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A m e r i c a n C h a m b e r o f C o m m e r c e i n B u l g a r i a

h o m e p a g e : w w w . a m c h a m . b g e - m a i l : a m c h a m @a m c h a m . b gBus in e s s Pa rk So f i a , M lados t 4 A re a , Bu i l d ing 2 , F lo o r 6 , 1 7 1 5 So f i a

Te l . : ( 3 5 9 2 ) 97 6 9 5 6 5 Fax : ( 3 5 9 2 ) 97 6 9 5 6 9

US and Bulgaria Work to Boost Trade

US and Bulgaria Work to Boost Trade

a m c h a m n e w s

Deputy Secretary of Commerce: USA should be the Number One Investor in Bulgaria 2

BULGARIA: American Chamber of Commerce Lunch 3

Deputy Chief of Mission Moore Leaves Bulgaria 4

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US Trade Mission to Boost Agricultural Ties with Bulgaria 5

AmCham Bulgaria Moves to New, Multifunctional Office 5

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"Economics for Leaders" Summer Program 6

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FMF: What it Means to Bulgaria 8

Major Mark V. Watkins, U.S. Army 8

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Offset in Bulgaria 8

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Coca-Cola Celebrates the Second Birthday of the First 0800 Line 10

HP Leads Bulgarian PC Market 10For 11 Years in a Row: Award for YoungEntrepreneurial Excellence 2003 11

HBR Announces Appointment of Managing Partner 11

Corstjens International BV Certified with Quality Standards 11

Truck Convoy Carrying Relief Supplies forAfghanistan Traverses Historic Trade Route 12

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UNDP-Global Compact Initiative: Communicating and Recognizing Exemplary Business Practices in Bulgaria 12

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IBM’s New Business Season: Vision for Integrated IT Solutions 14

a n a l y s i s

Credit Growth Remains Impressive, Industrial Sales Grow 15

Why Have Residential Real Estate Prices Increased? 16

Despite Numerous Setbacks,Bulgarian Tourism Flourishes 18

r e g i o n a l c o o p e r a t i o n

Serbia: Firmly on the Course of Reforms 20

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c o n t e n t sA m C h a m m e m b e r s

H.E. James Pardew, U.S. Ambassador to Bulgaria, Honorary Chairman . 3M (East) AG .AbC.R.O. . ABELA AIRPORT SERVICES LTD. . ABB (Asea Brown Boveri) . ACDI/VOCA .Abadjiev, Rouslan - Delaware Int’l . Abrotea Bulgaria AD . Acsior . ACT Soft Ltd. . AddressReal Estates . ADIS Ltd. . AES Corporation . AFA . AGS Bulgaria . AIG Insurance andReinsurance . AIG Life . AIMS Human Capital . Albena Joint Stock Company . AlexandrovLtd. . Ahrend . Allied Pickfords . American Bar Association(CEELI) . American BalkanConsulting . American Capital Services Corp . American College of Sofia . AmericanConstruction Products . American University in Bulgaria . AUBG - Elieff Center for Education .Amylum Bulgaria AD . Anglo-American School of Sofia . Anton Nikolov Preslavski . APISHristovich Ltd. . ARCO Group . AremisSoft . Aries Commerce . ASCO Ltd. . Associationof Bulgarian Broadcasters . AT Engineering Ltd. . Atlantic Club of Bulgaria . Austrian Airlines. AVIS . Balkan News Corporation . Barents Group Europe . Bayer Bulgaria . BG Radio .Baxter . Bodyguard-Fire-K Ltd. . Borislav Boyanov & Co . Bristol-Myers Squibb . BTC-NetLtd. . Bulgarian Post Bank . Bulgarian American Enterprise Fund . Bulgarian Charities AidFoundation. . Bulgarian Parcel Service - Representative of UPS . Business Data . BusinessLinks . Business Park Sofia Ltd. . Business to Business. Cable Bulgaria . CAIB – Bulinvest. Carana Corporation . Caresbac – Bulgaria . Carlson Wagonlit Travel . Center for theStudy of Democracy . CHS Bulgaria . Cilag AC – International . Citibank . City University. Cisco Systems Bulgaria . Clarina / Coca Cola . Coca – Cola Bulgaria . COLLIERS -Continental Properties . CombiTrans Bulgaria . Compass . ConsulTeam . Contex Drouzhba. Corporate Advisory Ltd. . Corstjens Worlwide Movers Group. . CPM International Ltd. . CrestaMarketing S.A. . Curtis / Balkan . Cyber Networks JSC . Dr. Benatov & Partners . Dr.Greenberg, Ellen . D. G. Jones & Partners . Deloitte & Touche . DeConi M&A . Delia, MichaelPeter . DHL International . DIMON Bulgaria EOOD . Djingov, Gouginski, Kjutchukov & Velitchkov. Don & Co. . Dow Europe S.A. . ECM – Bulgarian Post Privatization Fund . Effekten UndFinanz – Bulgaria EAD . Eli Lilly & Company . Elta Consult Ltd. . Emerson Process Management. Engineering Service-Sofia Ltd. . Entergy . Erato PLC. . Ernst & Young . EURO RSCG NewEurope Sofia . EXPO 2000 . Expo Team Ltd. . First Global Heath Corporation . First GlobalMarketing . Flying Cargo Bulgaria, Ltd. . Ford - Moto Pfohe . Force Delta Ltd. . FramfabBulgaria . GEO Car . General Electric International . Genmark Automation . Global One .Goleminov & Goleminov . Group 4 Securitas . Guinness UDV (CEA) . Haemimont - Smartcom. Hayhurst Berlad Robinson (HBR) . HEBROS Bank AD . Hewlett Packard Bulgaria . Heli AirServices . Hilton Sofia . Honeywell . Horizon Energy Development, Inc. . IBM Bulgaria .InfoGuard . ING Barings . Interamerican . International Commercial Bank . Interbrands Marketing& Distribution Inc. . Internet Securities . Interpartners Communications . Intransco - Bulgaria Ltd.. In Time Ltd. / Air Express Int’l . Institute for Sustainable Communities . IP Consulting Ltd. .Junior Achievement Bulgaria . Kolbis . KPMG Bulgaria . Kühne & Nagel . Kraft Foods .Lefkowitz, Kenneth M. . KRES Advertising Agency . Lexim Sofia Ltd. . Lindner Immobilien Bulgaria. Lirex . M3 Communications Group . Magnetic Heads Technologies . Maersk Bulgaria Ltd.. Marsh EOOD . Management Systems International . MBA Enterprise Corps . McDonald’sBulgaria . Microsoft . Miltech Ltd. . Monsanto Europe . Motorola Bulgaria EAD . MSD .NDB Informix . NDT Equipment Supplies Ltd. . Net Is Ltd. . Nestle-Sofia Ltd. . NET IS SAT .Nexcom Bulgaria . New I . Nokia Bulgaria EOOD . Norman – Art Consultants & Dealers . NovelCosult . Oracle Corporation . Pain D’or . Pfizer International Corporation . Pharmacia & UpJohn. Pioneer Semena . Popov Legal Office . PricewaterhouseCoopers . Prima Soft . Procter &Gamble . ProSoft . Protech . QBE International Insurance Ltd . Radisson SAS Grand Hotel .Regent Pacific . Rila Software Corporation . Rockwell Automation . RTC Mobikom . S&DChemicals Bulgaria Ltd. . S&T Bulgaria . Sante International . Scala Bulgaria . SEAF Trans-BalkanBulgaria Fund . Sector Bulgaria . Sheraton Sofia Hotel Balkan . Shering-Plough Central East-Bulgaria. Sherita M Ltd. . SmithKline Beecham . Sofia Echo Media Ltd . Stambouli Bulgaria . StudentCareers Advisory Center . Sun Spree Holidays . Swissair . Lowe Lintas Swing Communications .Technologica . TM Auto Ltd. - TOYOTA . TMF . TNT . Unimasters Logistics Ltd. . Unisys .United Consulting Ltd. . USAID Bulgarian Capital Markets Project . Urban 3000 Ltd. . US Meds. Via Expo . Vidima . Westinghouse Electric S.A. . Willi Betz – Balkan Star . Wrigley Bulgaria. WizCom . Wyeth Whitehall Trade . Xerox Bulgaria . Zlati Dinev Studio .

Editor-in-Chief

Vessel ina DobrinovaDesign, Prepress and Printing

Milen Marchev

AmCham Bulgaria Magazine reaches members , decision makers in Bulgaria and the United States ,

as well as all AmChams around the world.

