but the potential damage from liquidity failures in the country’s external balance could be even worse as they will erode the confidence in the local currency on long-term basis. The risks are quite high at present, as the country’s CA deficit remains above 20% of GDP in annualised terms while the inflows of foreign direct investments (FDI) are falling at a quick pace and the stock of international reserves has moved below the value of short-term debt with remaining maturity of one and less reserves in the following months. Any dramatic deterioration than one year. Moreover, the prospects in the foreign trade in the reserve adequacy ratios will force foreign creditors to and service accounts are quite bleak as external demand reconsider their positions in the country and the recent fall is falling at a much quicker pace than domestic demand in FDI inflows and withdrawal of portfolio investors from the prompting that imports will continue to outperform exports. local stock exchanged could be easily repeated by a steep The benefits from cheaper crude oil imports will be more decline in the foreign credit flows. The IMF guide on reserve than offset by the shocks in the export-oriented metal adequacy analysis recommends full coverage of one-year industry where the value of metal exports will be double hit debt payments to non-residents, noting that the ratio of AmCham Bulgaria Magazine December 2008 December Bulgaria MagazineAmCham by massive price and output cuts in the sector. Seasonally international reserves to short-term debt should be applied high imports of primary energy resources will put further to liabilities with remaining maturity of one and less than pressure on the external balance in the winter months just one year. The short-term external debt reported by the at the time when the scope of external shocks will peak central bank is still slightly lower than the stock of interna- out. On top of this, the planned budget expenditure hikes tional reserves, but the data do not cover intercompany at the end of the year will reduce the stock of international debts and long-term lending with remaining maturity of less reserves and the government further vows to expand social than one year. Adjustments for inter-company loans and transfers next year ahead of the general elections that will remaining maturity will thus put the country’s reserve ade- keep import demand for consumer goods at high level. quacy at critical levels under the IMF standards. These page These risk factors have been taken into account by the estimates suggest that the adequate policy response to the 31 rating agencies and two of them, S&P and Fitch, have cut present external shocks should prioritise macroeconomic the country’s credit ratings by one notch in the fall of this stability rather than aggressive growth stimulus. However, year. These are the first sovereign downgrades since the the recent decisions for loosening the bank reserve require- set-up of the currency board in 1997. ments and boosting fiscal spending, including expenditure items with direct impact on consumer and import demand, The coincidence of adverse external shocks, foreign trade suggest that the local authorities are accommodating the imbalances and global risk aversion sentiments will keep more hazardous approach of aggressive monetary and fis- investors closely watching the central bank’s international cal measures in support of economic growth. n amcham interview

Direct U.S. Investments to Increase With Treaty Ratification, says Executive Director of National Revenue Agency Maria Murgina

- Mrs. Murgina, how the Tax Treaty (Treaty for the Avoidance of Double Taxation) between Bulgaria and the United States will facilitate the business relations between the two countries?

- Actually, the purpose of the treaty is to facilitate the business by reducing its tax burden. Without such a treaty, U.S. investors in Bulgaria will have to pay taxes in full, both according to the Bulgarian tax legislation and in compliance with the U.S. tax code. Based on this treaty, the Republic of Bulgaria and the United States of America will share their tax authority, the result of which will be reducing the tax liabilities of the American individuals and legal entities to the amount of taxes due in their own country.

