Cause and Effect in European Politics and Law

When the state turns into a step-mother

Adelina Marini, March 1, 2010

Public debt towards companies in Bulgaria turned into a major dispute in the last few months not only because of the lack of concrete information how much the debt actually is but also because of fears that the unwillingness of the state to pay it might lead to numerous bankruptcies this year. In a comment Velin Peev from the Institute for Market Economy writes that, according to the prime minister Boyko Borisov the debt is 500 mn levs (256 mn euro), according to the deputy minister of finance Vladimir Goranov the sum is 600 mn levs (307 mn euro) and, according to the business - it is over 1 bn levs. To make it easier, the author makes an average amount of 800 mn levs (410 mn euro), which is 1.2% of the GDP forecast for this year. If this amount is added to the official data about the 2009 budgetary deficit of 0.8% it will raise to 2% of GDP.

The biggest problem, according to Velin Peev, though is not the volume of the debt, nor the volume of the budgetary deficit but rather the fact that the state does not fulfill its commitments in the contracts, it is a side of. "What kind of rule of law and respect of commitments are we talking about if the state as a source and a guarantor of the laws does not comply with them? Yes, the business can sue the state for non-adherence but everyone is aware how trials are being handled in Bulgaria, especially against the state. Furthermore, starting a lawsuit leads to additional spending of money, time and efforts for many companies which are in dire situation non the less", the author writes.

He adds that the government's proposal the companies to remit part of the debt or get their money when the budget could afford it, leaves the companies to choose whether to be hanged, strangled or drowned. "Is this a way of doing business? What kind of doing business conditions are those? How can someone invest here, create jobs, etc.? If it is so difficult for the state to pay its debt, then it should spend less! But if we have a good look at Budget 2010 we can see that the government is far from this idea", Velin Peev from the Institute for Market Economy writes.

All this is happening against the background of the latest data, published last week by the National Institute of Statistics about the unemployment rates and the lack of adequate measures of the government to deal with it. In January the official unemployment was 9.9% which is a 3.4 percentage points increase compared to the same period of 2009. If many of the companies are forced to reduce personnel because the state is not paying its debt, the percentage of the unemployed will rise which can cause additional pressure on the budget and the economy in general.

We should not ignore another danger too - such attitude towards companies could repulse foreign investors who are interested in investing in Bulgaria. And all this given the fact that foreign investments are the motor of Bulgarian economy in the last years.