BULGARIA At the crossroads of Europe
A GRADUAL BUT STEADY PROCESS OF DEMOCRATIZATION AND STRUCTURAL REFORM HAVE KEPT BULGARIA ON THE PATH TOWARD EVENTUAL INTEGRATION INTO NATO AND THE EUROPEAN UNION

GRACE UNDER PRESSURE New Prime Minister Simeon II is hoping reforms pay off.

Bulgaria has been slow to implement political and economic reforms since the country’s 1989 revolution removed Communist Party leader Todor Zhivkov. Its troubled transition to democracy reached a climax during the mid-1990s when inflation reached a staggering 579%. Since 1998, however, things have started looking up in the Balkan state. Between 1998 and 2001, the previous Union of Democratic Forces (UDF) center-right government made significant progress in terms of economic liberalization and gained international approval. Fiscal and current account deficits were brought under control, the country attracted some notable investors, and a clean break with the failed policies of the early and mid-1990s was made. However, the UDF was unable to improve basic living standards and the country was adversely affected by the Kosovo crisis, which cut off its trade routes to the west.

After a decade of halting reform and slow economic growth, Bulgaria became the first country in post-communist Eastern Europe to return a former monarch to power when Bulgarians voted the National Movement for Simeon II into power in July of 2001. The former king of Bulgaria, Simeon II had been ousted in 1946 at the age of nine and had established himself as a successful businessman in Madrid. He returned to Bulgaria in April 2001 and formed his movement of young, western-educated reformers who favor robust capitalism and support Euro-Atlantic integration. The prime minister promised a new era for the Bulgarian people in which they would begin to enjoy the fruits of economic development. The Saxe-Coburg government, a coalition which includes a party of ethnic Turks, pledged to improve people’s lives in 800 days, speed up reforms, cut taxes, attract more foreign investors and boost the fledgling capital market.

Bulgaria needed a savior; since 1989 its GDP has shrunk by almost a third, the country is still near the bottom of the region’s income per capita rates and has a high 17% unemployment. The new government introduced a five-point plan for boosting economic growth composed of tax cuts, privatization, promoting foreign investment, encouraging the development of domestic financial markets and selective support for sectors such as high-technology and tourism.

A FIVE-POINT plan has been introduced to boost the economy

Things are progressing. There was a 4.9% growth in the economy in 2001. The current account deficit is predicted at 5.9% of GDP for 2002 and the budget deficit is set at 0.8% of GDP. Inflation is well under control in Bulgaria and is predicted to drop from 4.4% to 3.5% in 2002. Last fall, measures were taken to launch the reform of the judicial system, boost the capital market, liberalize the energy sector and speed up sell-offs of other state-owned monopolies. A privatization law which aims for greater transparency and new tax cuts took effect on January 1. Minister of Finance Milen Velchev comments, “over the next four years we would like the government to bring in substantially greater foreign investment and to have privatized the whole economy.” The budget for 2002 includes a 2.6% increase in public sector wages, a 4.2% increase in pensions, and the minimum wage is slated for a 17% increase.

In February, the International Monetary Fund praised the new government’s progress so far and offered a loan of $450 million to speed up reforms. At the same time, the Bulgarian government approved a new strategy to combat corruption. Mr. Velchev stresses that the new government would be merciless in this cause.