- Is the tax administration ready for the enforcement of the treaty? Is it possible its coming into force to be accompanied by initial hiccups? Maria Murgina was appointed as Executive Director of the National Revenue Agency (NRA) on 07.11.2005 by - The Bulgarian tax administration was ready long ago to apply Ordinance of the Council of Ministers. She worked in the the treaty – ever since the ratification of the treaty and the pro- tax administration system from 1997 to 2003 as Deputy tocol for its amendments. The treaty has not come into force yet General Tax Director and Director of the Project for because we are waiting for the U.S. Senate to fulfill the ratifica- Establishing NRA. In 2003 Mrs. Murgina was appointed as tion commitment. Let us not forget that currently Bulgaria is apply- Deputy Executive Director of NRA. Maria Murgina is born ing 62 tax treaties and has gained considerable experience and on 07.02. She has graduated from the University of practice in that area. A special procedure in the Tax and Social National and World Economy with a degree in Management Security Procedure Code, which is used to establish and collect and Planning of the State Economy, and she has numer- the required evidences for legitimate application of the treaties, ous specializations including Strategic Planning with guarantees the lawful application of each tax agreement. KPMG, SOGEMA Canada, Project Management with KPMG, Change management with SOGEMA Canada, - Could you expect increased interest on the part of American etc. investors in our country after enforcement of the Treaty for the Avoidance of Double Taxation, and if yes, in what areas - Definitely. It is important to note that the main objective of any of business? treaty, including this one, is not only eliminating the double taxation, but also preventing the opportunities for diverging from due - It is doubtless so. One of the main objectives of any tax taxation, i.e., reducing the options for tax evasion. In this regard, treaty, including the one signed between Bulgaria and the United Bulgaria and the United States have agreed on specific protec- States, is by eliminating the unfavorable economic outcomes tion mechanisms in the treaty in order not to allow such from double taxation to create conditions for activating the rela- actions. tions between the two countries in the area of economy, and also in all other areas of mutual interest – science, culture, - Other countries, among them Romania, the Czech Republic, education, sports, etc. It is by eliminating the double taxation Slovakia, Poland, have had similar agreements in place for issues that Bulgaria and the United States create favorable years. Do you have information whether these countries have conditions for free movement of people, goods, capitals and benefited from the tax relief measures and have attracted services. As I mentioned earlier, the virtual the tax burden shall more investments? 32 be reduced to the amount of taxes due in the own country and shall not depend on where taxpayers have earned their income - Currently, we do not have relevant statistics for this. and profit. I anticipate that direct U.S. investments in all areas Nevertheless, I would like to mention that it is matter of tax of economy will increase because I believe Bulgaria has cre- culture when persons are interested in the relief they can use ated a favorable environment for development of various eco- based on the respective treaty with regard to the activity they nomic relations between our two countries. are performing on the territory of another country. If they have doubts in this regard they can always consult the authorities - Do you share the opinion that the treaty will contribute to competent in the application of this treaty in any of the two AmCham Magazine Bulgaria December 2008 diminishing the shadow economy sector in Bulgaria? countries. n

amcham news

Amcham Facilitates Discussion On Bulgarian Bar Act In an effort to serve its member law firms of both Bulgarian and foreign parentage and in a situation of a pending legal dispute presented by foreign legal firms to the European Court of Justice, the American Chamber of Commerce in Bulgaria (AmCham) organized a working meeting entitled “The Bulgarian Bar Act in the Context of the Letter and Spirit of EU Legislation” on Nov. 11, 2008.

The event brought together over 20 law and consultancy businesses - AmCham members and guests, as well as representatives of the Ministry of Justice and academia. The topic stirred huge interest and provoked lively discussion, which focused on facilitating a dialog between the two sides to promote working toward a solution beneficial to all law firms. Based on broad participation in the discussion, facili- tated by Kenneth Lefkowitz, AmCham vice president and The event brought together over 20 law and consultancy businesses – AmCham Public Affairs Committee chair, the meeting reached an members and guests, as well as representatives of the Ministry of Justice and agreement that the Bulgarian Bar Act contains a few areas academia. that would benefit from further improved formulations. Among to AmCham as a start of the consultation process. AmCham the areas that need to be better thought-out are forming and will form a working group to further this process. Both foreign functioning of branches of foreign law firms, practicing under and local legal firms have volunteered to take part in it. The the name as per the home jurisdiction, and ensuring equal planned output of the working group will be a proposal for treatment of foreign and local lawyers. Law and consultancy better regulation of the legal profession, focusing on amend- firms have been sending their initial analyses and comments ments to the Bar Act. n