The artic les in AmCham Bulgaria Magazine show the opinion of the authors and do not necessarily reflect

the Chamber’s position.

I f you do not receive regular ly the magazine of the AmCham Daily News electronic bulletin, please contact

the AmCham office in Sofia at tel . 9769 565 or e-mail amcham@amcham.bg.

Board of Directors of the American Chamber of Commerce in Bulgaria

President Kenneth Lefkowitz Individual Member

Vice President Stefan Dimitrov Allied Pickfords

Treasurer Dennis Fiehler Bulgarian American Enterprise Fund

Borislav Boyanov Borislav Boyanov & Co.Amnon Halper AshtromDavid Hampson US Meds – BulgariaJanet Heckman CITIBANKRoumen Mihailov 3M (East) AGFriedrich Niemann Hilton SofiaGeorgi Randelov IBM BulgariaMaria Shishkova AIMS Human CapitalElitsa Tsaneva Ideal Standard

Ex-Officio Member Reginald Miller US Commercial Attache

Executive Director Valentin Georgiev

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Political relations between Bulgaria andthe United States of America havenever been stronger, Deputy Secretaryof Commerce Samuel W. Bodman saidduring a luncheon organized byAmCham Bulgaria, July 17, 2003. Wemust make sure that our commercialrelationship keeps pace with our politi-cal and strategic ties, he added (seefull speech right).

Mr. Bodman lead a US BusinessDevelopment Trade Mission to Bulgaria,July 16-19 that consisted of eleven enti-ties: ITW Performance Polymers; J.Westcott Associates; Walbridge AldingerCo.; Research Foundation of SUNY;Networld, Inc.; Artel, Inc.; Optimo, LLC;RRB Systems, International; NewEngland Door Corp.; Retech SystemsLLC; EN Engineering LLC.

Secretary Bodman noted the impor-tance of the companies in the missionbeing small and medium-sized enter-prises. “Small entrepreneurial companies driveeconomic growth,” he said. Data showthat small businesses create two-thirdsof all new jobs in the US and generateabout 50 percent of the US GDP,according to him.Mr. Bodman outlined the most impor-tant issues that Bulgaria should tackleto attract substantial investment.Corruption was at the top of that list,increased transparency, stable regulato-ry and judicial environment and betterprotection of intellectual property fol-lowed. The US Government standsbehind Bulgaria as it continues to takesteps to increase trade and investment,Mr. Bodman said in front of AmChammembers, Bulgarian companies, stateand business institution representatives,as well as US Commercial Service andDepartment of Commerce members.The great success of the luncheon isanother example of the smooth coopera-tion between AmCham Bulgaria and theUS Commercial Service lead by SeniorCommercial Officer Reginald Miller.

Samuel W. Bodman, a financer andexecutive by trade, is well suited tohis role of managing the day-to-dayoperations of the U.S. Department ofCommerce with 40,000 employeesand a USD 5 billion budget. With 31years’ experience in the private sec-tor, Deputy Secretary Bodman is afirm believer in the American freeenterprise systems. His work in thefinance industry began when he wasprofessor at the MassachusettsInstitute of Technology (MIT) andstarted consulting with the venturecapital sector. He and his partnersand associates provided financial and

managerial support to scores of newbusiness enterprises located through-out the United States.Born in Chicago, he graduated in1961 with a BS in chemical engi-neering from Cornell University. In1965, he completed his ScD at MIT.In 1983, Deputy Secretary Bodmanwas named President and ChiefOperating Officer of FidelityInvestments and a Director of theFidelity Group of Mutual Funds. In1988, he joined Cabot Corporation, aBoston-based Fortune 300 companywith global business activities in spe-cialty chemicals and materials, wherehe served as Chairman, CEO, and a

Director. Over the years, he hasbeen a Director of many other pub-licly owned corporations.

Deputy Secretary Bodman has alsobeen active in public service. He is aformer Director of M.I.T.'s School ofEngineering Practice and a formermember of the M.I.T. Commission onEducation. He also served as amember of the Executive andInvestment Committees at M.I.T., amember of the American Academyof Arts & Sciences, and a Trustee ofthe Isabella Stewart GardnerMuseum and the New EnglandAquarium.

Deputy Secretary of Commerce:

USA should be the Number One Investor in Bulgaria

Small businesses create two-thirds of all new jobs

in the United States, Mr. Bodman said. They gen-

erate about 50 percent of the GDP, he added.

About Mr. Bodman:

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Thank you Ken Lefkowitz andAmbassador Pardew. On behalf of theU.S. Department of Commerce andSecretary Don Evans, I thank all of youfor being here today . . . having spentmost of my career in the private sector,it is always a pleasure to be among col-leagues from the business community. This is my first time in Bulgaria . . . andis also the first time that I’ve had theprivilege of leading a business develop-ment mission. Our trip is only the sev-enth trade mission since the BushAdministration took office, which putsBulgaria in an elite club with countrieslike China, Russia, and Mexico. Let me say first that Bulgaria is a truefriend of the United States and an advo-cate of freedom and democracythroughout the world. Bulgaria’sstaunch support and friendship was evi-dent during the military conflict in Iraq .. . and it continues today, both in Iraqand in our larger war against terrorism. As President Bush has said, the peopleof the world continue to confront ene-mies of freedom... zealots who attemptto impose their will through fear, hatred,and violence. But the freedom-and-peace-loving nations of the world havenot – and will not – run from these con-frontations. We will oppose them... withfortitude and conviction. And in thateffort, the United States is proud to callBulgaria a partner and friend. Our political relations have never beenstronger . . . in fact, this year we proud-ly celebrate the 100th anniversary of

diplomatic relations between our twocountries. And we have every reason tobe proud of how far we have come . . .but we cannot be complacent. Wemust make sure that our commercialrelationship keeps pace with our politicaland strategic ties. I hope we can buildon our shared values to bring oureconomies closer together. The Commerce Department is stronglycommitted to this goal... as you know,Secretary Evans and Under Secreteryfor Trade Grant Aldonas visited Bulgariaearlier this year... and the Secretaryasked me to lead this mission to sup-port expanded partnerships betweenAmerican and Bulgarian companies. The delegation of 11 companies that hasaccompanied me here is quite impres-sive... bringing many years of businessexperience and success to Bulgaria...and representing a wide-range of indus-try sectors, including telecom, food pro-cessing and packaging, construction, andenvironmental technologies. It is also important to note that thesecompanies are small and medium-sized.As you all know quite well, small entre-preneurial companies drive economicgrowth. In the United States, data showthat small businesses create two-thirdsof all new jobs. They generate about 50percent of the United States’ GDP... andthat number is growing.Beyond the economic statistics, thesecompanies are an engine of innovation... converting new ideas and technolo-gies into real products and services,sold to real customers in real markets ...and creating real jobs around the world.

We expect these companies – and oth-ers like them, including those represent-ed by this AmCham – to drive us for-ward down a new and successful pathin U.S.-Bulgarian trade relations. And we have a solid base from which tobuild our future commercial relationship.Our two-way trade last year totaledabout a half-billion dollars... and thatrepresents a greater than 25 percentincrease since 2000. We have seensome additional U.S. direct investment inBulgaria recently... that’s good news, butwe need to do better. The U.S. isBulgaria’s sixth largest investor... weshould be number one. To get us to that point, o ur two govern-ments have worked closely to identifyand resolve obstacles that have limitedour commercial engagement. You know,when I travel to other countries or meetin Washington with officials from foreigngovernments, I’m usually provided with acomprehensive list of commercial issuesand disputes . . . topics to bring up dur-ing our meetings. In other words, I’masked to lecture our friends about whatthey should and shouldn’t do... it is, ofcourse, important to discuss theseissues in a direct and clear way. But,what we sometimes forget is that theU.S. has had over 200 years to developour own free market system... for exam-ple, we’ve had comprehensive propertylaws in place for 150 years. We need tokeep in mind that this is very hard workand takes time. So from that perspective, I would saythat Bulgaria has made some impressivestrides forward in the economic realm...

SAMUEL W. BODMAN, U.S. DEPUTY SECRETARYOF COMMERCE

BULGARIA: American C h a m b e r o f C o m m e r c e L u n c hThursday, July 17, 2003

AmCham members, Bulgarian companies, state and

business institution representatives, as well as US

Commercial Service and Department of Commerce

officials were present at the business lunch.

