BULGARIA

Republic of Bulgaria

Republika Bulgaria

COUNTRY OVERVIEW

LOCATION AND SIZE.

The Republic of Bulgaria shares its borders with 5 other countries in southeastern Europe and has a coastline on the Black Sea. Romania lies to the north, Turkey to the southeast, Greece to the south, the former Yugoslav Republic of Macedonia to the southwest, and Serbia (with Montenegro part of the Federal Republic of Yugoslavia) to the west. The eastern coastline on the Black Sea is 354 kilometers (220 miles) long, and the total area of the country is 110,910 square kilometers (42,823 square miles), making it slightly larger than the state of Tennessee. The capital, Sofia, is situated at the foot of the Balkan and Vitosha Mountains in western Bulgaria; other principal cities are Plovdiv in south-central Bulgaria, the coastal cities of Varna and Burgas, and Ruse on the Danube River.

POPULATION.

The Bulgarian population recorded in the 1985 census was 8,948,649, but by July 2000, largely due to emigration , the population was estimated to have decreased to 7,796,694. In 2000, the birth rate stood at 8.06 and the death rate at 14.63 per 1,000 population, but this downward trend should be halted as the economy improves, emigrants return, and the country joins the European Union (EU) in 2007. By 2010, the population is projected to reach 7.26 million. Population density is about 70 persons per square kilometer (181 per square mile).

Ethnic Bulgarians account for 85 percent of the population, Turks 9 percent, and Roma (Gypsies) 3.7 percent. Other small, miscellaneous groups round out the total. Bulgarian, a Slavic language with a written tradition da ting back to the 9th century, is the principal language, with other languages spoken corresponding to the ethnic breakdown. Religions include Orthodox Christian (83 percent), Muslim (13 percent), and Roman Catholic (1.5 percent), with Jewish, Protestant, and other groups making up the rest. The population of Bulgaria is aging, with 16 percent below the age of 14 and 16 percent older than 65. The median age is expected to increase from 37.5 years in 1995 to nearly 41 in 2005. A majority of the population, 69 percent, lives in urban areas, and Sofia and its suburbs are home to the largest number.

Prior to 1989, the government encouraged population growth by providing maternity benefits, free health care, affordable pre-school day care, and reasonably adequate pensions. Emigration was negligible due to government restrictions on travel. Since then, however, deteriorating living standards, the opening of the economy, and freedom to travel have generated emigration, mostly of young people, to Western Europe and North America, and of ethnic Turks to their neighboring home-land. Many of the latter, however, return or maintain households in both countries.

OVERVIEW OF ECONOMY

Until 1944, Bulgaria was a predominantly agricultural country. Under the socialist regime introduced after World War II, industry and infrastructure were nationalized and operated in line with central government economic planning. Most farming was collectivized (organized into government-run units), and the development of heavy industry was made a priority. From the 1970s until 1989, Bulgaria enjoyed one of the most prosperous economies in Eastern Europe, with good health, education, and living standards. Considered by many to be the "Red Silicon Valley" (denoting its role as the communist equivalent of the U.S. technology breeding ground), it became the sixth nation to fly in space.

The socialist economy, however, was dependent on the imports of subsidized Soviet fuels (some re-exported to obtain hard currency ) and the extensive but straightforward Soviet (and other socialist) markets for most exports of machinery, computers and peripherals, clothing, tobacco, beverages, and food. With the disintegration of the Soviet Union in 1989, the Yugoslav wars of the 1990s, economic sanctions , and the Persian Gulf crisis of 1990-91, Bulgaria lost many of its markets, its cheap energy sources, and hard currency revenues. As a result, living standards declined significantly in the 1990s. Bulgaria has become a poor European country and, like most its neighbors and near-neighbors, except Poland and Slovenia, it is a long way from improving on its 1989 real level of output. The Yugoslav wars interrupted both road and river (the Danube) trade routes to Western Europe and hurt the economy, but the Stability Pact, a regional initiative for economic development, democratization, and security devised in the late 1990s and backed by the United States and the EU, should facilitate future recovery.

Despite these many problems, Bulgaria earned a reputation for economic and political stability during the 1990s. The government followed a slow but sure path towards a market economy and expanded its commercial ties with Western Europe and the United States. TheEuropean Union (EU) currently accounts for 52 percent of its exports and nearly half of its imports, and the United States is among the top foreign investors. Bulgaria aspires to join the North Atlantic Treaty Organization (NATO) in the first decade of the 21st century and is on course to join the EU.