34 AmCham Magazine Bulgaria December 2008 amcham news

Businesses See Charity As A Company Project The businesses and the non-govern- almost 15 years of experience of two Holding “Zagora” were asked a multi- ment sector have discussed charity business associations in the United tude of questions about their charity from the working place as a company Kingdom in creating incentives for an experience. Stamen Tassev of the project, stimulated and organized by the efficient engagement of employees in Bulgarian Business Leaders Forum individual company with the objective to causes aimed at the benefit of the soci- (BBLF) called for starting the education bring benefits to the society and at the ety. of future donors as early as the school same time as a boost to the company’s and presented some serious BBLF proj- image and human resources develop- Elitza Barakova tried to systemize the ects in the support of education. These ment. Some 70 representatives of com- history of working-place charity in were projects, in which a major empha- panies and NGOs gathered on Nov. 20 Bulgaria - from a personal choice, sis is placed on personal commitments at a forum under the logo “Responsible which would remain out of the atten- and the enthusiasm of senior and mid- Company – Responsible Employees,” tion of the employer, to specific incen- dle-level employees, who could share organized by the Bulgarian Charities Aid tives provided by companies. She their career experience. Foundation. PR managers, personnel reminded the audience that Bulgarians managers and NGO representatives are traditionally willing to make dona- Valentin Georgiev of the American were gathered for the first time to talk tions at the time they collect their Chamber of Commerce said that the seriously about charity from the working salaries or as volunteers, but said that forum was organized right on time and AmCham Bulgaria Magazine December 2008 December Bulgaria MagazineAmCham place. these forms now remain insufficiently focused the attention of the participants popular. on the latest developments in the sphere Deputy Minister Dimiter Dimitrov of corporate social responsibility the (Ministry of Labour and Social Policy) Five companies, two business associa- background of global economic and stressed the importance of engaging tions and representatives of the U.K. financial crisis. Employee commitment employees in charity work within the Charities Aid Foundation, which has may emerge as one of the best assets comprehensive socially responsible more than 400,000 donors on its list in for the performance of businesses dur- performance. In his capacity as chair- the United Kingdom, shared their spe- ing crisis, while social responsibility may man of an ad hoc group in charge of cific experience during discussions in offer some of the solutions for dealing page drafting a Bulgarian “Corporate Social the three panels of the forum. The pre- with this crisis. 35 Responsibility” strategy, he promised sentations revealed a large variety of that the Ministry of Labour and Social examples of donorship and volunteering All forum participants promised they will Policy will submit for discussion next from small and large companies, as well look for efficient methods to continue year the draft strategy. as from various branches, and the com- the discussion, and the Bulgarian mitments of the business associations in Charities Aid Foundation assumed the Lana Narancic from Great Britain’s support of their members. The repre- commitment to collect ideas and opin- International Business Leaders Forum, sentatives of MobilTel, Overgas, Lowe ions and to organize such forums on a presented the ENGAGE project and the Swing Communications, AbCRO, and regular basis. n amcham events

AmCham Green Project Developments in 2009 AmCham Bulgaria CSR Committee gathered at its last meeting for the year on December 2 at the Grand Hotel Sofia. The meeting was chaired by Elitsa Barakova, BCAF, Dana Leff, AbCRO, and Ward Miller, denkstatt. The aim was to present in detail the AmCham Green Project that is a voluntary initiative A glass of wine and a picturesque photo exhibition attracted more than 40 participants to promote greener business practices through: at the committee gathering. The exhibition presented the awarded pictures from the sec- l educating member companies on how to improve green ond AmCham and BCAF volunteering day that took place on October 17-18. The two business practices; days united about 38 companies and organizations with nearly 600 participants. l disseminating information about environmental issues and green business practices; l sharing operational achievements from within Bulgaria and beyond; l inspiring members to expand current environmental projects and start new ones.

Ward Miller outlined the main goals of the project to develop on a large scale during 2009. Each two months it will focus on a different environmental area for education, office improve- ments, discussion and will be accompanied by a CSR Committee meeting. There would be six themes for 2009: l Energy & Climate Change (Jan, Feb) l Resource Management (Mar, Apr) l Green Procurement (May, June) The participants in the second AmCham and BCAF volunteering day that took l Nature Conservation (July, Aug) place on October 17-18 were awarded with certificates. At the photo: Natalia l Green Communications (Sept, Oct) Manolova of the American College of Sofia has been congratulated by Valentin l Life @ Home (Nov, Dec) n Georgiev, AmCham executive director.