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and in a short amount of time. Inflationcontinues to fall, while the economy hasbeen one of the fastest growing inEurope since the late 1990s. And,Bulgaria has signed a number of freetrade agreements with its neighbors...allowing this country to advertise itselfas a hub from which investors can haveduty-free access to markets in south-east Europe and throughout the EU. But, in order to successfully attract sub-stantial investment, Bulgaria must tacklea number of issues that are negativelyaffecting the business climate. At the top of the list is corruption. Thisis consistently one of the main impedi-ments to economic growth and invest-ment in Bulgaria and throughout theregion. Bulgaria can distinguish itselffrom its neighbors by creating an econ-omy where bribery and graft are not tol-erated. In addition, in order to fully realize thepotential of the Bulgarian economy, thegovernment must take steps to increasetransparency . . . to develop a more sta-ble regulatory and judicial environment...and to better protect intellectual proper-ty. Meaningful judicial reform, in partic-ular, would go a long way to strengthen-ing the business environment here... andI would note that in order to be effective,arrests and seizures must be followedby prosecutions. Similarly, new lawsand regulations must be enforced.Companies like yours understand thatlaws-on-the-books mean little if enforce-ment is weak and the judicial system isunable to effectively resolve commercialdisputes.

In the area of intellectual property, Iwould note that we in the U.S. govern-ment must do a better job of telling theworld how we the protect IP rights. Mycolleagues at the CommerceDepartment – Secretary Lash in partic-ular – are preparing a report on theannual convictions, sentences and finesimposed on pirates in our country... thatreport will, of course, be shared withAmbassador Pardew and our embassiesaround the world. The U.S. Government stands behindBulgaria as it continues to take steps toincrease trade and investment. To thatend, the United States supportsBulgaria’s accession into the EuropeanUnion. We strongly believe that Bulgariacan and will be a successful member ofthe EU... as well as a strong partner ofthe United States. The EU membership process is veryimportant for U.S. companies interestedin the Bulgarian market. As EU laws,regulations, and norms are adopted, thebusiness climate here will more closelyresemble the economies of Western andCentral Europe, markets many U.S. firmsare familiar with. Let me just add a personal note here: asyou heard, I came from the private sec-tor... spent the majority of my career there.And what I advocate now – what I strive toaccomplish at the Commerce Department– are the same things that I wanted whenI was in the business community. Namely:fair treatment for U.S. companies aroundthe world . . . a level playing field in whichcompanies can compete in a transparentand efficient manner.

So, there is work to be done here, butgood, solid progress has been made ina short period of time. In order tocontinue down the path to commercialsuccess, we all must work together . .. government-to-government. And asimportantly, both governments – theU.S. and Bulgaria – also need activeinput from the private sector. We needto hear from all of you... about yourroadblocks, as well as your successes. The Commerce Department – withstaff here in Bulgaria, in Washingtonand throughout the world – is ready tohelp you take advantage of the oppor-tunities available in this market. Ourfirst line of support is the CommercialService’s Office here in Sofia. Istrongly urge you to work closely withReginald Miller and his staff to deter-mine how the U.S. government canbest support your business activities inBulgaria. In addition, our Central and EasternEurope Business Information Center –“CEEBIC” – works specifically to linkU.S. companies with investment andtrade opportunities throughout thisregion. We will continue to do our part tomake our bilateral commercial relation-ship a success... and I know that youwill do yours. Again, it is a pleasure to be with youthis afternoon... I am proud to be hereon behalf of President Bush andSecretary Evans, and to be accompa-nied by this prestigious delegation ofU.S. companies.

Thank you.

Roderick W. Moore left Bulgaria in Augustafter serving as Deputy Chief of Missionat the US Embassy in Sofia, Bulgariabetween August 2000 and July 2003. Mr. Moore will be appointed Deputy Chiefof Mission in Serbia and Montenegro thiswinter.Immediately prior to his arrival in Sofia,Roderick Moore was the U.S. Departmentof State's representative at the FletcherSchool of Law and Diplomacy, where hetaught U.S. policy toward the formerYugoslavia (1999-2000).

Early in his career, Mr. Moore held aseries of positions at American embassiesin Port-au-Prince, Haiti (1988 - 1989) andSofia (1990 - 1992), and also served inthe Department of State's OperationsCenter (1992). From 1992 - 1993, he wasthe Department of State's representativein Skopje, Macedonia, running a de factoone-man diplomatic mission to a countrythen unrecognized by the United States.He also has served as Political-MilitaryOfficer in charge of the states of Centraland Eastern Europe in the Department ofState (1993 - 1995); Senior Political

Adviser on political and economic issuesin the Office of Security and Cooperationin Europe (OSCE) Mission to Bosnia-Herzegovina in Sarajevo, B-H (1996); andas Political-Economic Counselor at theAmerican Embassy in Zagreb, Croatia(1996 - 1999). Mr. Moore attended Brown Universitywhere he received his B.A. in RussianStudies and International Relations in1986, and an M.A. in Slavic Linguistics in1987. His languages are Croatian,Bulgarian, Russian, Macedonian, Czech,French, Spanish and Haitian Creole.

Deput y Chief of Mission Moore LeavesBulgaria

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Our goal is to become the numberone investor in Bulgaria in the nearfuture, Ambassador James Pardewsaid on September 8 at a USDepartment of Agriculture Trade andInvestment Mission conference. Thecompanies that visited the country,September 7 – 12, are bringing manyyears of expertise to Bulgaria from awide range of industries, he added.This is the first ever US-BulgarianAgricultural Trade Mission, AmbassadorPardew said, hopefully the first ofmany to come. Bilateral trade has beenexpanding rapidly, he said, and directinvestments from the United Statesgrow by 10 percent annually. We wantto encourage commercial ties throughvarious types of strategic partnership,Ambassador Pardew added.There are three reasons for US agri-cultural companies to come toBulgaria, the Ambassador said. First,Bulgaria has rich and varied agricul-tural resources. Second, the people,the most important resource, have agreat appreciation and understandingfor the sector. And, third, the US asthe number one agricultural exporterin the world has a lot of offer.Bulgaria has a rich agricultural heritage,said Kirk Miller, US Department ofAgriculture General Sales Manger, wholead the mission, to the potentialinvestors. Bulgaria can only further

prosper in the future, according to him.Prior to USDA, Miller has worked forthe North American Export GrainAssociation; he used to operate his ownagricultural consulting business. The goal of the mission was to pro-mote joint ventures, support bilateraltrade and boost investment inBulgaria’s rich agricultural sector.Bilateral trade between Bulgaria andthe United States has not reached itsfull potential, said Minister ofAgriculture Mehmed Dikme. He andthe Bulgarian Foreign InvestmentAgency Chair Pavel Ezekiev outlinedseveral reasons for investors to cometo Bulgaria, among which were itsalready developed markets, future EUand NATO memberships, strategicgeographic location and good arableland. Bulgarian producers successful-ly meet international standards andhold quality certificates, DeputyMinister of Economy Dimitar Ivanovskitold the guests.Minister Dikme pointed out that one ofthe exceptional opportunities forexpanding bilateral trade and cooper-ation was in the field of biotechnolo-gies. The United States are a leaderin the sphere he said, and Bulgarianbusiness is interested in it.AmCham President Kenneth M.Lefkowitz, Nikolay Gouginski fromAmCham member law firm Djingov,

Gouginski, Kyuchukov, Velichkov andTom Higgins from the BulgarianEnterprise Bank introduced the 16 vis-iting companies to the Bulgarian busi-ness and legal environment and pro-vided them with background on doingbusiness in Bulgaria and a privatesector assessment. Mr. Higgins saidthe agricultural sector in Bulgariaoffered an excellent opportunity forinvestment.The agribusinesses that visited Sofiaranged in size from small, family busi-nesses specialized in farm equipmentmanufacturing to international agricul-tural input producers.

The Guests:American Commodity Company

American Marsh Pumps

Double D Tractor Parts Inc.

Dow Agro Sciences LLC

Foodpro International, Inc.

Golden Valley Seed

Illyrian Imports

L&A Products, Inc.

Mathews Company (M-C)

Sai Tornado Distributors

Tangra Group LLC

Taylor Bros. Farms Inc.

USA Poultry and Egg Export Council

WE CO., 1991, Inc.

World Business Capital

World Wide Sires, Ltd.

Worldwide Marketing Corporation

US Trade M i s s i o n to Boost Agricultural Ties with Bulgaria

AmCham Bulgaria is pleased to inform its

friends and members of its relocation.

On September 1, 2003 AmCham Bulgaria

entered its new office with the invaluable

help of AmCham members and movers

Allied Pickfords and Corstjens.

