Financial Times
By PHELIM MCALEER, THEODOR TROEV and STEFAN WAGSTYL
For a moment this summer, Bulgaria grabbed the international spotlight when its former king won the general election and became prime minister. Simeon Saxe-Coburg returned to power after more than half a century in exile in a story worthy of any historical romance.
But the excitement surrounding Mr Saxe-Coburg’s victory is fast evaporating in the harsh reality of governing one of eastern Europe’s poorer countries. While the new government is winning approval from international financial institutions, it must work hard to retain the confidence of Bulgarians.
Already there have been demonstrations protesting at the lack of progress under the former king and complaining about alleged splits in the government.
And the result of the presidential election last Sunday is a further sign of public dissatisfaction. Georgi Paranov, leader of the former communist Socialist party beat the incumbant, Petar Stoyanov, by 53.3 per cent to 46.7 per cent.
The prime minister is standing by an election pledge to raise living standards within 800 days. He says it can be done. "Bulgaria is a small country. No matter how big our problems are, they're controllable. Our people have as much right as other people to live well. We must just get our act straight."
Economic transformation will go hand in hand with integration with Europe, including membership of the European Union and Nato.
Mr Saxe-Coburg says Bulgaria has three barriers to overcome:
it was part of the Ottoman empire and never knew the Renaissance; it lost nearly 50 years under communism; it is an Orthodox country with different traditions from the Catholic heart of Europe.
But, he says, these barriers can be overcome by aiming at EU accession, which Bulgaria hopes to achieve in 2006. Mr Saxe-CoburgЎs centre-right coalition government is building on the progress made under its predecessor, the UDF, which pushed through wide-ranging market-oriented reforms.
The UDF won considerable international approval but Bulgarians were angered by an apparent failure to tackle poverty and by rampant corruption.
Mr Saxe-Coburg's ministers have inherited a country in a solid macro-economic condition operating under the tough discipline of a currency board. Fiscal and current account deficits have been kept under control. The country has attracted some notable foreign investors, led by the European Bank for Reconstruction and Development.
Private sector investors include Italy's Unicredito, which last year led a consortium that paid 360m for control of Bulbank, the biggest bank, and Entenergy and AES, the US energy companies. This year, they signed power station investment contracts for Dollars 470m and Dollars 930m respectively. The IMF, the World Bank and the EU have all praised Bulgaria's efforts towards building a market economy.
However, the international economic slowdown will make life more difficult for Mr Saxe-Coburg and his colleagues, as will the impact of the global war against terrorism. Tourism, one of Bulgaria's biggest foreign currency earners, may be hit. Exports to the EU, the biggest market, are stagnating.
The government has trimmed economic growth forecasts for 2001 from 5 per cent to 4.5 per cent and is planning on 4 per cent for 2002. This may prove optimistic if the global slowdown lasts beyond the first few months of next year. However, it still represents faster growth than most European states are likely to see in 2002.
"The economic future for Bulgaria is still reasonably good still compared with other countries," says Pieter Stek, the World Bank’s regional executive director. The government plans increases in pensions and public sector pay to fulfil election pledges to raise living standards.
But the increments will be moderate to keep the fiscal deficit at 0.8 per cent. At the same time, the economic liberals in the cabinet, led by Nikolay Vassilev, the reformist economy minister and deputy prime minister, plan cuts in personal and corporate taxes to help boost business.
Accelerated privatisation is also on the agenda, including plans to sell in the next few months two of the largest businesses still in state hands BTC, the telecommunications utility, and Bulgartabac, the tobacco monopoly. Privatisation will be combined with a fierce drive against corruption and efforts to make the bureaucracy less intrusive in business life.
How fast these changes can create a more investment-friendly environment is a moot point. Bulgaria has attracted just Dollars 4bn in foreign direct investment in the past decade. In its peak year, 2000, the UDF administration garnered only Dollars 1bn despite the international plaudits for its policies. The new government’s hopes of Dollars 2bn a year seem optimistic.
Bulgaria's problem is that it is located far from its main export market and source of investment in western Europe. The politically-troubled states of the former Yugoslavia continue to cast a cloud of uncertainty over the whole of the Balkans, even stable states such as Bulgaria. It is a struggle to overcome the effects of the region's history and geography.
The country also faces more specific challenges fighting the corruption that flourished under the UDF, modernising the courts, improving commercial practices especially in banking, mortgaging and bankruptcy, and ensuring that economic transformation spreads from Sofia to more depressed regions.
Giovanni di Girolama, a European Commission official in Sofia, says the mentality changes needed to adapt to a modern economy are even more important. "I am quite optimistic about this because the right changes are taking place in the younger generation." As in other former communist states, the goal of EU membership is vital in keeping policies on course. As Mr Saxe-Coburg says, this leaves Bulgaria unable to swing more than "five degrees to starboard or five degrees to port".
As well as the development of a market economy, the EU wants to see further political progress in Bulgaria including more rights for its Roma minority.
Nato accession is also on Bulgaria's agenda. The government hopes that the country’s steadfast support for the Nato-led alliance in the 1999 Kosovo war will boost its chances of membership.
Ministers also argue that the recent terrorist outrages strengthen the case for an early Nato enlargement. Bulgaria is one of 10 ex-Communist states pressing the alliance to vote for expansion at its planned summit in Prague next year.
*Title, changed by the Editorial Staff of Breaking News
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