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Governance Innovation for SOEs in Bulgaria: Based on Korean Experience

Park, Jin and Dimitrov, Mitko and Bobeva, Daniela and Keremidchiev, Spartak and Tchipev, Plamen (2016): Governance Innovation for SOEs in Bulgaria: Based on Korean Experience. Published in:

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The recent financial performances of many Bulgarian SOEs have revealed the shortcomings in the management of its SOEs. The main direction of Bulgarian reforms should be improving transparency, better selection and appraisal of management, sustainable dividend policy, strengthening financial discipline and coherent ways to reduce the debt burden. The institutional status quo is clearly inefficient and needs to be replaced. The direction of SOE governance reforms in Korea and Bulgaria are substantially different. Korea has maintained a very centralized grip over SOEs for an extended period of time, and it needs to reduce government intervention by guaranteeing more autonomy for SOEs. On the other hand, Bulgaria needs more centralized control over SOEs, which is expected to improve their performance. The Korean experience in reforming its SOE management system is highly relevant for Bulgaria and it complies with the OECD Guidelines on Corporate Governance of State-Owned Enterprises. This paper asks 31 questions regarding a system of good governance and presents options for each question regarding positive and negative aspects, followed by specific recommendations for the Bulgarian government. It is recommended that a centralized authority responsible for the management of SOEs be established which is composed of line vice-ministers and experts from academia and the private sector. Major tasks and responsibilities should be transferred gradually from line ministries to this new setting. Among these include increasing transparency, the introduction of an evaluation system with strict consequences and related open competitive procedures for the selection, the appointment and appraisal of CEOs, as well as an annual bonus system. SOE governance reform in Bulgaria will touch off strong resistance from both line ministries and their SOEs. Therefore, it will require a good deal of effort and strategy to accomplish the task. It is important to win the minds of the people and the political leadership in that the current system is subject to a number of problems, and that reform of the system is critical to a more efficient economy and provision of better public services to its citizens.

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