Our new office is more spacious and mul-

tifunctional, for members’ benefit. The

first post-summer Board of Directors

meeting already took place in the sunny

conference room. The various AmCham

Bulgaria committees will soon follow as

they get ready for action this fall.

Please, update your data base with our

new address: Sofia 1715, Mladost 4 Area,

Business Park Sofia, Building 2, Floor 4.

Our new phones are 976 956 5 and

976 956 6, the fax is 976 956 9

… and expect your invitation for the

office-warming party soon.

AmCham Bulgaria Moves to New, Multifunctional Office

The AmCham office moved to Business Park

Sofia with the help of members Allied Pickfords

and Corstjens.

Forty-eight high school teachers of economics took part in the annu-al “Economics for Leaders” summer program at Blagoevgrad, August18 – August 22. The program is funded by Citigroup Foundation,through Citibank, N.A.- Sofia, General Electric Foundation and Mr. J.D.Panitza. The teachers were selected to attend by their leadershippotential by the Bulgarian Ministry of Education.The program, which provided training for economic teachers,was organized in partnership with the American University inBlagoevgrad in association with the US-based Foundation forTeaching Economics. Plamen Iltchev, Citigroup Country Officer for Bulgaria said:“Citibank is strongly committed to supporting education and weare delighted to be able to help today’s economics teachers tobecome more effective educators. This summer camp is anexcellent opportunity for participants to acquire knowledge andlearn how to stimulate students to enjoy economics.”During the training US economics professor Ken Leonard, alongwith Bulgarian lecturers and Citibank professionals, held a seriesof economics lessons covering topics such as Distribution ofGoods; Competition and Market Power; Profit and Entrepreneurs,

Banking, Money and Inflation and International Trade. The training included role-playing activities – aimed at developingmanagement skills – and various kinds of economics-related gamesincluding one focused on the working of the grain exchange.Teachers were introduced to new teaching strategies, acquired amore complete understanding of economic concepts and simula-tions, games and materials to make economics exciting to students.Jim Klauder, Vice President of Foundation for TeachingEconomics, said, “The FTE program is designed to improve theteaching of market economics. Teachers will return from thecamp with a completely different attitude having gained a betterunderstanding of economics. We are pleased to have attractedsuch excellent training staff to Blagoevgrad and to work withpartners such as Citigroup, General Electric, Bulgarian Ministryof Education and American University in Bulgaria.”

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"Economicsfor Leaders" Summer Program

Two of the teachers who received certificates from the program with Mr. Julian

Nakov, Deputy Minister of Education, Ms. Toni Voykova, representative of the

Ministry of Education, Dr. Ken Leonard, Instructor, and Mr. James Klander,

Vice President of FTE.

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1.What in your words is the FMF all about? Who is it meantto assist?The Foreign Military Finance (FMF) program provides grantsfor the acquisition of U.S. defense equipment, services andtraining. These acquisitions enable key allies and friends toimprove their defense capabilities. Increased capabilities buildand strengthen multilateral coalitions with the United Statesand its allies, foster better bilateral military relationshipsbetween the United States and recipient nations, and enablefriends and allies to work together and be increasingly inter-operable with U.S., NATO and regional forces. FMF is there-fore a critical foreign policy tool for promoting U.S. interestsaround the world by ensuring that coalition partners andfriendly foreign governments are equipped and trained to worktoward common security goals and to share burdens in jointmissions. The Office of Defense Cooperation (ODC) is the linkbetween the U.S. Department of Defense (DoD) and theBulgarian Ministry of Defense. The ODC, under the directionof the Chief of the U.S. diplomatic mission, manages FMF.The program supports and assists the Ministry of Defense inmeeting many defense reform and modernization challenges

2.Since when has the program been applicable to Bulgaria?Initiated in 1996, Bulgaria has received over 50 million US dol-lars to assist in the reform and modernization of the Ministryof Defense and the Bulgarian Army.

3.How many projects have been realized so far in Bulgariawith the assistance of the fund? Through FMF funding, theMoD has received assistance on many defense reform andmodernization programs such as upgrading CommunicationInformation Systems (C4I), development of a ForceManagement System, creation of a National MilitaryCommand Center, navigational upgrades to airfields, anddevelopment of an Air Sovereignty Operations Center. Intotal since 1996, FMF has supported over 25 programs.

4.What was the budget for 2003 and how many projects ben-efited from it? Bulgaria received USD 9 million in FMF fundingplus a USD 10 million FMF supplemental in fiscal year 2003.

5.Does Bulgaria assimilate the available funds well?Effective use of FMF funding is achieved through effectivestaff and service planning, coordination and realization of mil-itary requirements. The Defense Policy and PlanningDirectorate within the MoD has made tremendous improve-ment in the past year in this effort through development of along-term, systematic process for use of FMF funds. TheOffice of Defense Cooperation looks forward to its continuedclose and effective relationship with the DPPD.

6.Now that the funds meant for Bulgaria are frozen due toits position on the International Criminal Court, will thecountry actually “lose”? What amount of money will notbe assimilated as planned and will it be available forBulgaria later? Prior to 1 July and FMF funds being sus-pended, approximately USD 9 million was committedagainst FMF programs. The remaining balance of USD 10million is frozen pending resolution of an Article 98 agree-ment. We continue to engage the Government of Bulgariaon this issue and work towards a conclusion that is satis-factory to both sides.

The Ministry of Defense established a methodology for assessing

offset programs in 2003 and is currently working, together with the

Bulgarian Foreign Investment Agency, on creating a law that will be

applied for all state procurement.

The goal of the ministry is to have foreign suppliers invest back in

the Bulgarian economy the worth of the corresponding deal or

more, according to Vladimir Grigorov, Head of Department at the

Armaments Policy Directorate of the ministry.

Grigorov gives as an example an offset deal that Finland signed

with Lockheed Martin for F-16 fighters. “Nokia was born through

this deal,” he said. Another, more recent, example he gives is that

of Poland, which paid USD 3 billion for F-16s and negotiated offset

amounting to USD 14 billion with Lockheed Martin.

The policy of the Ministry of Defense for applying offset programs is direct-

ed at creating conditions for the participation of Bulgarian industrial com-

panies in the projects for modernization of the armed forces and increas-

ing the capabilities of the national production and technological base.

A section for the execution of an offset program is included in

each contract, exceeding BGN 5 million, for supply of material

means or services by a foreign company for the needs of the

armed forces in accordance with the methodology.

Offset by definition is industrial or trade compensation that the

Bulgarian government requires from a foreign company that has

won a tender for the supply of material means and/or services

for the armed forces and the defense of the state. It is planned

and carried out through an offset program (OP).

The size of the OP is determined as a percentage of the nominal

monetary value of the contract for supply of materials or services

and may not be less than 20 percent as a relation between the value

of the offset and the contract, and no less than 60 percent as a

relation between the offset benefits determined by the methodology

of the Ministry of Defense and the nominal value of the contract.

There are several categories of OPs according to the type of involve-

ment in the Bulgarian economy: buying products, producing products

and transferring know-how and licenses, direct investments, etc.

FMF: What it Means to BulgariaInterview with Major Mark V. Watkins

Following the events related to Bulgaria’s future NATO membership

that AmCham Bulgaria organized in the past few months,

(“Bulgaria’s NATO Accession: Trade and Investment Opportunities”

in June, and “NATO’s IT Standards and the Bulgarian Army

Reforms” in April) we bring you the follow-up on two of the most

often mentioned terms during the discussions – FMF and offset.

Offset in Bulgaria

Major Mark V. Watkins, U.S. ArmyMajor Watkins received a United States Army commission as a Second

Lieutenant of Field Artillery in May 1986, having graduated as a Distinguished

Military Graduate. Major Watkins earned a BA in Psychology from the

University of Louisville in 1986 and an MA in Western European Affairs from

the Naval PostGraduate School, Monterey California in 1998. He is a gradu-

ate of the U.S. Army Combined Arms Services School and the U.S. Army

Command and General Staff College. He has served as the Chief, Office of

Defense Cooperation, US Embassy, Sofia, Bulgaria since August 2002.

On August 14th Coca-Cola Bulgaria brought together friendsand business partners on a cocktail garden party to celebratethe second anniversary of its toll-free consumer phone line.The summer garden party, featuring actors, buffet, drinks and,of course, Coca-Cola products, gathered many friends andpartners of the company.