F a rbdefinitionen Logo new members The Air France agency in There are a growing number of Bulgaria was established in business development, environ- October 1969. At present, Air France has one daily flight from mental, and communication consultancies. Uniquely, denkstatt PANTONECMYK RGB

ORANGE 1235 U 0/29/91/0 253/187/48 Sofia, operated by Air France in code share with KLM andGRAU brings431 U 11/0/0/6 these4 106/117/12 perspectives4 together to address the fundamental Delta Airlines. Starting from 30 March 2009 a second flight needs of contemporary organizations by implementing strate- would be launched (departure from Sofia at 06.55a.m./ gies that promote the transition to sustainability.

arrival in Paris-CDG at 08.50a.m.). Air France-KLM and Delta 2C: PANTONE 1235 U (Orange) CMYK: C:0 M:29 Y: 91 K:0 (Orange) PANTONE 431 U (Grau) C:11 M:0 Y: 0 K:64 (Grau) Airline-Northwest, as two of the largest transatlantic carriers, Denkstatt offers solutions to a wide range of social and envi- offer over 80 daily flights between the United States and ronmental challenges in six service groups: Sustainable Europe. Through Delta’s U.S. hubs passengers have been Business, Environmental Management, Climate Care, Nature 1C: PANTONE 1235 U (Orange) 1C: PANTONE 431 U (Grau) offered the ability to connect to nearly 240 destinations and Conservation, Social Design, and Waste Management. By pro- through Air France to another 130 destinations beyond its viding the knowledge and tools for organizations to operate hubs. These well-timed connections provide extensive choice efficiently and responsibly, denkstatt adds value by ensuring and flexibility for our customers. Air France-KLM Bulgaria Grinvestmentsaustufen in sustainabilityBitmap are drivers of profitable growth. offers its clients attractive individual and group fares, togeth- Operations in Bulgaria are primarily carried out by a team of er with the possibility for a full range of services from a enthusiastic professionals, with creative approaches to using

Projekt F a rbvorlage für Denkstatt A

F a rbkeil A distance, membership and advice about our individual and their broad knowledge on theInv . Nr. paradigmMaßst a b of sustainability. The Dat u m Freigabe/Gezeichnet

Büro für Design(Ges.n.b.R.) Pantone 431 U102030405060708090Pantone 1235U Kohlgasse 11/10A1050 Wien + +431 586 82 22 (F+40) corporate loyalty programs Flying Blue and Voyageur company is a subsidiary of [email protected] of the largest environmental Rewards as well as preferential offers designed especially for consulting enterprises in CEE, denkstatt GmbH. 36 our clients and all these gathered with a lot of professional- ism and personalized attention. Tel.: +359 2 470 7508 E-mail: [email protected] Contacts: Address: 19, 6th Street, Dragalevtzi Area Mr. Alexis Corbasson, Country Manager 1415 Sofia Tel.: 02 939 7021; Fax: 02 939 7036 E-mail : [email protected] Address : 9, Fritiof Nansen Str. AmCham Magazine Bulgaria December 2008 Sofia 1142

member news

2be Goes Online The leading mobile technology retail chain 2be launched its e-store www.e-2be.bg. The creation of the e-store was one of the priorities set for 2008 by 2be. Its realization was a result of the company’s ambition to keep topical, flexible and adap- tive to the new trends. 2be e-store offers a quick and comfort- able channel of sale to consumers over the Internet – that is, geared toward people who constantly raise in numbers, means, knowledge and web surfing skills.

“We have proven to be a company which is developing according to the needs of its clients and the market trends,” said Stanislava Arnaudova, CEO of 2be. “It was really important to us to meet the new requirement of the clients and provide them with a service suitable to their life rhythm and Stanislava Arnaudova, 2be CEO stile. A service matching innovative, dynamic and attractive forms of trade with secured stock and prompt attendance.” a physical store of the chain, the technological platform (fully integrated in the informational and business processes of the The store, which valued over 300,000 Leva, is the first one in company) offers opportunities for new approaches in the field Bulgaria to really implement the technologies of the package of internet sales. Oracle Fusion SOA Suite integrated with the ERP business applications of SAP. The solution is a composition of auto- To facilitate the clients, the e-store offers a “terminology mated business processes, accessible as web-services and guide” in which they can find details of the various func- integration between business applications allowing human tions of the products. If the client prefers to consult a interference in every single stage of the process. Besides company expert, he can do it in 2be call center, on Skype transforming 2be e-store in a fully functional online version of or by e-mail. n Postbank Named Best Bank In Tourism 2008 Postbank was titled Best Bank in Tourism 2008 by the active and reliable partners of the companies in the field of Bulgarian Hotel & Restaurant Association (BHRA). The pres- tourism and this prize is a testament that we, in our capac- tigious award was given to Emilia Milanova, chair of the ity of a banking institution, have aided the development of Board of Directors of Postbank, during an official award this important sector of the economy,” said Milanova upon ceremony. receiving the award from Bulgaria’s Minister of Economy and Energy Peter Dimitrov. „We are very happy to receive this important acknowledg- ment for our work in one of the most dynamic sectors of Postbank also awarded the special prize “Best American our country’s economy. In 2008, we have secured financing Express Client of the Year” to Arena di Serdika Hotel at the for more than 590 tourist facilities all over the country. Our ceremony. The distinction for the highest number of transac- branches in Dobrich, Varna, Golden Sands, Bourgas, Sunny tions with an American Express card, exclusively issued in Beach and Nessebar have distinguished themselves as pro- Bulgaria by Postbank, was given by Assen Yagodin, executive director of Postbank, to Mario Zahariev, executive director of Fairplay International. Petia Dimitrova, executive director of Postbank, awarded St. Thomas Residence in Arkutino with the “Most Effective Investment in the Tourism” accolade.

