Geert Bekaert and Campbell R. Harvey's


Chronology of Economic, Political and Financial Events in Emerging Markets




Major Political and Economic Events


Bakning crises (1995-1996): an estimated 75% of all loans in banking system were substandard. Banking systems run in early 1996. a2


The Law on Business Activity of Foreign Persons and Protection of Foreign Investments was passed.a3(first entry)


(Controls on capital and money market instruments and direct investment) The requirement that portfolio and direct investments by nonresidents be registered at the MOF was abolished.a3


Trading resumed at the newly opened BSE-Sofia Stock Exchange.


(Provisions specific to commercial banks and other credit institutions) The requirements for observing open foreign currency positions were increased. Each bank is required to observe daily (1) a maximum ratio of up to 25% between its open position in any particular currency and the amount of its own funds, excluding the deutsche mark; and (2) a maximum ratio of up to 60% between its net open foreign currency position and the amount of its own funds, excluding the euro and the currencies of the EMU countries. a3


ADR effective date. (Company=HIMKO EAD - REG S) a11


Economic restructuring, in particular the sale of strategic stakes in government-owned firms to domestic and foreign investors, inched forward at a slow pace. Bulgaria maintained two main markets-the official market and the free market.


New trading regulations, including the introduction of an electronic trading system for the free market and its connection to the Central Depository and inter-bank system, and a maximum 10% daily price fluctuation limit for all free market stocks, were proposed but yet to be adopted.


(Controls on direct investment) Tax measures introduced in 1999 carried on the reforms, further broadening the tax base and lowering marginal tax rates. Tax holidays and incentives were removed from the Foreign Investment Act and partially offset by a 10% regional investment tax credit under the Profits Tax Act. (Provisions specific to commercial banks and other credit institutions) The requirements for observing open foreign currency positions were increased. Each bank is required to observe daily (1) a maximum ratio of up to 25% between its open position in any particular currency and the amount of its own funds, excluding the euro and the currencies of the EMU countries; and (2) a maximum ratio of 60% between its net open foreign currency position and the amount of its own funds, excluding the euro and the currencies of the EMU countries. a3


The Kosovo conflict weighed on the market.


The maximum daily price fluctuation expanded from 25% to 50% for the free market bands, to 15% for stocks traded daily and to 30% for less-liquid shares (not traded for three or more days).


The oil refinery Neftochim was successfully sold to Russia's Lukoil.


828 companies were registered on the free market and most of the trading took place there.


GDP rose by 4.8% year-to-year following a 1% increase in the final quarter of 1999. Current account deficits reached more than US$350 million in the first quarter. The monthly inflation rate reached 3% in January and moderated to below 1% in February.


The unemployment rate rose to 18.8%.


The IMF mission announced its satisfaction with the implementation of the government's economic program, especially with the government's plans for tax cuts, and an energy price freeze. The IMF agreed to make a three-year loan to Bulgaria.


The Bulgarian government and a Dutch/Greek consortium failed to agree on a US$600 million deal selling the control of Bulgaria's telecommunications monopoly, BTC.


The IMF completed the fourth review for Bulgaria, and released SDR 52.3 million (about US$68 million). The government reiterated its commitment to maintain the currency board and strict fiscal discipline.


The government proposed amendments to the legislation on the privatization of state assets to increase the efficiency and transparency of transactions. The government also announced it would present a new plan to revive the privatization of the telecommunications monopoly BTC.


The market declined in the first quarter due to the forced budget discipline in an environment of high unemployment and dropping domestic demand.


The parliamentary election boosted the market. A new political coalition headed by former King Simeon II won the election. The new government implemented policies to attract domestic and foreign investors to Bulgarian markets, such as a zero tax rate on reinvested corporate profits.


Georgi Paranov, leader of the former Communist Socialist Party, won 53.3% of the vote. Political uncertainty capped the market's upward potential.