AmCham members, key accounts, state administration repre-sentatives, Consumer Protection Federation members andCoca-Cola Media Club members came to honor the event. Among the special guests were the most devoted consumers tocall the green line. For the first time Coca-Cola presented themwith the Coca-Cola Family Awards. The Coca-Cola Company’sBlack Sea Regional Director Nikos Comettis and the Black SeaRegional Public Affairs and Communications Manager ValentinaBaicuianu came especially for the celebration. The diplomatic corps was represented by His Excellency theAmbassador of Spain Josй Hernandez with his wife Emma,and His Excellency the Ambassador of Austria Karl Diem. More than 30,000 calls have been registered on the first 0800consumer line in Bulgaria - 0800 12345. The Coca-Cola linewas launched in May 2001 and the first call was received onJuly 11, 2001. The Consumer Relations and InformationCenter manages each consumer contact with care and cre-ativity. Qualified phone operators handle consumer calls everyday from 9 a.m. till 5 p.m. The center provides diverse infor-mation and services to consumers, media, state institutions,NGOs, distributors and retailers. According to the standardprocedure, a call can be closed only after the consumerreceives the necessary information or help from the compa-ny’s employees.

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Hewlett-Packard, the leader in per-sonal computers sales in Europe, theMiddle East and Africa (EMEA),announced that it holds a recordshare of the Bulgarian market ofportable computers, August 19. According to official data from IDC(International Data Corporation), thelocal office of the company has sold55.3 percent of the total number ofportable computers in the countryduring the second quarter of 2003(April-June).This is the largest share on the note-books market in the whole region andis more than twice as high as the HP

average in EMEA. HP has sold 2.5times more portable personal comput-ers in Bulgaria than IBM, FujitsuSiemens Computers, Toshiba and Dellcombined, thus establishing categori-cally its leadership position in thecountry. HP has been the leader onthe Bulgarian market of portable PCssince the second quarter of 2001 –one year before the merger withCompaq.The local office of the companyreports an 11.5 percent share of thedesktop computers market for theabove-mentioned period. With its gen-eral share of 17.6 percent, HP con-

vincingly outstrips its chief competi-tors IBM, Dell and FSC with 60 per-cent more sales of portable anddesktop computers than the threecompanies combined. These resultscategorically affirm the leading roleof personal computers in the prod-uct portfolio of the company on theBulgarian market.Hewlett-Packard is a leading worldsupplier of products, technologies,services and solutions for users andcorporate clients. The portfolio ofthe company includes constructionof complete IT infrastructures, per-sonal computer systems, Internetaccess installations, consulting ser-vices, printing and digital devices.The income of the company for thepast four quarters amounts to USD70.4 million.

HP Leads Bulgarian PC Market

Coca-Cola Celebrates the Second Birthday of the First 0800 Line

m a r k e t

AmCham Executive Director Valentin Georgiev, Borislav Boyanov & Co. Managing Partner Borislav

Boyanov, and Lega Interconsult Deputy Managing Partner Ivan Markov at Coca-Cola’s party.

Daniela Mihovska,

Country Public Affairs and

Communications Manager

of Coca-Cola HBC

Bulgaria AD and the

youngest caller of the

0800 line – Virginia.

The Bulgarian-American Enterprise Fund (BAEF) organizes“Young Entrepreneurial Excellence” contest since 1993.Starting this year, JobTiger is a co-organizer.Every Bulgarian citizen aged between 18 and 29 can partici-pate in “Young Entrepreneurial Excellence” contest. All participants prepare a detailed business plan for a start-ing or already existing business. So far more than 4,000young entrepreneurs from all over the country have takenpart in the contest. The basic criteria for evaluating the business plans providedare: percentage of realization of the project, what use it havefor the country and presentation of the project itself. The evaluation is done in three stages. BAEF representativesread all plans. Two independent judges evaluate 20 of thebest ones separately, after an interview, if necessary. Six ofthe projects with highest the score from the second stage arethe finalists and the awards get distributed among them. Inthe third stage of the contest the six finalists answer ques-tions on their projects before the authoritative jury. After thefinal stage the jury decides on the distribution of the first, twosecond and three third prizes.During the past 10 years more than 4,000 US Dollars havebeen distributed as consolation rewards. So far the organizers of the contest haveread and evaluated more than 980 busi-ness plans. 75 percent of the projectsrewarded are successfully functioning.The young entrepreneurs participating inthe project are expected to present theidea of the project, the marketing andsale strategies, production, Internet tech-nologies usage, managing team, risksand financing of the project. They mustdemonstrate strategic thinking, realismand basic knowledge in marketing, thefinancial and legislative spheres.

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Hayhurst Berlad Robinson (HBR) ispleased to announce the appoint-ment of J. David Butts as residentmanaging partner of its SofiaOffice.Mr. Butts is a partner of HBR, work-ing throughout the CEE region. Priorto joining HBR in 2001, he advisedon numerous transactions in theregion for several years as specialcounsel to HBR. Previously, he practiced commerciallaw in Montreal, Canada with anemphasis on mergers and acquisi-tions, financing, biotech/pharma,

intellectual property protection andtechnology licensing.HBR is currently involved in some ofthe most significant transactions inBulgaria, including the acquisition ofDSK Bank, the country's largest pri-vatization.HBR is an international law firmspecializing in corporate/commercialtransactions in Central and EasternEurope. The firm maintains perma-nent offices in Bucharest, Romania;Budapest, Hungary; Sofia, Bulgaria,and, as of July 1, 2003 in Belgrade,Serbia and Montenegro.

CorstjensInternational BV Cer tified withQualit y StandardsCorstjens International B.V. has beenapproved by Lloyd’s Register QualityAssurance to ISO 9001:2000 and ENISO 9001:2000 applicable to coordi-nation of moves worldwide, via anetwork of branches, to and fromcentral and eastern Europe, customsformalities, and storage and packingvia third party suppliers.

m a n a g e m e n t

For 11 Years in a Row: Award for Young Entrepreneurial Excellence 2003

About the organizers: Bulgarian-American Enterprise Fund (BAEF) is a privateAmerican corporation established in 1991 by the USCongress, through the Support for East EuropeanDemocracy Act. The basic aim of BAEF is to actively par-ticipate in Bulgaria’s economic development, through invest-ments in the private sector. So far BAEF and Bulgarian-American Credit Bank, fully owned by BAEF, have investedmore than USD 70 million all over the country. JobTiger, based in Sofia is a company established inNovember 2000 with BAEF’s capital. JobTiger provideshigh-quality, fully integrated, cost effective Internet basedrecruitment solutions for all willing to change their profes-sional career, human resource agencies and recruitmentagencies. In this way it helps improve the efficiency of thelabor market and the economic climate in Bulgaria.

HBR AnnouncesAppointment of Managing Par tnerMr. J. David Butts is the new resident managing partner of the Sofia

office of Hayhurst Berlad Robinson (HBR).

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Development of TransportCorridor Europe-Caucasus-Asia(TRACECA) vital to restoring eco-nomic growth and political stabili-ty in central Asia.

On the initiative of DaimlerChrysler AGand under the auspices of theEuropean Union, a convoy of tenMercedes-Benz Actros trucks plussupport vehicles carrying more than200 tons of goods for reconstructionprojects has set off for Afghanistan. The material from the state-runGerman organisations, the Associationof Experts in the Fields of Migrationand Development Cooperation and theGerman Federal Agency for TechnicalRelief, is urgently required for criticalinfrastructure initiatives to providedrinking-water supplies, to repairpower networks and to rehabilitateschools and hospitals. Representatives of the EuropeanUnion officially launched the project

in Brussels on September 4, 2003. Dr.Eckhard Cordes, DaimlerChryslerBoard of Management member withresponsibility for the CommercialVehicle Division, sent off the complet-ed convoy on its way on the 6,000-kilometre journey along the so-calledNew Silk Road, on September 7, 2003from DaimlerChrysler AG headquar-ters in Stuttgart. In the words of Dr. Cordes, “As aCorporation that operates on a globalscale with customers and sharehold-ers all over the world, DaimlerChryslertakes its social responsibility very seri-ously. At the same time, we are proudto support the commitment of theGerman government to this region”. TRACECA is the transport projectsponsored by the European Unionthat is to revive the Transport CorridorEurope-Caucasus-Asia, the legendary“Silk Road” trade route. The EU pro-gramme with 13 participating statesfrom Eastern Europe and Asia is thus

September 2003, UNDP announces the expansion of itsGlobal Compact Program. To recognize the success ofthe ever growing number of companies joining the GlobalCompact in Bulgaria, in support of good corporate gover-nance, human rights, labor and environment values. UNDPannounces that it will nominate monthly the best corporatepractices and communicate about the correspondingBulgarian private company case study.