In 1997, the government imposed tight monetary policies and strict financial discipline, stabilizing the banking system and cutting government spending. Triple-digit inflation gave way to moderate price increases, but growth and foreign investment have remained low. Ongoing market reforms include privatization or liquida tion of state-owned enterprises and liberalization of agriculture and the creation of a land market. Privatization is seen as the only efficient way to restructure the economy, create jobs, and introduce new technology. It is also crucial for attracting foreign investment, stopping the slide in output, increasing exports, and generating cash for current needs. But the government has been criticized for relying heavily on controversial management-employee buyouts for smaller enterprises. New social policy measures include reforming social insurance and addressing the issues of crime and corruption.

The external debt —estimated at over $10.4 billion in 2000 and accumulated as a result of foreign trade deficits throughout the 1980s—is considered high but not unduly so. Although the balance of payments situation had stabilized by 2000, the debt has caused a negative long-term impact on economic growth and living standards. Another problem arises from the depreciation of the euro (the common currency of the EU), since most revenue is measured in euros while the debt is calculated mostly in dollars. There are attempts to encourage debt-for- equity swaps (transforming bank debt into foreign direct investment ) which, along with the expected growth over the next few years, might alleviate the debt burden.

POLITICS, GOVERNMENT, AND TAXATION

In 1990, communist rule in Bulgaria gave way to a multiparty parliamentary democracy, with executive power vested in the Council of Ministers. Although political life has been active, Bulgaria has sound policies regarding minorities and is regarded as an oasis of stability in the tinderbox of the Balkans. In the 1997 parliamentary elections, the United Democratic Forces, an alliance of the reformist Union of Democratic Forces (SDS) and the People's Union, won 137 of 240 National Assembly seats. The Bulgarian Socialist Party (BSP), reformed communists, was reduced to 58 seats, which reflected the BSP responsibility for the 1996-97 financial meltdown, from which the SDS was perceived as a deliverer. The remaining seats were shared between the Movement for Rights and Freedoms (MRF); a centrist, predominantly ethnic Turkish party; the Euroleft; and the Business Block. The Bulgarian Agrarian People's Union and the Democratic Party form the People's Union coalition. The local elections in 1999 gave the BSP control over most local governments and signaled decreasing SDS popularity due to persistent economic hardship and corruption charges. All major parties currently support market reforms and membership in the EU and NATO. During the 1999 Kosovo crisis, the government cooperated fully with NATO.

The government aims to privatize all state-owned firms except for utilities, strategic railroads, natural gas, postal services, education and sciences, environmental protection, geology, and cartography. The law requires that the state retain at least a 51 percent interest in merchant shipping and passenger fleets, major ports and airports, transport, and highway construction companies. By June 1999, about 40 percent of state enterprises had been privatized, while the public sector accounted for 36 percent of the GDP. The private sector contributed 25-30 percent of the GDP in 1995; 35-40 percent in 1996; approximately 65 percent in 1997 and 1998, and 64 percent in 1999, and is expected to increase further.

Privatization processes were particularly dynamic in 1999 and 2000, with priority given to tourism, food processing, agriculture, heavy industry, engineering, textiles, and construction materials. The privatization program is being carried out through capital market offerings, mass privatization, and cash deals. The offerings on the capital market (through corporate stocks and bonds sales) are insignificant, and the local stock exchange is still in its infancy. In the mass privatization program, all citizens and company employees were made eligible to receive free vouchers for company (or privatization fund) shares. More significant for foreign investors is cash privatization, which allows investors to buy smaller enterprises from central government ministries, larger ones from the privatization agency, or municipal assets from local government. The privatization agency hires foreign consultancy firms to assess the value of important enterprises and to advise on marketing, but the process has often been described as slow and challenging. Potential investors have been frustrated by the difficulties of investing, and others are unhappy with inflexible procedures. Complex criteria for determining which buyers are eligible to invest has caused concern about corruption.

Taxes are a major source of government revenue. Personal income tax rates are progressive, from 20 percent to 40 percent. The profit tax rate is 20 percent for large firms and 15 percent for small firms. Value-added tax (VAT) is levied at a rate of 20 percent. All firms pay 10 percent on profits in municipal tax. Investors in high unemployment areas get a 10 percent reduction on government profit tax. The tax system is still perceived by many as unfriendly to business, and tax cuts are being debated within the government.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Bulgaria's transportation infrastructure includes railroads, with 3,979 kilometers (2,472 miles) of track in use, and about 36,724 kilometers (22,819 miles) of paved roads, although some of these are unsatisfactory. There are only about 250 kilometers (160 miles) of 4-lane highway. Back in the 1980s, Somat, the state trucking company, was among the largest in Europe. However, political troubles involving Serbia made the road route to Western Europe across Serbian territory problematic. The result was greater traffic via Romania across the only existing bridge with a ferry crossing on the Danube. Bulgaria recognized the need for a second bridge, but mixed signals from Romania have held up the project. However, the reopening of traffic through Yugoslavia following the ousting of Yugoslav leader Slobodan Milosevic in 2000 may rule out bridge construction.