BHRA is a professional branch organization that supports the development of hotel, restaurant and tourist business in the country. The main objective of the association is to unite the 38 professionals in the sector of tourism and to encourage their qualification and training, as well as to protect their rights and interests.

In the meantime, Anthony Hassiotis, CEO and member of Board of Directors of Postbank, was elected to the Board of the Confederation of Employers and Industrialists in Bulgaria Minister of Economy and Energy Petar Dimitrov (left) and Blagoy Ragin, chair of the Bulgarian Hotel & Restaurant Association (BHRA) give out the (CEIB) by the delegates at the General Meeting, held on

AmCham Magazine Bulgaria December 2008 award to Emilia Milanova, chair of the Board of Directors of Postbank. Nov. 25, 2008. n member news

Seven Companies Named Investors Of 2008 The managers of seven domestic and foreign companies were named investors of the year for completing or planning new projects in various sectors. InvestBulgaria Agency, the local investment promotion authority, hands the awards for a third consecutive year to highlight the key projects that have received administrative and other state support.

AmCham Bulgaria congratulates its members Hewlett Packard and Lindner Immobilien Management for their business achievements. For the first time the Agency was handed an individual award to recognize as a successful manager Rosen Plevneliev, executive director of Business Park Sofia for 1999- Rosen Plevneliev, general manager of Lindner Immobilien Management (second 2007. The agency has established this year an individual award right) and Sasha Bezuhanova, General Manager of Hewlett Packard Bulgaria in order to recognize managers with special contributions for (in the middle) were named investors of the year. the attracting of foreign investors to Bulgaria. in the Kavarna municipality received a first class investor certificate on 2006. The park officially opened in July of 2005 and “As an investor in the Business Park Sofia, Lindner Immobilien has 35 wind generators. The project is valued at 90 million Management got the first certificate – 001 of the Agency back Leva and has been carried out together with the Bulgarian in the end of the nineties when there were no regulations and engineering company “INOS 1” and the Japanese “Mitsubishi the Bulgarian legislation was somehow vague. We had to trace Heavy Industry.” the way together and set up some procedures for future investors and the agency had appreciated our efforts,” said Rosen Italcementi Group’s Devnya Cement for their new clinker and Plevneliev, general manager of Lindner Immobilien cement production line. Management. Wienerberger AG for the 25 million Euro investment in its new “Hewlett-Packard” was nominated for generating new job ceramic factory in Lukovit, opened in May. opportunities and for training in the area of high-end technologies of over 1,280 individuals. It is expected that their number 3,5 million Euro investment in the “Specialized Eye Clinic for would reach 2,000 in 2009. In 2006, the company built a high- Active Treatment (SOBAL) Dr. Taskov” that opened doors in technology center in Sofia to service customers from Western October in Targovishte. Europe with software and hardware products. Ivaylo Kalfin, vice-premier and minister of foreign affairs, Minister Lufthansa Technik Sofia ltd. opened overhaul facility at the of Economy and Energy Petar Dimitrov, Minister of Healthcare Dr. Sofia Airport on October 28, and the company has invested Evgeni Zhelev, executive director of InvestBulgaria Agency Dr. 20 million Euro; Stoyan Stalev, ambassadors of Belgium, Germany, France, Austria, Spain, Italy, Finnland, Ireland, Japan, Korea, China, many The Kaliakra Wind Park, located near the village of Bulgarevo investors and deputies attended the official ceremony. n

