270. Bulgaria's Delayed Transition: Problems but Progress
Bulgaria's post-1989 transition to a multi-party democracy and market economy, both functioning under the rule of law, has obviously been slow if judged by Hungary's exemplary standard. Ten governments and five parliaments in 12 years have hampered the political pursuit of sustained policies. The shock of a collapsing Soviet trade regime hit Bulgarian exports – one half of which had gone to the USSR – particularly hard. Legal foreign trade suffered and illegal activity mushroomed with Western sanctions against Serbia and Greece's embargo against what it still calls the Former Yugoslav Republic of Macedonia. But that was the 1990s, and now in the new century, there are enough signs of progress to hope that impending NATO membership will indeed be followed before the end of the decade by EU membership.
My last visit to Sofia in June made it clear that Bulgaria's own political analysts and its divided political spectrum are agreed on the primacy of achieving EU membership. For them, accession on, or shortly after, the recently announced target date of 2007 will provide the one practical criteria for judging – and demonstrating to the wider Bulgarian public – that the long-discussed transition has in fact succeeded, whatever the continuing economic hardships. That success is also squarely in the national interest of the United States. Slovenia aside, Bulgaria has the best chance of any post-Communist state in Southeastern Europe to succeed first and thereby, provide a partner and model for the others. A successful Bulgarian transition would also provide the bridge for Greece and Turkey to the rest of Europe.
Currently, there is more pessimism about current problems than optimism about future progress. Public opinion has already abandoned hopes for an end to domestic corruption and the flood of new foreign investment initially engendered by the election of the former King Simeon's new National Movement (SNM) to a near majority – 115 of 240 seats – in the parliamentary elections of June 2001. With Saxecoburgotski himself as Prime Minister, the SNM government has already seen its approval rating fall to the same level of 20 percent that dogged the two established major parties – the Union of Democratic Forces (UDF) and the Bulgarian Socialist Party (BSP) – prior to the election. Afterwards, the new SNM regime failed to make the fast start needed on its 800-day promise to do a better, fairer job in carrying out the UDF transition agenda of 1997-2001. Rural and small town voters, seeing no rise in living standards outside of Sofia and a few other cities, questioned the agenda itself. By the November presidential election, there was enough wider discontent with crime and corruption to turn out the uncorrupted UDF incumbent, Petar Stoyanov, in favor of BSP leader Georgi Parvanov.
Important to note however, before turning to real problems as well as more real progress than is reflected in opinion polls and election results is that Bulgaria has a legacy of public pessimism and defensive distrust of government that dates to the 1920s. It was then that the "two catastrophes of 1913 and 1918" – the lost wars for Vardar Macedonia against its neighbors in the Second Balkan War and against the Entente powers in the First World War – gave rise to the notion of "bulgarska rabota." This is a notion that an otherwise promising enterprise had turned bad because Bulgarians had put their hands on it. The misalliance with Nazi Germany in the Second World War, again in pursuit of Vardar Macedonia, deepened the sentiment and the failing, post-Chernobyl connection with the Soviet Union added another layer. Still, we should also note that the past obsession with the Macedonian question has not had a significant place in Bulgaria's post-1989 politics (witness the early recognition of the Yugoslav successor state in 1992 and the recent recognition of its separate nationality). Nor should the Cold War stereotype be kept alive. Lest we forget, Bulgaria's political, economic and cultural attraction to Europe in general has predominated across its 125 years as a state over the Russian connection in particular.
