133. Bulgaria's Best and Worst of Times

By
John R. Lampe

Two March meetings at the Wilson Center outlined the economic catastrophe and unprecedented political promise which have crowded into this small country. The political promise, only in part the consequence of catastrophe, must fulfill the long-delayed privatization of major enterprises and banks and construction of an iron-clad framework for legal business and transform the Bulgarian economy. Its partial criminalization over the past few years makes the legal framework, as John Lampe's recent trip reminded him, a crucial priority. Only full-scale reform will allow the economy to service its present foreign debt, attract private investment, and mobilize its domestic resources, human as well as financial.

One must understand the depth of Bulgaria's economic difficulty in order to understand why public opinion now rejects any alternative to the overdue transition, why in the words of newly elected president Petar Stoyanov, "the factory for illusions must now be closed." In a Noon Discussion on 19 March,Charles Movit, Vice-president of PlanEcon, Inc., provided details of the disaster that the winter's demonstrations in Sofia forced into the Western media. Movit explained how state banks tied to the Bulgarian Socialist Party (BSP)--the victor in the 1994 elections--kept funneling unsecured credits to favored state enterprises, despite their lack ofprofitability except for illegal activities tied to Russia, Ukraine, or the former Yugoslavia.

This process drew available credit away from other sectors of the economy and their production declined by 10-20 percent in 1996. A drop of 1 percent in the value of industrial production was not enough to prevent a predicted fall of 8-10 percent in Gross Domestic Product (GDP) for 1996. With the virtual collapse of several state banks later that year, Movit continued, the rate of inflation and interest rose tenfold, past 300 percent. Down went the exchange rate for the leva, which lost 93 percent of its dollar value by January 1997. Monthly incomes declined to $30 or less.

Movit concentrated his remarks on the dire financial consequences of the collapse. The state budget deficit plunged from 5 to 12 percent, and reserves of foreign exchange from $1.5 billion to $518 million in the face of a suddenly unsupportable debt service burden. The attendant deficit in export versus import earnings left the economy with no funds to cover the shortfall from a 13 percent decline in agricultural production during 1996. Low fixed prices for grain under the BSP regime kept some of that amount out of urban markets, and a winter bread shortage kicked the last splinters of public support out from under any BSP government. For its part, the International Monetary Fund required an entirely new government, however reconstituted, and a credible plan for financial restructuring including a separate currency board to renew its offer of support.

On 5 March, a series of speakers from Sofia's Centre for Liberal Strategies (CLS) spelled out the more hopeful political background to the present prospects. They described a finally united Union of Democratic Forces (UDF) that will use their absolute majority anticipated in the upcoming parliamentary elections on 19 April to work with their colleague, President Petar Stoyanov, to make the structural changes essential to creating a functioning market economy based on legal private enterprise. Stefan Popov of the CLS called the past seven years a period of "imitating reforms while living in a historical vacuum," although the imperative economic and financial reforms were known during that period. Popov noted that throughout 1992 the political debate had focused not on real problems or programs but on who had the moral right to govern. Following the 1993 failure of the presumably non-political Berov government to break the parliamentary stalemate between the BSP and UDF, the BSP returned to majority power in 1994 on the basis of a "national consensus" to protect "national capital." The UDF party remained divided, Ivan Krastev, CLS Program Director for Political Research, continued, as primarily a romantic, anti-Communist movement more concerned with values than programs. That enabled the BSP to continue dominating the transition with its only popular mandate being the reluctance of the large aged and rural populations to risk real change.

Groundwork for real change was nonetheless being laid well before the economic collapse of recent months ended the unconditional hold of the BSP on its constituency and reduced its support in the March pre-election polls to less than 15 percent. Both Popov and Krastev acknow-ledged that the BSP as well as the other pre-1996 parties deserved credit for allowing a transparent set of state institutions, a constitutional court, and generally fair elections with some media access to emerge. Hence there was a political framework in place sufficiently flexible and open in January to allow a president elected in October to persuade a discredited BSP government to step aside in favor of the temporary regime of the UDF's Stefan Sofianski and accept new parliamentary elections in April, two years ahead of schedule.

An second afternoon session on Bulgaria on 5 March examined the turning point in Bulgarian politics in 1996 that opened the way for the election of Petar Stoyanov and the consolidation of the UDF into a single, disciplined political party. This was Bulgaria's first presidential primary elections, in autumn 1996, which selected Stoyanov over incumbent president Zheliu Zhelev. The American nongovernmental organization that provided technical assistance to the primary's Bulgarian organizers, the International Republican Institute (IRI), cosponsored this additional session at the Center. Claire Sechler, IRI Regional Program Director for Central and Eastern Europe, joined the Centre for Liberal Strategies's Julia Gurkovska and Rumiana Kolareva and UDF member of parliament Asen Agov around the table.

Agov traced his party's decision to agree to a primary to its substantial opposition to their former colleague, President Zhelev, and to the fear in early 1996 that his candidacy against a separate UDF candidate would hand the pending presidential election to the BSP candidate. Although both UDF and Zhelev supporters were wary of a primary to choose one of the two to run against the BSP, they overcame initial suspicions and agreed to accept the new election process put together over the next six months. Gurkovska praised President Zhelev for his personal willingness to agree and afterwards to accept defeat and leave Stoyanov to run alone. She reiterated Krastev's emphasis in the earlier session on the principal consequence of the primary beyond the elections results themselves. The UDF, forcefully led by Ivan Kostov, used the primary campaign to organize grass roots connections and the coherent leadership that transformed the UDF from a coalition into a party.

Sechler noted that the campaign also brought more Bulgarian voters actively into the political process. Public opinion polls showed early popular approval for the primary, but their predictions greatly underestimated the turnout at less than half of the 860,000 who actually voted. Kolareva also appreciated the role of the Bulgarian media. Initially skeptical about the primaries, they came around and provided public space for discussion that helped the UDF to iron out its differences, while BSP publications concentrated their fire on President Zhelev.

Bulgaria's first presidential primary thus combined with existing political institutions and the BSP's responsibility for the year-end economic collapse to open the way for a full-scale market transition. As Krastev noted at the start of his remarks, this combination of political events should warn Western observers away from easy generalizations about the failure of democratization across Southeastern Europe. The Centre for Liberal Strategies hopes to invite observers from Serbia's opposition coalition to witness the April elections.

This report draws on two meetings sponsored by East European Studies. The first was presented March 5, 1997, by Ivan Krastev, Program Director for Political Research, Centre for Liberal Strategies (CLS), Sofia; Stefan Popov, Julia Gurkovska, Rumiana Kolareva, analysts from CLS; Agen Agov, UDF member of Parliament, Bulgaria; and Claire Sechler, International Republican Institute, Washington, D.C. The second meeting was presented on March 19, 1997, by Charles Movit, Vice President of PlanEcon, Inc., Washington, D.C.

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