Renault Nissan Bulgaria Starts Third 2008 December Bulgaria MagazineAmCham Edition Of Student Contest Renault Nissan Bulgaria chose the Neuviale, general director of Renault two winners are to be announced. theme of the third edition of its con- Nissan Bulgaria. test Master Initiative: “The first step is The Master Initiative competition is a attracting the customers. But after the The university’s students could receive project created in 2007 for the students purchase of the car how do we keep more information on the project’s web finishing their bachelor’s or master’s page them for the long term?” site: www.imam-idea.com and register degrees. It presents a rare opportunity 39 for the competition until Jan. 31, for the Bulgarian students to apply what “This year we propose to the students 2009. Jury comprises representatives they have learned in practice and to a theme in the field of sales and of Renault Nissan Bulgaria and their express themselves in the sphere of the aftersales services and the impact partners Publicis Marc, Consulteam real business. The Initiative can be con- they have on the clients toward the and Auto Motor und Sport. It will sidered as a reassertion of the will for brand. And more specifically how to choose the five finalists who will pres- a long-lasting cooperation between keep the clients for a long term and ent their projects in the beginning of Renault Nissan Bulgaria and the local gain their loyalty,” said Bernard May in a oral debate after which the institutions of higher education. n humor

Q: Why is Christmas just like a day at the office?

A: You do all the work and the fat guy with the suit gets all the credit.

J J J

A blonde goes to the post office to buy stamps for her Christmas cards. She says to the clerk, “May I have 50 Christmas stamps?” The clerk says, “What denomination?” The blonde says, “God help us. Has it come to this? Give me 6 Catholic, 12 Presbyterian, 10 Lutheran and 22 Baptists.”

J J J

Last year we invited some friends over beat-up his sister, just about any trouble work. God will know I’m lying.” So he for a Christmas party. Many of my col- this kid could get into, he did. Nonetheless, tears up this letter and starts again. leagues were there, and some of them Johnny wanted a bicycle for Christmas. are German. Helmut, Franz, and Rudolf Dear God, If I get a bicycle for Christmas, were there. I was talking to Rudolf about Johnny goes to his mother and demands, I’ll wash Mom’s dishes for all year... “No, his belief in the superiority of the com- “Mom, for Christmas, I want a bicycle!” that won’t work. God will know I’m lying.” munist party. I grew tired of the discus- To this his mother replies, “Yea, right, ... So he tears up this letter and starts sion so I motioned towards the window Santa’s not coming to THIS house you again. and commented on the weather, “I little brat, you’ve stolen from all the neigh- believe it’s snowing”. “No, it looks too wet bors, shoplifted, beat-up kids at school, Evenually, Johnny uses up the entire to be snow,” he said. The argument went you’ll be lucky if you even get a lump of tablet and has only one sheet left but back and forth for a few minutes: rain, coal.” still no letter to God. Then it hits him. snow, rain, snow... He runs out of the house and down to Then my wife came over and settled the Enraged, Johnny storms up to his room. the church. In the church, he finds the argument for us. She said: “Rudolf the After about an hour, he decides he will Madona and snatches it, runs home, Red knows rain, dear!” appeal his case to God. So he grabs a and hides it under the bed. Then he tablet and starts to write his letter to writes: J J J God. Dear God, If you ever want to see your Johnny was, by all accounts, the worst Dear God, If I get a bicycle for Christmas, mother again, have Santa Claus deliver a eight year old kid on Earth. He stole, lied, I will never steal again... “No, that won’t bicycle to my house on Christmas... n Top 10 Signs You Bought A Bad Christmas Tree: 10. Two feet tall, forty feet wide 9. Salesman’s opening line: “You’re not a cop, are you?” 8. It looks suspiciously like a broom handle with a lot of coat hangers stuck into 40 it 7. While you sleep, it gets liquored up and takes the family caravan for a joy ride 6. Each branch has “Duraflame” printed on it 5. Keeps heckling while you try to do a lame top ten list 4. It’s very small and says “Air Freshener” on it 3. Rabbis have better Christmas trees than yours 2. Some guy named Mujibur puts a cheap Statue of Liberty on top of it

AmCham Magazine Bulgaria December 2008 1. Constantly bragging about its “trunk size”