Bulgaria has many highway projects under construction, notably portions of the Trans-European motor-way connecting Budapest, Hungary, with Athens, Greece, via Sofia, and with Istanbul, Turkey, via eastern Bulgaria. International investors and the state budget are the main sources for financing road network improvements. Completion and modernization of portions of the Trakia, Cherno More, and Hemus expressways are being given out to contractors, and there are plans for a north-south tunnel under Mount Shipka.

The Danube River is an important artery, and much of the freight traffic uses the Black Sea. There is a sizeable merchant marine fleet operated by the Navibulgar shipping company. Two major seaports and east-west transport corridor gateways, in Varna and Burgas, are planned for rehabilitation. Balkan, the national airline, serves major cities and international destinations, although it has suffered after its recent sale to the Israeli Zeevi group in a questionable privatization deal. Smaller airlines also operate, and 3 major international airports, in Sofia, Varna, and Burgas, are currently undergoing modernization. There are 129 airports with paved runways.

Bulgaria's energy sector is state-owned and derives most of its output from thermal plants burning fossil fuels, mostly coal and natural gas (52 percent), nuclear plants (41 percent), and hydroelectric facilities (7 percent). Newer units of the Kozloduy nuclear plant will be upgraded under a contract between the National Electric Company and the U.S. company, Westinghouse. Bulgaria exports energy, primarily to Turkey and Yugoslavia. The country produced 38.423 billion kilowatt hours (kWh) of energy in 1998, a slight decrease from the previous year, and electricity consumption stood at 35.493 billion kWh. Studies to determine the feasibility of oil pipelines carrying oil from the Caspian Sea through Bulgaria to the Greek Aegean Sea coast or the Albanian Adriatic Sea coast could bring future opportunities for expansion. There are extensive networks of pipelines carrying natural gas throughout the country.

Bulgaria has the highest penetration of telephone service in Eastern Europe, at 38.47 percent. The network is operated by the state-owned Bulgarian Telecommunications Company (BTC). In 1998, it replaced antiquated facilities with up-to-date equipment and connected major cities with digital exchanges, satellite ground stations, fiber-optic lines, and digital microwave networks in a $300 million project funded by international investors. Residential telephone development will reach EU standards by 2008. There is analog cellular telephone network operated by the Mobifon company, created as a joint venture between Cable & Wireless (49 percent), BTC (39 percent), and the Bulgarian company Radio Electronic Systems (12 percent). The Bulgarian company, Mobiltel, operates a digital cellular telephone network,

and the country has many small, unregulated, Internet service providers. Privatization of 51 percent of the BTC, worth more than $500 million, will be the largest privatization deal in Bulgaria, and was being prepared in 2001, while the Greek telecommunications company, OTE, was granted a license for a second national digital cellular phone network.

ECONOMIC SECTORS

Since the late 1980s, manufacturing, mining, transport, construction, and agriculture have been declining in Bulgaria, while the service sector has been growing, particularly in retail business and finance. Energy, communications, and tourism have also become high-profile if turbulent industries. The World Factbook estimated that by 2000 agriculture accounted for 15 percent of gross domestic product (GDP), industry 29 percent, and services 56 percent. Estimates for the division of the labor force were from 1998, when 26 percent of the labor force was employed by the agriculture sector, 31 percent by the industry sector, and 43 percent by the services sector.

Much of Bulgaria's earlier economic strength lay in heavy industry powered, until the early 1990s, by subsidized energy from the Soviet Union. With the collapse of centrally planned Eastern European economies, manufacturing suffered a downturn. Major state-owned chemical, oil-refining, and metallurgical plants were targeted for privatization and examined to determine whether they could compete effectively in international markets. The largest privatization deal in heavy industry was the sale of the Sodi Devnia chemical plant to the Belgian company, Solvey, in 1999 for $160 million. Many other major assets, including oil refineries and chemical, metallurgical, and cement plants were privatized, while some were reduced to a shambles.

Food processing, textiles and apparel, and other consumer goods manufacturers have performed comparatively better, often attracting investment from renowned companies such as Kraft Jacobs Suchard or Danone. Future growth looks probable in light industry, led by electronics, textiles, and food processing. A small percentage of new private companies are involved in manufacturing. Private sector growth is greatest in the construction and food industries, maintenance and repair of electronic tools and equipment, household appliances, and automobiles.