Parliament agrees to destruction of Soviet-made missiles by late 2002, ahead of NATO membership.


The European Bank for Reconstruction and Development (EBRD) yesterday announced plans to unlock US$440m-worth of funds over three years to help Bulgaria's reform process catch up with those of its Central European counterparts.


Deputy Economy Minister Milen Keremidchiev has announced that the government supports the establishment of 'free economic zones', similar to those initiated in China. b1


Kostadin Paskalev, deputy prime minister for regional development and public works, has resigned in protest at the slow pace of financial decentralization and reform, weeks before Bulgaria included on list of seven countries formally invited to join NATO at Prague summit.


President Georgi Parvanov exercised his prerogative and blocked key amendments to the privatization program which the government hoped would accelerate the stuttering reform program.


The Bulgarian Constitutional Court has annulled amendments to the privatization law that would have empowered the government to act beyond judicial control in deciding the outcome of privatization tenders. b1


The European Commission allocated 150m-200m euro (US$167.7m-US$223.5m) for infrastructural investment, which is provided by the European Union (EU) PHARE program. b1


Deputies passed the final amendments to the constitution that add transparency to the Bulgarian legal system through changes to the immunity, length of tenure and conflict of interests of magistrates and the judiciary


Central Bank Governor Ivan Iskrov unveiled plans for the launch of a Lv100 note, worth around 51.9 euro or US$60.64, outlining Bulgarian Euro Entry Strategy. b1


The European Commission approved funding of 118.7bn euro (US$136bn) for five new infrastructure projects in Bulgaria under the Instrument for Structural Policies for Pre-Accession (IPSA) program.


Parliament passed the first draft of a law to encourage more foreign investment in Bulgaria, which will equalize investment conditions for domestic and foreign investors. b1


Bulgaria admitted to NATO. b6


Ten members plus one independent deputy formed a new parliamentary grouping, plunging the government into official minority.


Parliament has approved a broadened scope for investment legislation in Bulgaria, enshrining administrative support for large-scale investors in the new Investment Promotion Act. The act provides for the equal treatment of foreign and domestic investment, making them equally applicable for investment incentives. b1


Bulgarian monetary authorities raised the base interest rate by 1.24 percentage points to 3.83% yesterday.


The IMF executive board has approved a 10-year report on the implementation of the Fund's programs with Bulgaria. It has also agreed to the renewal of a stand-by accord with the country in support of its continuing bid to be admitted to the European Union (EU).


The World Bank has confirmed new funding lines to Bulgaria under the multi-lateral Programmatic Adjustment Loan (PAL 2) scheme. Bulgarian Finance Minister Milen Velchev and World Bank Country Director for Bulgaria Anand Seth have agreed a 123.7m euro (US$149.7m) loan deal with a 17-year repayment schedule. b1


Regulations on Foreign Investors


Restrictions: Foreigners cannot acquire more than 5% of the voting shares in banks and insurance companies without special permission from the government authorities.

Taxation: 15-30% tax on dividends and interest payments if they are repatriated, but can be reduced by a double taxation treaty. Reinvested dividends are not taxed. No tax on capital gains. A 1% stamp duty is charged on the transfer of shares.a6


Restrictions: There are no restrictions on repatriation of earnings, capital, royalties or interest and repatriation payment can be made freely. Foreigners may own an unlimited number of accounts in any bank and any currency in Bulgaria.

Taxation: 10-50% income tax. Realized capital gains are included in corporate income and taxed at the full corporate tax rate. There is a single VAT rate of 20%, and a zero rate, as input VAT can be recovered in respect of supplies of shares. No stamp duty is charged on the transfer of shares.a7


Taxation: Corporate tax rate is 23.5%, 20% VAT on domestically produced medicines, and also of 7% VAT on tourist packages sold abroad. b1


Taxation: Corporation tax rate is reduced to 19.5%, and planned to be reduced to 15% in 2005. b1