UNDP is the UN’s global development network, advocatingfor change and connecting countries to knowledge, expe-rience and resources to help people build a better life. It

is on the ground in 166 countries, working with them ontheir own solutions to global and national developmentchallenges. As they develop local capacity, they draw onthe people of UNDP and their wide range of partners.

Since its launch in January 2003, the Global Compact net-work has been gathering and sharing best practices in thefield of Human Rights, Labor and the Environment whilstgrowing its own network of socially responsible companies.

It is believed that when private and public companies startdemonstrating good governance and corporate behaviorthis will have a positive effect and in the longer term servein attracting more foreign investment in Bulgaria.

Minna Tyrkko, Deputy Resident Representative at UNDP

also referred to as the “New SilkRoad” and is the shortest overlandroute between Asia and Europe. The EU has commissioned theDaimlerChrysler subsidiary DornierConsulting GmbH with this promisingproject, for which the relief convoyserves as a test case. “If goods can be transported by truckacross the overland route without anyproblem or risk, then this opens up anextremely cost-effective means ofgetting relief supplies through to thisregion. This is because high transport

Truck Convoy C a r r y i n g R e l i e f S u p p l i e s for Afghanistan Traverses Historic Trade Route

UNDP-Global Compact Initiative: Communicating and Recognizing E x e m p l a r y B u s i n e s s Practices in Bulgaria

Mitsubishi opened a new marketing and service center in

Sofia. Balkan Star, Exclusive representative of Mitsubishi

friends to the official opening.

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costs often pose an obstacle to theroutine delivery of vital supplies,” Dr.Cordes said. According to him, trans-portation by truck, for example, canbe up to two thirds cheaper than byair, depending on the volume.

The significance of this alternate trans-port route, initiated by DaimlerChrysler,is reflected in the fact that, in seven ofthe transit countries, the truck convoywill be welcomed by heads of stateand other high-ranking government rep-resentatives.

Bulgaria will give the Best Practice certificate from theUNDP to the first Bulgarian private company member ofthe Global Compact in September 2003. “By demonstrat-ing a responsible corporate behavior, we will at the sametime raise the standards of Bulgarian companies and of

the private sector as a whole,” commented one of themembers of the Global Compact network. “Social respon-sibilities have to be shared between the private and pub-lic sector,” said another.

In its drive to collaborate more closely with the private sec-tor companies in Bulgaria, UNDP will be nominatingmonthly the most exemplary follower of its nine principlesin Bulgaria. This Best Practice award is part of Bulgaria’sGlobal Compact Program with already more than 53 mem-bers and growing interest on the part of companies.

Global Compact members already started to separate theirpaper waste and are looking into using more recycledresources for office needs as well as into the potentialcreation of jobs in the field of waste collection in line withthe environmental aims of the program.

The “Live and Let Live” campaign will be launched soonwith the support of Global Compact members to promotetolerance towards people and especially those who are liv-ing with HIV and AIDS.

The Global Compact Initiative was first announced in1999 by the UN Secretary-General Kofi Annan. This ini-tiative calls upon companies all over the world to adoptnine universal principles in the areas of human rights,labor standards and the environment. The Global Business leaders perceive the Global Compactas an opportunity through participation in the initiative totake the lead on a number of issues, among them corpo-rate citizenship, exchange of experience and a chance towork with UN agencies on other important aspects ofdevelopment.The President of Bulgaria, Mr. Georgi Parvanov, made apersonal commitment to promote public awareness of theGlobal Compact. On 29 January 2003, he opened the offi-cial launch of the Global Compact in Sofia.

Sofia on Tuesday, September 2 on 5, Rezbarska Str. in

Motors Corporation in Bulgaria invited partners and

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IBM Bulgaria offers unique solutions for the Bulgarian business.This became clear at the Vision to Reality conference where theBulgarian office of the company gathered leading IT companiesand presented the advantages of its e-business On Demandconcept for Bulgarian clients.At the conference, Minister of State Administration Dimitar Kalchevstressed on the fact that this is the moment when the state admin-istration needs more than ever complete solutions for e-government– to offer services to citizens and help businesses develop.IBM and partners demonstrated at the conference how everyone– from the business person and the small family company to thebig corporation and the state administration can take advantageof the innovative products of IBM in their day-to-day operationseasier, faster, for more profit and even fun. The advantages of theintegrated solutions of IBM were brilliantly defended by the 11presentations by specialists from the company’s headquartersand prestigious clients, among which the United Bulgarian Bank.“We are a leader and we strive to make our clients leaders. Newtechnologies are the motor of this process, but market advantageis guaranteed only to those who know how to apply them to bringthe maximum business results,” said Andreas Kerstan, IBM VicePresident for Central Europe, the Middle East and Africa.

“The unique position of IBM is rooted in the fact that the com-pany is a point of intersection of technology and business. Weprovide the IT solutions that our clients need in order to increasetheir productivity and decrease expenses and risk. In this waythey achieve more while investing less,” said Georgi Randelov,General Manager of IBM Bulgaria.Five leading Bulgarian IT companies and IBM Bulgaria partnersshowcased their products at the conference. IBS presented forthe first time IBMeShop.com – a virtual shop and up-to-date cat-alogue of available IBM products, created with IBM software. Theproduct will be marketed as eGate Shop.Acsior put a stress on systems introduced in Bulgaria and basedon Lotus, WebSphere and IBM eServer iSeries, while Prima Softdemonstrated the latest in the sphere of data and informationstorage technologies and in IBM’s UNIX servers.IBM is the leader in developing and introducing the newest infor-mation technologies. During the past years the company hasactively worked on projects related to building a more flexiblestate infrastructure that will guarantee Bulgaria’s smooth integra-tion into European and world structures.

IBM’s New Business Season: Vision for Integrated IT Solutions

Mr. George Randelov, IBM General Manager for Bulgaria (right) gave

Minister of State Administration Dimitar Kalchev (left) a symbolic egg out of

which Bulgaria’s e-government is to hatch.

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Following the upgrade of theBulgarian credit ceiling, S&P improvedits assessments on two of the coun-try's most powerful banks. The inter-national rating agency raised the long-term credit and certificate of depositratings of the country's largest assetsholder Bulbank by one notch to BB+stable outlook. The agency affirmed theshort-term ratings of the bank at B. In another move, S&P affirmed the BBlong-term and B short-term ratings ofUnited Bulgarian Bank (UBB) butimproved its outlook to positive fromstable. The ratings of the two banksremain constrained by the country'sceiling and the relatively risky econom-ic environment in the country, thoughthe outlook on Bulgaria's performanceremains favorable, reads the pressrelease of S&P.The index of industrial sales grew byreal 17.8 percent year on year inJune, according to preliminary dataof the statistical institute. The indexfor May was revised upwards from 17.1percent year on year to 17.8 percentthus shaping up a growth by some 15percent year on year in the secondquarter and favorable expectations forthe GDP performance. As in the previous months of the year,the manufacturing sector was themajor driving force for the steepimprovement in the industry. More thana half of the manufacturing productionis export oriented but the upturn wasnot confirmed by the foreign tradereports for June. The export and indus-trial indices thus provided divergingmessages for the GDP growth outlookin the middle of the year, but as far asthe trade reports are in nominal values,price adjustments could correct someof the data gaps. The latest report of the finance min-istry on the stock of the fiscal reportshowed practically no change inJune. In line with our forecast, the fis-cal reserve stood at BGN 4.3 billion

(EUR 2.2 billion) at the end of themonth with a drop by some EUR 60million in the government deposit withthe central bank due to a transfer ofassets to local commercial banks. Thegovernment deposit with the centralbank went up by EUR 12 million in Julyand by EUR 47 million in the first 3weeks of August. The change in thefiscal reserve is probably similar for thesaid period and reveals debt buybackresources for some EUR 1.3 billion inlate August (the calculations are basedon the stock of the government reservereduced by the IMF floor requirementof around EUR 1bn). The US Dollar appreciation in Augustcontinued to push up the externaldebt in Euro terms, pushing up thepublic debt to slightly more than 50percent. The last available data for thecountry's debt position placed the pub-lic debt at 49.2 percent at end-June orsome EUR 8.9 billion. The gross exter-nal debt, including both private andstate liabilities, stood at EUR 10.4 bil-lion or 58.2 percent of GDP at thesame time. The changes in the debtstock were largely influenced byexchange rate fluctuations since thestart of the year while, excluding thoseeffects, the debt stood relatively flat. On a separate debt management note,the cabinet approved on August 28 acurrency swap of debt liabilities to the