AGRICULTURE

Bulgaria is renowned for sheep's milk cheese, oriental tobacco, wine, rose attar (used in perfumery), vegetables, fruit, medicinal herbs, and, particularly, natural yogurt. The temperate climate, abundant arable land, and soil conditions support the farming of both livestock and crops (grains, oil seeds, sugar beets, vegetables, grapes, fruit), but the country was affected by drought in the late 1990s and into 2000. Tobacco is among the most important of Bulgaria's crops, contributing nearly 20 percent to the value of agricultural goods. The principal timber areas are in the Rila, Rhodope, and Balkan Mountains. The fishing industry, which in the 1980s operated a large ocean fleet, is currently depressed. All told, the agricultural sector was estimated to account for 21 percent of the GDP in 1999 and to employ 26 percent of the workforce. Although estimations for the labor force were not available, the percentage of the GDP the sector contributed dropped slightly by 2000 to 15 percent.

Although historically a surplus food producer, Bulgarian agriculture was facing a downturn at the turn of the century. Cropland, livestock population, and yields were declining (limited use of fertilizers, however, has led to cleaner rivers and sea water). Animal feed is imported and its shortage has led to distress slaughtering, the killing of livestock in the face of a shortage of feed. The price of agricultural goods is not rising in line with inflation. Imported subsidized vegetables, fruit, dairy products, and meat from the EU adversely affect local producers. Restitution of collective farmland to private owners has been complicated and considerable collective farm assets were lost in the process. New private holdings are too small and can only be serviced with technical equipment or irrigated if their owners band together, but such efforts are proving slow to develop.

Price liberalization should encourage more output, especially as income gradually rises. Agriculture has the potential to make Bulgaria again basically self-sufficient in grains, and prospects are excellent for further increases in hard currency earnings from wine and dairy products, particularly cheese.

INDUSTRY

Before 1989, heavy industry dominated the Bulgarian economy. Metallurgy was largely dependent on iron ore imports, while locally mined copper, zinc, and lead ores were smelted in Bulgaria. The chemical industry produced fuels, plastics, rubbers, soda ash, and fertilizers. Engineering was well developed, especially in the production of electrical equipment, electric and motor trucks, heavy machinery, machine tools, electronics, and shipbuilding. Since the transition to a market economy, with a few exceptions that have attracted major foreign investment or serve sizeable international demand, the remaining heavy industry companies have struggled under management-employee privatization schemes. By 1999 industry contributed 29 percent to the GDP and employed 31 percent of the workforce. More recent labor force estimations were not available, but the percentage of GDP the sector contributed by 2000 remained the same.

Computer and software industries grew spectacularly in the 1980s, but, since then, many hi-tech players have been severely hit. DZU, a modern data storage equipment manufacturer in 1989, later leased out its production facilities to dubious firms that made Bulgaria the world's second largest producer of pirated compact discs (CDs). A government crackdown then all but ruined DZU, whose chances of survival currently lie with Hungary's Videoton, which acquired it for a nominal price. At best, it will function as a cheap assembly plant, but other companies will not even be this lucky. Bulgaria lost more than 50,000 computer programmers and engineers to developed countries over the 1990s, and this drain on a skilled workforce showed no sign of slowing down.

Textiles, the oldest industry in Bulgaria, together with apparel, leather goods, and footwear manufacturers, use largely domestic raw materials. The manufacture of building materials—cement, bricks, and glass—is well established. Pharmaceuticals and beauty products, food processing, including wine and other beverages, and tobacco processing, were once major revenue sources and show prospects for future growth.

Industries whose market prospects show promise in the 21st century include the manufacture of electrical equipment; telecommunications equipment and services; computers, software, and information technology; medical equipment; automotive parts and service equipment; agricultural equipment; building materials; chemicals; and, to some extent, metallurgy. All these enterprises, however, require massive restructuring and investment for their revitalization.

SERVICES

The service sector, generating approximately half of Bulgaria's GDP in 1999 and employing 43 percent of the workforce, continues to experience the highest growth of any sector. Most private sector activity involves some form of trade or retail, and financial services such as insurance and lending, health-care services, and tourism are well regarded by private companies.

FINANCIAL SERVICES.

With the breakup of the rigid socialist banking system, the 1990s witnessed expansion of the banking and financial services sector. In 1996, however, many state-owned and some private banks collapsed under the burden of bad debts accumulated by state factories that had become obsolete and by the now infamous "credit millionaires." In 1997, the government focused on achieving stabilization and financial discipline, forcing the banks to avoid new lending and to maintain very high liquidity rates (a measure of how much cash is kept on hand). Bulgaria's low inflation is accompanied by low interest rates, but the level of lending is a third of that in most central European countries and is a major barrier to investment. The economy is heavily reliant on cash payments, which is detrimental to efficiency and conducive to corruption and tax evasion. Savings have been declining since 1999 due to generally low income levels.

