Bulgaria is getting closer to achieving a functioning market economy, which, according to the European Commission, will be able to withstand the competitive pressure of the pan-European market in the short-term if the government persists with its efforts.

The Commission's annual Report on Bulgaria's Progress towards Accession was published on Tuesday.

Sources from the EU, quoted by the Bulgarian News Agency, said that although more work needs to be done to make sure the country has a market economy, the present situation allows accession talks to commence on two more EU chapters - Industrial Policy and economic and Monetary Union.

The report noted the sustained macroeconomic stability that has been achieved and said that progress made in privatization, especially in the banking sector, coupled with ongoing structural reforms has created an environment conducive to sustainable growth.

The Commission, however, noticed the high level of inflation in 2000 and a lagging inflow of foreign investment. "Bulgaria also needs to remove administrative obstacles to the development of the private sector," the report stated.

Other positive developments mentioned in the report are the visa-free status of Bulgarians travelling to Schengen states, the banking sector surveillance guidelines that have been drafted, the harmonization of domestic and EU company law, and improved intellectual and industrial property legislation. Although state assistance laws are being aligned to EU practices, the EC does not think the necessary level of compliance has been achieved yet.

Bulgaria is making good progress in harmonizing domestic and EU agriculture law but this area continues to pose serious challenges for the country. "One of the success stories in that respect is the fact that Bulgaria was the first country to be accredited for the purposes of the SAPARD program," the report said.

However, very little progress has been made under the very sensitive EU chapter of Regional Policy. The Commission recommended that more effort be made to improve institutions, which would be handling EU funds. The increased investment in transport was noted as a positive development.

"The European Commission's opinion that Bulgaria is close to being a functioning market economy can be attributed to what the country has achieved so far, to the performance of the incumbent government and to what will be done shortly," the chairman of the Parliament's Budgetary and Finance Committee Ivan Iskrov said. Iskrov is also a member of the EU-Bulgarian Joint Parliamentary Committee.

"We managed to stand up for the position that we have a well functioning financial sector, that monopoly prices are being liberalized and that we are very close to a functioning market economy capable of coping with competitive pressure and market forces in the union," he said.

This is the first Regular Report stating that Bulgaria is very close to a functioning market economy and assessing the prospects of the Bulgarian economy withstanding the competition of market forces in the EU as good. This was pointed out in an official statement by the country's Foreign Ministry in Sofia on Wednesday.