05.02.2009

KRIB'S PROPOSAL FOR ANTI-CRISIS PLAN FOR BULGARIA

1. KRIB builds its strategy for overcoming the consequences of the global crisis on the belief that it affects all groups of our society, therefore the responsibility is common and it must be shared. KRIB believes that Bulgaria can meet the challenges of the crisis by maintaining its financial and macroeconomic stability. For this purpose it is necessary: 
· Bulgaria should have a plan to minimize the impact of the crisis, as well as a plan to meet the challenges of the crisis in the development of the most pessimistic scenario.

· Any anti-crisis plan should be based on the preservation of the monetary board until joining the ERM-II and/or the Eurozone.

· In the event that Bulgaria is denied a recent accession to ERM-II and adoption of the euro, KRIB considers unilateral euroization as the only possible scenario for preserving macroeconomic and financial stability in the country during a crisis.

· Achieving political consensus and making a written pre-election commitment on structural reforms, transparency of public spending and the fight against organized crime by all significant political parties in order to unfreeze access to European funds immediately. KRIB is ready to get involved in the preparation of such a document. Bulgaria's economy urgently needs European funds now.

· KRIB considers it necessary to create adhoc group to the Prime Minister from representatives of the real and financial sectors, to monitor and analyze the development of crisis processes, as well as to recommend appropriate policies to overcome them.
 
2. Adhoc the group together with the BNB and the Ministry of Finance, should select and regularly monitor indicators that can provide early warning of worsening economic conditions, the emergence of a general crisis of confidence in the financial sector and the need to implement the anti-crisis plan. 
 
3. The anti-crisis plan for the Bulgarian financial sector and economy should be based on the following principles:
· Strengthening the transparency and accountability of financial institutions and their regulators, including the Financial Supervision Commission (FSC) and the BNB.

· Strengthening and strengthening the regulatory regimes, risk management and supervisory capabilities and skills of the FSC, BNB to test the resilience of the systems in crisis conditions, as well as strict implementation of legal provisions and regulations.

· Strengthening international cooperation between regulators and other institutions responsible for crisis management, deepening cooperation with the national authorities of foreign banks operating in Bulgaria.

· Strengthening the coordination between the BNB, the Ministry of Finance, the Financial Supervisory Service, the European Commission, the IMF and the World Bank.

· Increasing transparency and public control when making public investment expenditures. Public investments will be a major factor in compensating for the outflow of direct foreign investors in Bulgaria, therefore it is important that they are effective and achieve their macroeconomic goals.

4. KRIB believes that the independence of the BNB should be respected. The anti-crisis plan for the Bulgarian financial sector offersbut the BNB decides whether, when and how to implement the following key countermeasures in the event of a liquidity crisis and crisis of confidence:
In order for the proposed measures to be successful, it is necessary to urgently negotiate agreements with the regulatory authorities of the countries (Austria, Greece, Hungary and Italy) where the headquarters of the foreign banks operating in Bulgaria are located, not to refinance the mothers abroad, as and to coordinate the regulated reduction of liabilities to parent banks.

Provision of part of the fiscal reserve to banks in Bulgaria in the form of reverse repo transactions with Bulgarian and foreign government securities against a commitment to continue lending to the economy.

· If necessary, if lending to the real sector declines sharply, provision under clear and transparent rules of deposits from the fiscal reserve to the main banks that lend to the economy.

· Reduction of minimum mandatory reserves of banks under Regulation 21 from 12% to 8% and less. It is necessary to specify when and under what circumstances!

· Easing the conditions of limited refinancing under Regulation 6. It is necessary to specify when and under what circumstances!

· On the basis of stress tests and careful monitoring of the quality of the banks' credit portfolios, if necessary, capital support can be provided possibly from a newly created state fund. For this purpose, both the criteria that banks should meet in order to receive capital support and the conditions under which it is provided are defined.

· Creation of a working mechanism for effective guaranteeing of interbank credits.

Increasing the guarantee for deposits in accordance with the recommendations of the European Commission regarding: the increase of the minimum guaranteed threshold to BGN 200 (Euro 000) for each depositor, the full refund of deposits to the minimum guaranteed level and the shortening of the deposit repayment period in bank failure.

· Helping borrowers by recognizing the interest on mortgage loans for a primary residence in the amount of up to Euro 50 for expenditure in the personal taxation of households and complying with the recommendations of the European Commission to eliminate fees for early repayment of loans. 
 
5. KRIB offers further improvement of the tax system by introducing:
· A favorable holding regime that ensures free movement of capital without giving rise to fiscal risks, which regime is applied in one form or another in most European countries.

· Flexible application of VAT in accordance with European Directive 112, which will reduce VAT costs for the financial sector.

· The Electronic Data Interchange system, based on the European VAT Directive.
 
6. The anti-crisis plan implies increasing the flexibility of companies in the real sector through:
· Improvement of the risk management system in the National Revenue Agency and refund of 80% of VAT before completion of the tax audit for companies with a good reputation and proven historical behavior of good taxpayers.

Creation at KRIB, together with the internal control department at the National Revenue Agency, of a unit to which correct VAT payers can contact in case of excessive delay in tax refunds and which will make public the names of tax officials who unreasonably delay the return of VAT.