The government is privatizing remaining state banks, and there were plans to sell in 2001 the largest, Bulbank, to a consortium made up of UniCredito (Italy) and Allianz (Germany), and the Bulgarian State Savings Bank. The large Post Bank was sold in 1998 to a consortium of Greek banks and AIG (U.S.), which also bought a stake in the United Bulgarian Bank in 1999. Most hard-won loans are now going to private companies. Consumer credit is developing, although slowly, with banks actively encouraging car and home loans to the tune of $400 million. Credit card companies have also started operations in this formerly virgin market.

TOURISM.

Tourism plays a significant but not crucial role in the economy. While its competitors, Spain, Greece, and Turkey, have the advantage of aggressive and expensive marketing campaigns and decades of exposure to the market, Bulgaria has been unable to capitalize on its popular image as a land with a rich folklore tradition. The country offers extensive beach resorts along the Black Sea coast, several alpine skiing resorts in the Vitosha, Rila, Pirin, and Rhodope Mountains, and natural mineral water health spas. Nevertheless, the number of Western tourists fell by a third between 1994 and 1996, and the total revenue from the tourist industry in 1996 was $669 million. Attracted by low prices, cultural similarities, the lack of visa formalities, and a Russian-friendly population, former Soviet nationals spent 130 percent more overnight stays in Bulgaria in 1996 than in 1985, and 63 percent more than in 1993. Former East Germans are also frequent visitors. In 1996, overnight stays by Russians and Germans were around 2 million each, but the number of British and Scandinavian visitors is low. Poles, Czechs, Slovaks and Hungarians, among the top tourists to Bulgaria in the 1980s, now prefer other destinations. Foreign-acquired tourist hotels on the coast are mainly Russian-owned, while others have been leased to tour operators such as Germany's Neck-ermann who carry out renovation. However, it is 5-star business hotels that most attract foreign investors.

RETAIL.

Growing quickly during the 1990s, the retail sector was energized by the privatization of state and municipality-owned stores, the emergence of many small private firms, and the import of cheap foreign consumer goods. Major foreign retailers, such as the German Metro, the Turkish Koc Holding, and others from Austria and France, began developing a network of large hypermarkets. The choice of goods has widened impressively, but low-income Bulgarians are generally reluctant or unable to pay more for better-looking products, often leaving consumers reliant on traditional domestic suppliers. The lower price of subsidized agricultural goods from the EU make them popular with buyers but detrimental to local producers. Direct and network marketing, which became popular in Eastern Europe after Oriflame (Sweden) made a success of it, is taking root, but only gradually, due to low levels of disposable income .

INTERNATIONAL TRADE

As a consequence of the foreign debt incurred in the late 1980s, Bulgaria suffered from declining markets and negative trade balances during the early 1990s. Although dependent on imports as heavily as ever, Bulgaria showed improvement after 1994 as the lev weakened, making exports more affordable in foreign markets; trade with former Soviet republics was revived, and trade with the EU increased. However, after 1997, the Yugoslav embargo , together with the government's restrictive policies aimed at financial stabilization,

brought a downturn in the balance of trade. In 1998, exports of goods stood at $4.293 billion and imports at $4.609 billion, generating a current account deficit of $316 million. This trade deficit mushroomed to $1.5 billion in 1999, when Bulgaria imported $5.3 billion in goods while exporting just $3.8 billion.

An accumulating trade deficit would badly affect Bulgaria's ability to meet its financial obligations in the future, but June 2000 was the tenth month in succession to see an increase in exports. Exports for that month reached $393.6 million, an increase of 21.8 percent over 1999, attributed to the recovery of EU economies in general and the rise in the international price of Bulgarian exports. Exports to the United Kingdom (UK) rose by 40 percent, due to the strong pound against the weak euro, which is linked to the lev. Export to other Organization for Economic Cooperation and Development (OECD) countries rose by almost 45 percent, with most going to Turkey. Exports to Balkan countries, mainly Serbia and Macedonia, boomed after the Kosovo war in 1999, but those to other member countries of the Central European Free Trade Agreement (CEFTA) rose by less than 6 percent and those to the former Soviet Union fell by 17 percent, with exports to Russia falling by one-third.

Imports increased by 23 percent over the previous year, to $511.2 million in June 2000. Over 50 percent of the rise was due to higher oil prices. Imports of industrial raw materials rose by more than 8 percent and imports associated with the recovering metallurgical sector grew, while those required by the food sector fell. Investment also rose in 2000, but the greatest growth, 56 percent, was in energy, mainly imported from Russia. The EU is now the main supplier of consumer and investment goods to Bulgaria. Imports from Balkan countries expanded impressively a year after the Kosovo war.

