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Bulgaria: Economy Heading Toward Stability

Sofia, 28 October 1998 (RFE/RL) - Bulgaria's economy appears to be improving rapidly after the 1996-97 crisis that brought down the Socialist government of former Prime Minister Zhan Videnov and later prompted establishment of a currency stabilization board.

Officials in the Bulgarian Ministry of Finance told an RFE/RL correspondent recently that, as of two weeks ago, the country enjoyed a budget surplus of 326 billion lev ($200 million). This is a marked improvement over the situation a year ago, when the country was in a substantial deficit.

Since Bulgaria introduced a currency board in the spring of 1997, the lev has been backed by the Bulgarian National Bank's foreign reserves and has been trading at 1,000 to the German mark. According to analysts in Sofia, the currency board has brought inflation under control by allowing increases in domestic money supply only as the result of hard-currency conversions into lev. In 1995, the inflation rate was 62 percent. At the peak of Bulgaria's economic crisis early last year, prices rose some 2,000 percent in a single month. Today, the annual inflation rate is under three percent (2.94). A three-year loan agreement worked out with the International Monetary Fund (IMF) had projected a nine percent rate for the current year.

The fixed exchange rate linking the lev to the German mark has restored confidence in Bulgaria's currency. National Bank foreign reserves have risen from $381 million at the beginning of last year to $2.9 billion in June of this year. Interest rates have been kept low -- just over five percent.

Although few precise current figures are available, the increase in Bulgaria's gross national product this year was expected by the IMF to be 3.5 percent. In the first quarter of 1998, growth was an impressive 18.5 percent. True, that figure does reflect the collapse of the national economy early last year, but it also shows how much progress has been made since.

Small-enterprise privatization has also been a success. But privatization of large state companies has stalled. Even though the reformist government of Prime Minister Ivan Kostov last year promised to complete privatization by the end of next year, few of the big Bulgarian enterprises have yet been put on sale.

State Privatization Agency chief Zahary Zhelyazkov says that two-thirds of Bulgaria's state-owned property should be privatized by the end of the year 2000, adding $7 billion to state coffers. The three planned privatizations attracting the most press attention are those of Bulgarian Telecom, the tobacco processor Bulgartabac, and the Neftochim oil refinery.

Other economic indicators are also favorable. Unemployment, for example, has fallen to under 11 percent of the workforce, compared to 16 percent early this year.

Still, many Bulgarians continue to live in destitution. A recent United Nations Development Program (UNDP) report says one-third of the country's total population of eight million live below the poverty level, set by the UNDP at $25 to $50 a month. Of those living in poverty, one in five is a pensioner.

The UNDP's report also says that both literacy and life expectancy have declined in Bulgaria because of reductions in health-care and education funds. What the report calls the "feminization" of poverty is also a serious problem. Analysts in Sofia say that 65 percent of all families that rely on women for their income live below the poverty line, while only 10 percent of all single mothers have an income of over $30 a month.

Direct foreign investment in Bulgaria has picked up a bit during the one-and-a-half years of rule by the Right-of-Center Alliance of Democratic Forces (ODS) government. But it is still small compared to other East European nations in transition.

One major reason why was cited by former U.S. Secretary of State Lawrence Eagleburger, who visited Bulgaria last week for an investor's conference. According to Eagleburger, Bulgaria's image in the West is still negative. He was quoted as saying: "Those who do not know about Bulgaria think it is as unstable as Yugoslavia. But it is in fact an island of stability in the Balkans."

For Prime Minister Kostov, who addressed an ODS meeting last week, Bulgaria's biggest problem remains corruption. Kostov has vowed to fight corruption with all available means. But ordinary citizens in Sofia who spoke with RFE/RL said that they are beginning to lose faith in his government's ability -- or indeed even its willingness -- to face the corruption problem. A Sofia businessman (who asked to remain anonymous) emphasized that there is little he can do in his business without paying bribes. He said: "I wanted to buy a medium-sized enterprise recently, but I was asked to pay a 10 percent bribe over the actual auction price."

Corruption in Bulgaria goes well beyond business activities. A distraught woman waiting in line to get medical treatment said: "There is virtually nothing you can do without knowing the right people in the right places. You cannot graduate university unless you pay, and you cannot get a tooth filled unless you pay."

According to Ivan Krastev, a political analyst in Sofia, the government acknowledges that corruption both alienates Bulgarians and scares off potential foreign investors. But combating corruption is difficult because people are often unwilling or too frightened to testify.

"The best way for the government to act is to continue with structural reform and thus eliminate the semi-private, semi-state environment in which corruption flourishes," Krastev said.