· Eliminate dividend tax.

· Reduction of social security by 5 percentage points for employers.

Postponement of the planned 20 percent increase in natural gas from January 1, 2009. until the moment when the prices of oil derivatives will compensate for it.

Clearing the arrears of budget managers in all sectors of the economy, without exception.

· Capitalizing BAEZ and increasing its capacity in order to achieve a sharp increase in the limits for insurance of receivables of Bulgarian companies from abroad and creation of an instrument for insurance of intercompany liabilities in Bulgaria.
 
7. KRIB insists on improving the business climate in order to attract FDI, including quality foreign investments through:
· Improving regulations and easing or eliminating cumbersome administrative regimes and procedures.

· Increasing the administrative capacity and improving the administrative service.

· Overcoming corruption and curbing the gray economy.

· Increasing the efficiency and quality of the legal system. Investments in infrastructure can improve the business climate and offset declines in construction, other sectors, and GDP.

8. European funds should be considered as the main source of liquidity in a crisis. KRIB insists on restoring trust through:
· Enforcing the full rigor of the law against offenders.

· Involvement of the representative business in all stages of work with the European Funds - from structuring the programs and project evaluation to control of absorption.

· Outsourcing the management of European funds, where possible or where there are the most serious problems - for example, NAPI to be given for management by an external company, following the example of Crown Agents.

· Acceptance of KRIB's proposals for changes in the PLO.

9. KRIB offers a solution to the problem of intercompany indebtedness through the creation by the state or by KRIB members and the banking community of a special system for netting intercompany claims, which will cover:
· all receivables regardless of their amount;

· chain indebtedness indirectly;

· all legal entities and sole traders.
 
10. In the social sphere, KRIB does not want workers to suffer the most extreme consequences of the crisis, which is why it proposes a plan to avoid high and permanent unemployment:
· Given the inevitable reduction in orders, it is necessary to introduce a system of flexible working hours to guarantee the preservation of jobs. It's a better plan than serial bankruptcies and permanent unemployment.

· The legislation stipulates that in the event of a crisis, the employer must pay compensation in the amount of 50 percent of the gross remuneration during which the employee was prevented from working. In the current global crisis, companies will not be able to pay their workers this 50%.

· From the "GVRS" Fund, workers who work part-time should be paid in the form of compensation for about 20-30% of their normal working hours, a certain percentage of their usual net remuneration.

· Precisely in a period of crisis, priority attention should be given to qualification and retraining. OP "Human Resources" is an essential tool.
 
11. In the "Construction" sector, KRIB offers: 

· Given the upcoming significant increase in public spending in the sector, it is mandatory to increase the transparency and efficiency of investments, especially those in infrastructure.
· Payment by the state and municipalities of all executed construction contracts immediately and without delay. Up until now, in practice, construction companies have provided credit to the state and municipalities in a three-month cycle. The beginning of the crisis in Bulgaria increased this term to 6 months, which is already overwhelming for business.

· Provision of working capital through commercial banks or through factoring of no less than BGN 500 million for companies in the sector.

· Non-admission to the Bulgarian market of companies from countries outside the EU, which are subsidized by their national countries and which employ illegally imported labor in Bulgaria.
 
12. Textile industry. Branches with seasonal workloads will feel the crisis first. For the last 6 months, orders in the sector have decreased by 35%, and it is expected that from the second half of 2009, many companies will have work only for 3-4 days of the week. To meet these challenges, KRIB offers:

· Companies that in recent years have had good economic indicators, but due to the crisis will have problems with their liquidity, to be given the opportunity to renegotiate the credit frameworks through guarantees granted to them by the country or region in which they operate.

· In view of the crisis, the social partners should organize a union to guarantee jobs in the industry in a form that will allow the introduction of flexible working hours. For a period of 1-2 years, enterprises should be given the opportunity to work under conditions of more flexible weekly working hours from 32 hours (minus 8 hours) to 48 hours (plus 8 hours without overtime pay) and full implementation of the demands from item 11.

13. Real estate. There is a slump in the vacation rental segment, which is beginning to affect other segments such as residential, commercial and office space. Bulgaria practically disappears from the maps of German and other related investors. Only high-class projects will have a chance, and the refusal of banks to credit transactions with panel residential buildings contributes to this.

· The behavior of investors will be modeled mainly by the business climate and the recommendations from point 8 apply here.

14. Tourism. The urgent anti-crisis measures that should be taken by the representatives of the industry with the direct support of the government and the parliament until the end of the winter season are related to achieving two priorities:

· To guarantee administrative, financial and organizational conditions for the deployment of unused and unpopularized tourist potential by creating real prerequisites for turning Bulgaria into a year-round tourist destination.

· Restructuring of the tourism marketing and advertising policy at the national, local and company level with emphasis on enriching the tourist assortment with specialized forms of tourist offer and with an emphasis on health (balneology - prevention and rehabilitation), SPA and wellness tourism (Bulgaria is ranked second place in the world for the availability of healing mineral waters).

 There is an urgent need for additional targeted provision for 2009 of no less than BGN 14-15 million extra-budgetary funds for a large-scale and thematic advertising anti-crisis policy. 

For all the above proposals, KRIB is ready to provide detailed developments.