A fairly active trade-show calendar attracts firms from many countries. Major export commodities included textiles, clothing and footwear; base metals and metal products; minerals and fuels; food, beverages, and tobacco; machinery and equipment; chemicals and plastics; furniture and household appliances. Italy accounted for 14 percent of exports in 1998. Germany (10 percent), Greece (9 percent), Turkey (8 percent), and Russia (5 percent) were other major partners. Together, EU countries accounted for 52 percent of exports.

Major import commodities included fuels, minerals, and raw materials; metals and ores; textiles and apparel; machinery and equipment; automobiles; chemicals and plastics; and food. Major import partners were Russia, accounting for more than 20 percent of all imports in 1998, Germany (15 percent), Italy (9 percent), Greece (6 percent), France (5 percent), and the United States (4 percent). Together, EU countries accounted for more than 48 percent of imports.

MONEY

The Bulgarian National Bank (BNB) is the bank of issue . It controls government funds and state-owned enterprises. All banks were nationalized in 1947, but since 1990, private banks have been established and international banks allowed to enter the market. The banking sector has been consolidated, and complete privatization of the remaining state-owned commercial banks was expected by 2001.

The Bulgarian currency plunged dramatically in late 1996 and early 1997, reaching a low of approximately 3,000 leva per US$1. Many banks that had extended loans to failing concerns, both state-owned and private, were forced into insolvency. By early 1997, most banking institutions were bankrupt or had closed doors to depositors. The new government that took office in May of 1997 committed itself to stringent financial and structural policies for dealing with this drastic situation and received the encouragement of backing from international financial institutions.

Since July 1997, as required by the International Monetary Fund (IMF), the Bulgarian government has been operating under the control of a currency board . This body rules that the BNB must hold hard currency reserves in leva to cover circulation and banking reserves. Further, the currency board dictates that the BNB cannot refinance commercial banks except in an emergency and restricts the government's freedom to take on new financial liabilities or provide sovereign guarantees. The lev was tied to the German mark and later to the euro at a fixed rate, and in 1999 the currency was redenominated (new bills and coins were issued and the exchange rate was fixed at 1 lev to 1 German mark).

Under IMF conditions for strict financial discipline, the government was pledged to close loss-making enterprises and speed privatization, bank reform, and restructuring. It issued an isolation list of loss-making state enterprises, that is, companies denied access to commercial

credit unless they privatize. These accounted for half of the public sector, but by 1999 the government succeeded in privatizing, or beginning liquidation of, all such companies. In the early 1990s, there were 30-40 virtually unregulated stock markets in Bulgaria, most of whose listed firms turned out to be dealing in pyramid schemes . A national stock exchange opened in October 1997, but daily turnover has seldom been more than $200,000, and rarely exceeded $1 million, even in 1998.

POVERTY AND WEALTH

Before 1989, Bulgaria was arguably a land of economic equality. Almost no private initiative was allowed, but the vast majority of the population was employed by the state, and large government funds were allocated to free health care, free higher education, maternity and disability benefits, and pensions. Most Bulgarians owned their houses, and many had small country "villas" and motor cars. Traditionally, even the poorest Bulgarians, the ethnic Roma, held jobs, received social security payments, and enjoyed a decent standard of living, particularly in rural areas. The only exceptions to this modest yet guaranteed standard of living were the nomenklatura and the informal economy players, whose privileges inflamed discontent among the population.

The market reforms of the 1990s created both new poverty and new wealth. Unemployment, hitherto almost unknown, skyrocketed, inflation all but wiped out most social benefits, and the cooperative farms that were the livelihood of many formerly landless villagers were disbanded. Many entrepreneurs, corrupt politicians and officials, and mobsters amassed spectacular fortunes, which most people resented. Restitution of urban real estate, and particularly of farmland and woodland, was controversial and failed to generate much wealth. Mass privatization also failed in this respect.

For all its problems, Bulgaria was in 1995 still more egalitarian than neighboring Greece or the wealthy United States. The poorest 20 percent were responsible for 8.5 percent of the nation's consumption (compared to 7.5 percent in Greece and 5.2 percent in the United

States), while the wealthiest 20 percent consumed 37 percent (40.3 percent in Greece, 46.4 percent in the United States). Bulgaria's Gini index —which rates a country's level of equality with 1 representing perfect equality and 100 representing perfect inequality—was 28.3 in 1995, while Greece's was 32.7, and the United States' was 40.8. Polarization increased between 1995 and 2000, but it is believed that economic growth over the next decade and the accession to the EU will gradually increase living standards for all Bulgarians.