WB. The suggestion is that the govern-ment would swap under the said agree-ment some USD 200 million dollar-denominated liabilities to the WB intoEuros without any fees and at timeconvenient for the government.The money supply continued to growat a rapid rate of real 17.3 percentyear on year for M3 and 14.5 percentyear on year for M2 at the end of July.The credit expansion of the banks to thebusiness and households sectors wasaccompanied by a transfer of assetsheld in foreign banks to the local market.Those transfers raised the monetizationof the economy but did not contribute forany increase in the money multiplier,which stood relatively flat at 3.4. The credit growth remained impres-sive though it slowed slightly from28.7 percent at the end of June to25.2 percent year on year at the endof July. The credit growth to the non-government sector also slowed slightlyto 43.5 percent year on year but thebanks' exposure to the householdssector increased further by 66.5 per-cent year on year at the end of Julyrelative to 63.7 percent year on year atthe end of June. The banks' profitabil-ity improved by almost two times yearon year for the same period and thecentral bank did not notice any deteri-oration in the quality of the banks' port-folio. Nevertheless, the central bank

Credit Growth Remains Impressive,

Industrial Sales Grow

Industrial sales surge by 17.8% in June

outpacing export and retail indice.

Three-month moving average indices

Balance of payments flows, EUR million

This article is based on extracts from Internet Securities IncIntelliNews publications Bulgaria This Week and Bulgaria CountryReport. For more detailed information please contact InternetSecurities Inc office in Sofia at +359 2 9806598 or e-mail: koleva@securities.com, www.securities.com

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approved amendments to RegulationN9 referring to the risk classification ofthe banks' credit portfolio. While thecredit hike has not been fuelling anyinflationary pressure so far, its effectsare already seen in the import and realestate demand. The prices of homesand businesses offices recorded anaverage rise by some 10 percent yearon year in July but they have a verysmall weight in the consumer pricebasket and almost no impact on theoverall CPI. The monthly CA balance moved to aseasonal surplus of EUR 32 million inJune but marked an almost threefoldnarrowing compared to a year ago.The cumulative CA deficit since thestart of the year continued to deterio-rate and widened two times year onyear to EUR 920 million in the first halfof the year. In relative terms, the centralbank estimates the CA gap in the firsthalf at 5.2 percent of the full-year GDPprojection relative to 2.5 percent a yearago. However, the central bank esti-mates for last year are based on non-revised GDP and exchange rate dataand our calculations with the latestupdates show a deficit of 2.8 percentfor the same period. The contractedEUR 311 million privatization deal forDSK Bank would further raise the netFDI close to the EUR 1 billion bench-mark this year, providing an almost fullcoverage of the expected CA deficit.Helped by unidentified inflows, FDIrebound, and other inflows in thefinancial account, the overall balanceof payments contributed to a foreignreserve hike by EUR 301 million inH1. The foreign debt stock stood rela-tively flat for the same period in Euroterms showing that despite the steepdeterioration in the CA, the country'sexternal balance remained sustainableand even succeeded to improve thecountry's external position. The seasonal surpluses in the summerperiod would further raise the foreignreserves in Jul-Sep but in our viewwould not be able to offset the nega-tive trend in the CA account on annualbase. To some extent, the CA gap waspumped up by the debt swap deals lastyear that increased the income balancedeficit in the CA account by some EUR200 million year on year in the first halfbut the change was fully offset bylower outflows linked to principal repay-ments in the financial account.

The increase in residential realestate prices in the recent monthshas brought an unprecedentedmedia coverage of the real estatemarket. One can read articles aboutreal estate in almost all daily andweekly newspapers and magazines.Real estate has become an attrac-tive topic even to governmental offi-cials, whose public statements haveeven further increased the hustlearound residential real estate prices.The Bulgarian real estate market isyet another free, unregulated market,where the mechanisms of supplyand demand command the move-ment of prices up- or down-wards. Atthe same time, the real estate mar-

ket has some specific characteris-tics, which make it a unique market:lack of sufficient information; a reac-tion lag as compared to the othersectors of the economy; non-stan-dardized product; lack of mobility ofproperties, as well as, buyers andsellers; limited number of transac-tions in one’s lifetime. Therefore thesmooth mechanisms of the freemarket economy would be influ-enced by all of these factors andshould be taken into considerationwhen anglicizing the properties mar-ket.Any student in economics would tellyou that prices rise when either sup-ply shrinks or demand increases.

Why Have Residential Real Estate Prices Increased?By Tanya Kosseva-Boshova, CEO, COLLIERS International

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What has happened on the Bulgarianreal estate market this year? Bothsupply and demand have grown sig-nificantly with demand outpacing sup-ply and therefore leading to highersales prices.What is more interesting is what hascaused demand to grow at such paceand incur such media coverage? Thesize of the population, disposableincome of the population, availabilityof mortgage credits and governmentalactions can influence demand for res-idential properties. The overall population of Bulgaria hasbeen decreasing slowly in the pastyears, but at the same time the pooreconomic conditions in the country-side have forced many Bulgarians tomove to the bigger cities and espe-cially to the capital. This has lead toincrease in the number of potentialbuyers of real estate in Sofia and thebigger cities. As a result the realestate market has been most active inthese markets and is expected tocontinue to be in the short and medi-um term.The mere number of people is not asufficient driver for the increased

demand for properties – the dispos-able income of the households isextremely important. The steady eco-nomic growth of the Bulgarian econo-my over the past few years hasallowed some portion of the Bulgariansociety to be able to earn and savemore money. In addition, the positiveprospects of the economy haveencouraged Bulgarians to plan theirlong-term investments in homes.People are now starting to have posi-tive expectations and perceive theeconomy as moving steadily in theright direction. Should the economycontinue to grow in the future, thedemand for residential real estate willcontinue to increase.Disposable income of Bulgarians isfurther enhanced by the availability ofmortgage loans. Although interestrates are still high 8.5 - 12.5 percentper annum, many Bulgarians havetaken this opportunity to be able toenjoy a new home now rather thanwait for enough funds to be accumu-lated in 10-15 years. The increasedcompetition between commercialbanks will further drive interest ratesdown and therefore stimulate thedemand for residential properties.Numerous politicians and governmen-tal officials, as well as other individu-als, believe that Bulgaria’s accessionto the EU and NATO will drive realestate prices up overnight. Howeverthis will not happen overnight butrather over a longer period. Theexpected accession to the EU andNATO have both affected positivelythe development of the Bulgarian realestate market, creating positiveexpectations and a sense of securityboth in Bulgarians and foreigninvestors. Again, these positive expec-tations have created additionaldemand for real estate properties. Inthis way, the government has affectedthe real estate market in the mediumterm.The Bulgarian real estate marketunderwent significant changes in thebeginning of the year. Up to the firstquarter of 2003, the residential realestate market in the larger cities wasdenominated in USD. The deprecia-tion of the US Dollar against the Euroencouraged the majority of sellers toconvert the prices into Euro. The phe-nomenon here is that they did that at

an exchange rate that was signifi-cantly different from the market onethus driving sales prices up at least10 percent. Although prices havebeen driven up, this translation isactually positive for the market in thelong term. The Bulgarian lev ispegged to the Euro, the majority ofthe salaries are denominated in levaor in Euro, and therefore it is logicalto have real estate prices alsodenominated these two respectivecurrencies. The commercial realestate market, being a step ahead,has already experienced that a yearahead /although for a different rea-son/.All these positive economic and polit-ical signals in the Bulgarian economyhave encouraged both Bulgarians andforeign nationals, to purchase residen-tial properties with an investment pur-pose. This is done because of theexcellent potential that the rental mar-ket to expatriates still provides. Thesequality properties are usually leasedto foreign managers of multinationalcompanies or diplomats at relativelyhigh rental levels. Then, in a few yearssignificant capital gains are expectedfrom the sale of the property. This ishighly plausible and expected to hap-pen, should the Bulgarian economycontinue to grow at this rate.The government has recently taken asmall but significant step in stimulat-ing the properties market – theprocess of acquiring all necessarypermissions for a new constructionhas been eased and shortened signif-icantly. The market still waits for thelong awaited change in the constitu-tion, allowing foreign nationals toacquire land in Bulgaria. Last but notleast, the government can stimulatethe mortgage loan market by providingsome tax relieves for users of mort-gage loans thus stimulating demandfor residential real estate.The Bulgarian real estate market fol-lows the traditional market mechanismof development but due to its specificnature, changes in prices occur slow-ly, and there is a significant lag of fewmonths before the market absorbs anyeconomic news. The expectation isthat the prices will continue to gradu-ally grow in the near future thus stim-ulating developers to continue to deliv-er new products.

