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Bulgaria: World Bank Calls For More Reforms

Washington, 13 May 1998 (RFE/RL) -- The World Bank believes Bulgaria's economic prospects have "improved significantly" in the last year, but has warned Sofia that it is only in the early stages of reform and it's greatest potential threat is complacency.

The bank's views are contained in a new country assistance strategy adopted recently by the bank's Board of Executive Directors. Country strategies are drawn up for every nation which borrows from the bank, outlining the country's plans and the bank's recommendations. The documents are not released publicly, but a copy of the strategy for Bulgaria was made available to our economics correspondent in Washington.

It says Bulgaria's immediate challenge is to underpin the impressive stabilization it has achieved so far while improving incentives for private investment by further liberalizing trade, removing impediments to foreign investment, and facilitating private ownership of land.

If the government continues to push ahead forcefully on reforms, the bank says it is willing to consider structural adjustment loans of up to $300 million and so-called investment financing of up to $400 million over the next three years.

However, the bank says, there are "considerable risks," because Bulgaria's track record in transition has been "very weak" and reforms could stall again if officials become complacent or lose their resolve.

If that happens, says the bank's Bulgarian strategy, it would focus its efforts on the social sectors and administrative and legal reforms and limit loans to under $300 million or less through 2001, depending on actual reforms implemented.

Without forceful reforms, Bulgaria would not be able to attract the financing necessary to maintain macroeconomic stability and resume economic growth, says the bank. The country remains vulnerable because its economy is "still fragile, and its debt burden is large, and there are powerful interest groups and well entrenched state-owned enterprise managers working to undermine the reform process.

The government faces a number of difficult challenges, says the bank, partly because Bulgaria is now one of the poorest countries in Central and East Europe, with one in three citizens living in poverty compared to just over five percent in 1992.

It says faltering reform efforts and economic crises have left rural areas even more impoverished and children suffering doubly because education has deteriorated badly.

The bank says there have been gains -- political liberties restored, rationing removed, and property restituted. However, it says, "poverty, inequality and insecurity" have increased and real incomes have fallen over 50 percent since 1991.

In addition, the bank says Bulgarian's now have reduced access to basic social services, especially quality health care, and long-term unemployment is among the highest in the region.

Privatization has been slow, says the bank, with about 75 percent of industrial and banking system assets still state-owned. State-owned industry accounts for roughly 64 percent of total industrial output, with the private sector becoming dominant only in the services sector.

With all of this, says the bank, the biggest challenge for the Bulgarian government is to improve institutional capacity to carry out the needed structural reform measures. The role of the state is critical because efforts to achieve private sector-led growth are impeded by an inefficient government bureaucracy, a legal regime that undermines the establishment and enforceability of contracts, a political motivated and underpaid civil service, and widespread corruption. The banks says that while the government has been more decisive over the last 12 months, the pace is still "somewhat slower than needed" to sustain growth. It says that hesitation in liberalizing things like agricultural marketing, and weak implementation of financial reforms and privatization and the reach of the vested interest have been key factors in slowing reforms -- factors the government must deal with quickly.

The World Bank concludes that while the risks are high in Bulgaria, the potential rewards of a successful reform effort would be higher.

Still, it says that it will no longer release any money ahead of actual implementation of reforms and will parcel-out loan drawings only after Sofia has actually achieved agreed bench-marks.