By 2001 most of the population was enduring hardship. The growth of wages and pensions lagged behind the index of consumer prices and unemployment is officially estimated at 15 percent, although it is believed to be much higher. The prospects for many small businesses seem bleak, due to the unavailability of loans, weak demand, crime, and corruption. Agriculture is struggling to provide a sustainable livelihood for small farmers. While many professionals and business owners make a good living, thousands of Bulgarians can afford only the bare necessities. Numerous chronically ill people suffer from an inadequate supply of life-supporting medicines, and many children, particularly those of Roma families, are unable to attend school because of the growing cost of textbooks and clothing. Many people who live in small towns and villages with high unemployment rates, as well as single parents, pensioners , persons in state social homes, disabled people, and others face considerable personal distress.

According to the United Nations Development Programme (UNDP), Bulgaria is currently behind Hungary and Poland, but ahead of neighboring Turkey and Romania, in terms of its human development index. In 1998, Bulgaria still had a smaller population per physician and per hospital bed than the EU average, but health-care spending per head was much lower. Food constituted 33.1 percent of household spending (but was believed to be rising), while the EU average was 14.1 percent. Cars in use per 1,000 population were 219.9 for Bulgaria and 399.7 for the EU. Houses with piped water constituted 83.4 percent of households in Bulgaria and 99 percent in the EU, and houses with flush toilets were 57.7 percent in Bulgaria against 96.3 percent in the EU.

WORKING CONDITIONS

Bulgaria is a party to all relevant major universal as well as regional legal instruments, such as the International Covenant on Economic, Social and Cultural Rights, the Convention on the Elimination of Discrimination Against Women, and the Convention on the Rights of the Child. It is also a signatory to treaties on the right to equal compensation and collective bargaining and against employment discrimination. Market reforms, though, made Bulgarians aware of unemployment and job insecurity problems. Before 1989, the economy was plagued by the sustained labor deficit for blue-collar workers, but labor disputes were virtually non-existent since the Communist Party supervised trade unions. Nevertheless, over the decades after World War II, working conditions improved in both urban and rural areas with the introduction of new technology and progressive legislation and the development of health-care and social-security systems. At the same time, safety at work and environmental protection, particularly in the mining, energy, and chemical industries, were often inadequate.

Bulgaria did not develop independent labor unions as such before democratic reforms took root. The only exception was the Podkrepa Labor Confederacy, now one of the major national unions. Along with the Confederacy of Independent Syndicates of Bulgaria and other groups, the Podkrepa participates in collective bargaining, and the unions' role is growing as many Bulgarians face unemployment and deteriorating working conditions. Conditions are notably bad in clothing sweatshops set up by foreign investors in rural areas severely afflicted by unemployment. Women have traditionally participated on an equal footing in the economy but are now suffering heavily from unemployment, job-related stress, and unsafe labor conditions. Over the 1990s, hundreds of thousands of educated young Bulgarians left the country, and it is expected that the forthcoming waiver of visa requirements for most EU countries will encourage others to seek short-term employment. EU membership is likely to intensify the mobility of workers between countries until a balance is reached.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

550 A.D. Slavs settle into present-day Bulgarian (then Byzantine) lands, comprising the ancient Roman provinces of Moesia, Thrace, and Macedonia.

681. Khan Asparuh founds the first Bulgarian state as a union between Slavs and newcomer Bulgars, militant people from the steppes of the northern Caucasus. They are to be assimilated by the Slavs but leave their name and statehood tradition to the nation.

863. Bulgaria converts to Christianity under Prince Boris I and embraces Byzantine civilization as a feudal agrarian economy takes root.

893. The Cyrillic alphabet and Old Bulgarian (Slavonic) are adopted as the official language (instead of Greek).

893-927. The territory expands under Prince (later Tsar) Simeon. A rich medieval culture spreads its influence to other Slavs in Serbia, Walachia, Kievan Rus, and later Muscovy.

927. Bulgarian rulers recognize the title of tsar (emperor); Bulgarian Orthodox Church is elevated to patriarchy.

1018. The First Bulgarian Empire is violently subdued by Byzantium.

1185. The brothers, Asen and Peter, take over an uprising to liberate the Bulgarian lands and restore the state known as the Second Bulgarian Empire.

1230. There is territorial and commercial expansion under Tsar Ivan Asen II. Bulgaria becomes a major grain supplier to Byzantium, actively trading with Venice, Genoa, and Ragusa (Dubrovnik).

1371. Commercial and cultural development accompanies political crisis under Tsar Ivan Alexander. Bulgaria is divided into several lesser kingdoms and principalities.

1396. Bulgaria is violently conquered by the rising Ottoman Empire and remains under its rule for nearly 500 years.

1762-1876. A national revival develops new Bulgarian culture and pride. Agriculture and home industries thrive, benefitting from large Ottoman markets. Merchants and industrialists emerge and benefit the economy. The national liberation movement gains momentum.