Two other sets of historical legacies are also at work in the present Bulgarian transition. One is the centralization of government, from the ruling party's ministries in Sofia to their local appointees – partisanstvo or clientism from above with no legacy of an autonomous civil service or regional initiative – versus a local tradition of independent institutions, ranging from the chitalishte reading rooms of late Ottoman times to the NGOs of the 1990s. Organizations such as the Center for Liberal Society and the Economic Policy Institute have given Bulgaria's civil society a stronger voice than in the nation's post-Communist neighbors. The other set pits the egalitarian, but intolerant, ideologies of Stamboliiski's peasant Agrarian Union (BANU) after the First World War and the Bulgarian Communist Party (BCP) after the Second World War, against economic pragmatism and a market mentality. The economic pragmatism and pro-market attitudes have emerged from the experience of Bulgarian households in operating family farms before and during the two world wars, then the multiple plots leased from the Agro-Industrial Complexes (APK) during the 1970s and 1980s, and now, small enterprises of every sort to a standard that is the envy of the region.
Bearing these contradictory legacies in mind, the following is a brief balance sheet of Bulgaria's current problems and progress. It begins with political structure and economic indicators before considering the evolution of the two major post-Communist parties and the prospects for the current government. Local elections are scheduled for this year, with the next elections to the parliament and for the presidency due in 2005. Whether or not a positive set of macro-economic indicators can overcome a series of continuing structural problems will play a major role in those elections.
Structural problems are indeed serious. In addition to the weak set of presidential powers that hamstrung the able Petar Stoyanov during his term in office, public administration at the local level also continued to struggle through the 1990s. The ministries in Sofia remain overstaffed, while local officials are too few in number – in any case, political appointees are tied to their party and ministry. The result, according to the World Bank's most recent Country Study, is a "fragmented civil service." Along with public health services, public education also suffers from low salaries, but even more, from an overall reduction in funding under the austere budgets of the past decade. Bulgaria's price-adjusted expenditure on education is barely 40 percent of its 1990 level – the lowest in Eastern Europe. In primary and secondary schools, rural attendance has declined, especially among the large Roma minority. In the cities, schools are discouragingly overcrowded.
Combine these problems with unemployment that still registered 17.5 percent in 2002 and an average income per capita that averages only $1,500 a year – at 24 percent of the EU average and easily the lowest of any candidate for membership. One consequence has been a falling birth rate, continuing emigration and therefore, a striking decline in the country's population, from 8.9 million in 1985, to 7.9 million in 2001. The number of Turkish departures from rural areas prompted by the Communist campaign of forced name changes in the mid-1980s has long since been overtaken by the number of young and educated ethnic Bulgarians who have left for Western Europe, the U.S., Canada, or Australia.
On the positive side, another result of these problems has been a combination of constructive domestic and international efforts to address them. The UDF government's 1999 laws on Public Administration and on the Civil Service succeeded in cutting Sofia ministry staffs by 10 percent and in instituting a single system of classification and salaries for public employees by 2000. An Internet website disseminates its stipulations along with a new Code of Ethics. The initiative has been sufficiently promising to attract a Programmatic Assistance Loan (PAL) of $150 million from the World Bank for the timeframe of 2003-2005. Other PALs of $150 million each are planned for education and poverty relief. The World Bank has already provided Bulgaria with $1.2 billion in loans and assistance so far, and projects a total of $750 million more for 2003-2005. That projection will depend on whether or not what it calls "the base case scenario" holds for Bulgaria. If economic reform is derailed, then the "low case scenario" calls for only $180 million.
Macro-economic indicators are another feather in Bulgaria's transition cap to date. The domestic Currency Board has maintained the lev's exchange rate at 2, first to the dollar and now to the Euro, without the damage to exports from overvaluation that some Western observers, myself included, were expecting if stabilizing the fixed rate, desperately needed when it was set up in 1997, was continued for a long period. And without the regional deficits that decimated Argentina's fixed, and much overvalued, rate for the dollar, Bulgaria's rate of inflation has not gone past a manageable 6 percent. The budget deficit for 2001 was less than one percent of the GDP. Along with the privatization of all but the state savings bank, this minimal deficit helped to assure the IMF's July approval for the third tranche of a stand-by agreement signed in February. The current account deficit has declined to 4 percent of GDP in 2001, as exports rose by 7 percent and imports fell by 4 percent. The growing success of Bulgarian exports in regional markets may be seen in the 16 percent of the 2001 total sold to Greece and Turkey, matching Italy's 16 percent. The 5 percent increase in GDP for both 2000 and 2001 slipped, not surprisingly, in 2002, but should still exceed 3 percent. And although the SNM government's target of a billion dollars in new foreign direct investment each year was not met in 2002, the $800 million came close and matched the level of the previous year.