Tourism is currently one of the fastest developing branch-es of the Bulgarian economy. The country was visited by1,843,843 foreign citizens with aim “tourism” for the fistseven months of 2003.The greatest earnings came in during the months of Juneand July, which shows that summer tourism is on its wayto overcoming the crisis in which it has been for manyyears. Sun Spree Holidays made its own investigation inseveral Black Sea resorts. The increase in the number of foreign visitors is noticedimmediately, the most obvious trend is the ‘return’ of theRussian tourists. In addition to that, the number of touristsfrom Arabian and Scandinavian countries, Israel, andPoland has increased. These observations are confirmedby official information from the Ministry of Economy.According the data, the sector has expanded by 13.53percent. German tourists were the most numerous group –277,445, which represents growth of 11.76 percent incomparison with 2002. During the summer of 2003,256,659 Greek tourists arrived in Bulgaria; 121,360 camefrom Macedonia. Thus the income from international tourism in the budgetfor the first six months of 2003 amounts to USD 574 mil-lion - 18.23 percent more in comparison to the same peri-od of the previous year.Two are the most important things in choosing a resorttoday – security and quality. There are a lot of things thatshould be done with respect to ensuring the security oftourists in Bulgaria. While the mayor of Varna introduced

bicycles as the vehicle of the police officer, the results ofthe experiment are still unclear. Next to the great numberof thefts, prostitution is another stain on the image ofBulgaria.All the specialists in the branch are at one that the infra-structure must be improved, in order to reach a harmonybetween it and the environment. The increasing number ofbuildings can lead to a strong decrease of green areas,which will affect negatively the popularity of Bulgaria as asummer tourist destination. Another problem is the widespread “sidewalk trade” thatcontrasts sharply the newly-built luxurious buildings.Furthermore, harmony lacks in the architectural design ofthe various hotels themselves – they are being built quitechaotically without a uniform plan. It is absolutely neces-sary to establish standards for quality in order to avoid themistake of other countries where buildings were destroyedin order to assure enough open space for the tourists. Foreign tourists are attracted to spend their holiday inBulgaria by its unique nature and beautiful beaches.Another factor in tourists’ decision is the short flight fromAustria, Germany or Switzerland, for example. This is alsoa strong factor for tourists from neighboring countries.Churches and monasteries are also a big attraction forthose visiting Bulgaria. In combination with the newly builtand renovated hotels, Bulgarian resorts have become anattractive place for tourists from all over the world.Gradually high quality replaces low prices in the image ofBulgaria as a holiday destination. A new trend is noticed in the Bulgarian tourism. It hap-pens very slowly and hard but attention on the interior.New buildings are built near historical and culture centers.This is a very perspective trend. Bulgaria has now theopportunity to develop this kind of tourism. It is a long feltwant that now is met. As a tour-operator, Sun SpreeHolidays, things that the progress of our winter and sum-mer tourism popularizes the country. More and more peo-ple decide to spend their holiday here. Thus we can meetpeople from all over the world all the year.In spite of the many problems that Bulgarian tourismhas, it was not affected by the slowdown of registrationsin some big markets in March and April. Something more

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Despite Numerous Setbacks,By Nadya Staykova and Georgi Radev from Sun Spree Holidays

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– the crisis in Iraq did not have a considerable effect onthe real results of Bulgarian international tourism, it wasnot affected even by SARS. Hence, we have justificationto call Bulgaria the most successful destination inEurope this year. This attitude of the Ministry ofEconomy is supported by the fact that the number oftourists coming from the European Union has increasedoverwhelmingly in comparison with those from the rest ofthe world – by 21.14 percent.As a whole, tourism in Bulgaria is becoming one of themost successful branches of its economy. Thanks to andbecause of this fact, a lot of new buildings respondingto world standards were built. The people occupied in

the branch meet a lot of problems that are awaiting theirsolution. The most important thing that should be doneis to stop construction for construction’s sake and reachsynchrony in the spheres of architectural and infrastruc-tural plans. Attention should be paid now to the quality of the ser-vices provided in order to make Bulgaria a desired des-tination during any season. There are a lot of opportunities for developing of thealternative and the culture tourism. Bulgaria has a richculture, a beautiful nature and good accommodationfacilities and it is a good place for resting whenever youdecide during the year.

Bulgarian Tourism Flourishes

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If you let your curiosity lead you, sooneror later, your way will lead you to Serbia,a busy crossroads of the world’s thor-oughfares. In the large treasure chest ofSerbia, there are, meticulously packed,valuable artifacts from ancient times, rareunderground cave crystals and collectionsof herbs, mementos from the earliestchildhood of the European civilization,natural artifacts, true legends of heroes,exotic treasures that you cannot find any-where else in the world...The Republic of Serbia, together with theRepublic of Montenegro, is a constituentpart of The State Union of Serbia andMontenegro. It contains two autonomousprovinces: Vojvodina and Kosovo andMetohija. Belgrade is the capital city.With a population of two millions, it is theadministrative, economic and culturalheart of Serbia and Montenegro. The Republic of Serbia is a democraticstate of all citizens who live on its territo-ry. Its history and achievements make itan integral part of contemporary civiliza-tion and the international community. Following the victory of democracy, Serbiahas entered a transition period. This tran-sition to a market economy and the cre-ation of a modern and law-abiding societyis characteristic of all post-communistcountries. A devastated economy, finan-cial institutions, electric utility system, anda decline of basic moral and social valuesare just part of what the new authoritiesfaced upon taking office in Serbia.

The strategic aims of the Government ofSerbia for the coming period are as fol-lows: improvement of the national macro-economic results, development of a mod-ern economy and building closer connec-tions for the European Union.It has been estimated that the grossdomestic product is going to be about 15percent in real terms and that employ-ment is going to increase by about 10 per-cent. Investments from domestic and for-eign sources are going to start up themodernization of the entire economy, par-ticularly in the infrastructure segment.An open market economy system frame-work based on private property and unre-stricted action of market laws is going tobe developed in Serbia in the period ofthe next three years. The Agreement onAssociation and Affiliation with theEuropean Union is expected to be signedat the beginning of the mentioned period.Continued economic reforms are going toallow Serbia to make up a lot for its tenyears lag behind other countries in transi-tion, so that it could join the second groupof countries for accession to theEuropean Union. While making prepara-tions for joining the European Union,Serbia is going to be actively involved inregional integrations.The trade relations between Serbia, aspart of the State Union of Serbia andMontenegro, and the USA are greatlyhampered by the delay in normalization oftrade relations and a lot of efforts arebeing put in resolving this issue. In themeantime, with the recent investments,especially in the tobacco industry,America has become the single biggestforeign investor in the Serbian economy. In the past three years, in spite of all dif-

ficulties, Serbia has shown determinationto go forward with the reforms in the soci-ety. Stability of national currency, priceliberalization, opening of foreign trade,economic and legal reforms, privatizationand banking reforms are some of the keysteps on that road. With the estimatedtotal of USD 1 billion in FDI in 2003, it isobvious that the business environmenthas significantly improved and foreigninvestors are increasingly looking for busi-ness partners in this country. The countryis still far from the business climate in theEU and USA, but with more US commer-cial interest in Serbia, it will be ready fornew challenges and willing to use theexperience gained in paving the road tothe full international integration of thecountry.

Serbia: Firmly on the Course of Reforms

The American Chamber of Commercein Serbia & Montenegro is dedicated topromoting mutual cooperation andfriendship between Serbia &Montenegro and the United Statesthrough trade, investment and econom-ic development. It is the youngest andfastest growing member of theAmCham Network in the world.AmCham members include U.S.,European and other multinationals, aswell as forward-looking local compa-nies that share its values. Together,they form a strong group, workingthrough the Chamber, to promote goodbusiness practices throughout Serbia& Montenegro. AmCham contributes tothe improvement and growth of thelocal business environment that ismore conducive to foreign direct invest-ment and more advantageous forincreased international trade and eco-nomic development. It means providingexisting companies with opportunitiesfor networking, lobbying, business edu-cation and partnership.

American Chamber of Commerce in Serbia & MontenegroVlajkoviceva 30/III, 11 000 BelgradeSerbia and MontenegroTel. + 381 11 3247 771, Fax. 3345 961E-mail: info@amcham.yuWeb site: www.amcham.yu