1871. An independent Bulgarian church is restored.

1876. There are mass uprisings against Ottoman rule.

1878. Bulgaria is liberated from Ottoman rule as an outcome of the 1877-78 Russo-Turkish war.

1879. The first Bulgarian constitution establishes a democracy, modeled after the Belgian constitution.

1885. North and South Bulgaria unite after being separated since 1878 by the European powers. A sizable ethnic Bulgarian population remains under the Ottoman Empire.

1887-12. Democratic statehood develops as well as a market economy that remains largely agrarian and a national culture.

1903. There are mass uprisings of Bulgarians in the Ottoman lands (Macedonia and Adrianople area).

1912-18. Bulgaria participates in the Balkan Wars and World War I, which is aimed at liberating ethnic Bulgarians outside Bulgaria's borders. The war ends in defeat and brings an influx of refugees.

1923-41. Political life is troubled by violence as democracy gives way to bitter partisanship and is finally supplanted by a pro-Nazi Germany regime. The economy grows with the influence of German investors.

1944-56. Communist rule takes over. Central economic planning is introduced, focusing on heavy industries, and farms are collectivized. Economic cooperation with the Socialist bloc develops.

1946. Bulgaria is proclaimed a people's republic.

1955. Bulgaria joins the United Nations.

1956-80. Bulgaria exhausts the extensive socialist growth model and reaches stagnation.

1985-89. Economic and political crisis occurs as perestroika unfolds in the Soviet Union. The Bulgarian regime desperately seeks methods of market reform, while cracking down on dissenters and the Turkish minority.

1989. Communist leader Todor Zhivkov resigns as the transition to multiparty democracy and a market economy begins. Bulgaria shifts its loyalties to the EU and NATO.

1991. A new democratic constitution of the Republic of Bulgaria is adopted, and elections bring the reformist Union of Democratic Forces (UDF) to power.

1995. Bulgaria is admitted as an associate member of the EU and applies for full membership.

1997. IMF-sponsored program for financial stabilization is implemented by the second UDF government.

1998. Effective IMF membership is established.

1999. Negotiations for full membership of the EU get underway.

FUTURE TRENDS

Bulgaria's economic policy after 2000 will be determined by the success of its preparations for EU membership. The EU opinion on its progress is favorable, but negotiations will become more difficult as they move from administrative to economic issues, such as the restructuring of the energy sector and agriculture. Bulgaria's market economy and its competitiveness within the single European market still require significant further improvement. Public expenditure will focus on investment in roads, natural gas, electricity, agriculture, and the environment. The government claims investment of some $9 billion is enough to fuel growth over the next years, but, all too optimistically, it relies on the private sector to provide most of the funds.

With Bulgarian privatization completed by the end of 2001, the IMF envisages strong annual growth of 4 percent to 5 percent over the next several years and single-digit inflation. However, slow and allegedly corrupt privatization processes are a potential obstacle to economic transformation, and corruption charges combined with insufficient growth, unemployment, poverty, and deteriorating health care and education, could bring about a change of government in 2001. This outcome would not mean any long-term changes in policy.

The end of Slobodan Milosevic's government in Serbia could prove beneficial by decreasing the risk of war on Bulgaria's borders. The reopening of land routes and river traffic on the Danube will facilitate trade with the EU, Bulgaria's largest export market, whose growth will have a positive impact on the economy.

DEPENDENCIES

Bulgaria has no territories or colonies.

BIBLIOGRAPHY

Crampton, R. J. A Concise History of Bulgaria. Cambridge and New York: Cambridge University Press, 1997.

Economist Intelligence Unit. Country Report: Bulgaria. London: 2000.

U.S. Central Intelligence Agency. World Factbook 2001. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed October 2001.

U.S. Department of State. FY 2000 Country Commercial Guide: Bulgaria. <http://www.state.gov/www/about_state/business/com_guides/2000/europe/index.html>. Accessed December 2000.

—Valentin Hadjiyski

CAPITAL:

Sofia.

MONETARY UNIT:

Lev (plural Leva). One lev equals 100 stotinki. There are coins of 1, 2, 5, 10, 20 and 50 stotinki.

CHIEF EXPORTS:

Machinery and equipment; metals, minerals, and fuels; chemicals and plastics; food, tobacco, and clothing.

CHIEF IMPORTS:

Fuels, minerals, and raw materials; machinery and equipment; metals and ores; chemicals and plastics; food and textiles.

GROSS DOMESTIC PRODUCT:

US$48 billion (purchasing power parity, 2000 est.).

BALANCE OF TRADE:

Exports: US$4.8 billion (f.o.b., 2000 est.). Imports: US$5.9 billion (f.o.b., 2000 est.).