The other large feather in the country's transition cap is its general international reputation. This advantage derives in part from the country's economic performance and the IMF/World Bank interaction noted above. Consequently, in the announcement of the possible candidacy for accession of Romania and Bulgaria by 2007, the EU designated Bulgaria – and noticeably not Romania – as "a practicing market economy." (Bulgaria has already complied with 21 of the 31 chapters of the EU's daunting acquis). Also praiseworthy have been the absence of ethnic violence from 1989 forward, despite a sizeable Turkish, Bulgarian Muslim and Roma minority, and the once again fair and open elections in 2001, this time after the previous government had served its full four-year term. Internal reform, civilian control and transparency had also moved a Bulgarian military establishment far enough from its Soviet-dominated Communist past to reassure doubters in the U.S. Department of Defense and make its November 2002 nomination for NATO membership at the Prague summit uncontroversial.
What remains as the major obstacles to Bulgaria's turning its transition corner are the political impasse between the major political parties and the internal problems that have troubled them when in power. These must be overcome if Bulgaria is to match two major achievements of Hungary's transition – the competitive privatization of large enterprises and the level legal and judicial playing field, which combine to attract significant foreign investment.
Whether Simeon's National Movement can survive as a separate ruling party without a larger coalition partner than the small Turkish Movement for Rights and Freedom (MRF) remains to be seen. This partnership is currently under pressure. The SNM's London-trained Economics Minister accepted a bid for the huge Bulgartabac enterprise, tendered by a Dutch firm backed by the Deutsche Bank. However, it soon found that the MRF, with a large number of its constituents dependent on tobacco cultivation and manufacture, is demanding that amounts and prices of crop purchase be fixed and guaranteed. Charges of SNM favoritism and resistance to privatization in general are also troubling the sale of the DSK, the seven enterprises distributing electricity and the BTC telecommunications network. Only the joint effort of the privatized Bulbank, the EBRD and several Western investors to go ahead with a major investment in energy generation at Maritza Istok 3 seems to enjoy smooth sailing.
In order for these ventures and domestic industry to succeed and generate the jobs needed to bring down unemployment and raise average incomes, the two large established parties – the UDF and the BSP – will have to learn and apply the lessons that Saxecoburgotski's government is currently struggling with. Insider favoritism in official and judicial appointments, in privatization with Western partners or transactions with Lukoil or other Russian enterprises, must be banished. Such favoritism undermined the previous UDF regime of Ivan Kostov, and the appearance of favoritism is currently working against the SNM government. As for the BSP, its mid-1990s government under Zhan Videnov harbored illusions about the continuing value of all Russian connections and the irrelevance of privatization, which left a series of corrupt practices and connections firmly in place.
Hopeful signs have fortunately appeared that both the UDF and the BSP have indeed learned valuable lessons from their previous terms in office. The speech of new UDF head and former Foreign Minister, Nadezhda Mihailova, at the first party congress following the defeat of the UDF openly admitted that favoritism and inflexibility had cost the party the 2001 election. The BSP leadership abandoned its earlier opposition to NATO membership and is placing an emphasis on EU membership that appears to lock them in to the market agenda for economic transition. It is still not clear whether the UDF and BSP can work together, but perhaps an actual coalition of the two parties may well be what is needed to accelerate the present macro-economic momentum toward EU membership, with essential micro-level reforms in political culture and social policy. Let us wish the Bulgarian transition well. The region needs even a delayed success story.
Dr. Lampe spoke at an EES noon discussion on December 11, 2002. The above is an edited summary of his remarks. Meeting Report #270.