In the early part of the 20th century, in an effort to gain Macedonian and other territories, Bulgaria engaged in two Balkan wars and become allied with Germany during World War I. It suffered disastrous losses as a result. The interwar period was dominated by economic and political instability and by terrorism as political factions, including monarchists and communists, struggled for influence. In World War II, Bulgaria ultimately allied again with Germany but protected its Jewish population of some 50,000 from the Holocaust. When King Boris III died in 1943, political uncertainty heightened. The Fatherland Front, an umbrella coalition led by the Communist Party, was established. This coalition backed neutrality and withdrawal from occupied territories. Bulgaria tried to avoid open conflict with the Soviet Union during the war, but the U.S.S.R. invaded in 1944 and placed the Fatherland Front in control of government.
After Bulgaria's surrender to the Allies, the Communist Party purged opposition figures in the Fatherland Front, exiled young King Simeon II, and rigged elections to consolidate power. In 1946, a referendum was passed overwhelmingly, ending the monarchy and declaring Bulgaria a people's republic. In a questionable election the next year, the Fatherland Front won 70% of the vote and Communist Party leader Georgi Dimitrov became Prime Minister. In 1947, the Allied military left Bulgaria, and the government declared the country a communist state. Forty-two years of heavy-handed totalitarian rule followed. All democratic opposition was crushed, agriculture and industry were nationalized, and Bulgaria became the closest of the Soviet Union's allies. Unlike other countries of the Warsaw Pact, however, Bulgaria did not have Soviet troops stationed on its territory.
Dimitrov died in 1949. Todor Zhivkov became Communist Party chief in 1956 and prime minister in 1962. Zhivkov held power until November 1989, when he was deposed by members of his own party, soon renamed the Bulgarian Socialist Party (BSP).
Bulgaria has been a parliamentary democracy since 1990. Four parliamentary and two presidential elections have been held since the fall of the communist dictatorship in November 1989, each followed by peaceful and orderly change.
The legislative body is the unicameral National Assembly of 240 members elected to 4-year terms. Political parties must garner a minimum of 4% of the national vote in order to enter Parliament. Parliament is responsible for enactment of laws, approval of the budget, scheduling of presidential elections, selection and dismissal of the prime minister and other ministers, declaration of war and deployment of troops outside of Bulgaria, and ratification of international treaties and agreements.
The BSP won the first post-communist parliamentary elections in 1990 with a small majority. The BSP government formed at that time was brought down by a general strike in late 1990 and replaced by a transitional coalition government. Meanwhile, Zhelyu Zhelev, a communist-era dissident, was elected president by the Parliament in 1990 and later won Bulgaria's first direct presidential elections, in 1992. Zhelev served until early 1997. The country's first fully democratic parliamentary elections, in November 1991, ushered in another coalition government, which was led by the pro-reform UDF in partnership with the Movement for Rights and Freedoms (MRF). This coalition collapsed in late 1992, however, and was succeeded by a technocratic team, put forward by the MRF, which governed at the sufferance of the BSP for 2 years. The BSP won pre-term elections in December 1994 and remained in office until February 1997, when a populace alienated by the BSP's failed, corrupt government demanded its resignation and called for new elections. A caretaker cabinet appointed by the President served until pre-term parliamentary elections in April 1997, which yielded a landslide victory for pro-reform forces led by the UDF in the United Democratic Forces coalition. Along with the UDF, there are five other parties represented in Parliament.
The Council of Ministers is the principal organ of the executive branch. It is usually formed by the majority party in Parliament, if one exists, or by the largest party in Parliament along with coalition partners. Chaired by the prime minister, it is responsible for carrying out state policy, managing the state budget, and maintaining law and order. The Council must resign if the National Assembly passes a vote of no confidence in the Council or the prime minister.
Bulgaria's judicial system is independent and is managed by the Supreme Judicial Council. Its principal elements are the Supreme Court of Administration and the Supreme Court of Cassation, which oversee application of all laws by the lower courts and judge the legality of government acts. There is a separate Constitutional Court, which interprets the Constitution and rules on the constitutionality of laws and treaties.
Six out of the 34 political parties and coalitions that fielded candidates in the last election are represented in Parliament. The UDF recaptured Parliament in April 1997 with 123 seats out of 240. Its electoral coalition partner, the People's Union, carried 14 seats. Also in that election, the BSP dropped from its 1994 majority of 125 seats to 58. The MRF formed the Alliance for National Salvation with several smaller parties, taking 19 seats. The other party on the left is the Euroleft (comprised largely of defectors from the BSP with a social-democratic orientation), which holds 14 seats. The next parliamentary elections must take place no later than April 2001.
The Embassy of the Republic of Bulgaria in the United States is located at 1621 22nd Street, NW, Washington, DC 20008; tel. 202-387-7969; fax. 202-123-7973.
The government of Prime Minister Kostov, elected in April 1997, has made a clean break with the failed policies of the early and mid-1990s. In this, the Bulgarian Government received the backing of international financial institutions and committed itself to sound financial and structural policies as the only way out of crisis.
Since July 1997 the Bulgarian Government has been operating under a currency board as required by the International Monetary Fund's $510 million standby arrangement of March 1997. From July 1, 1997 to December 31, 1998 the Bulgarian lev (BGL) was tied to the German deutschmark (DM) at a rate of BGL 1000 to one deutschmark. Since January 1, 1999, the lev is tied to the euro at an exchange rate of 1,955.83 leva to one euro. Since July 5, 1999, BGL 1,000 was redenominated by the issuance of new currency and coins to be one lev (BGN). Thus BGN 1.00 equals DM 1.00.
The Currency Board rules provide that the Bulgarian National Bank (BNB) must hold sufficient foreign currency reserves to cover all the leva in circulation including the lev reserves of the banking system; the BNB can only refinance commercial banks in the event of systemic risk to the baking system; and the government is limited in taking on new financial liabilities or providing sovereign guarantees.
Under other IMF conditions for strict financial discipline, the Bulgarian government is pledged to close loss-making enterprises and to speed privatization, bank reform, and restructuring. The government established an isolation list of 70 state enterprises, accounting for half of the public sector losses, that do not have access to commercial credit unless they are privatized. The government succeeded in privatizing or beginning liquidation of all but one of the isolation list's commercial companies (Group B) by June 30, 1999.
The results have been very impressive. Inflation was reined in relatively quickly. Official reserves rebounded from $400 million in January 1997 to $2,964 million at the end of 1998. Moody's Investors Service upgraded Bulgaria's credit rating to B2. Foreign investment, including participation by American investors, has also revived as macroeconomic stabilization and a friendlier business climate have taken hold. The closure of 18 troubled banks also has helped to increase confidence in the banking system. Following declines in GDP in both 1996 and 1997, GDP increased from $10,200 million in 1997 to $12,257 million in 1998. In fact, some experts believe that official statistics underreport economic activity, and the active unofficial market statistics could represent an additional 20% to 40% of the official GDP. This means that there is more money flowing through the economy and higher actual disposable consumer income than is officially accounted for.
The private sector contributed between 25%-30% of GDP in 1995, 35%-40% in 1996, approximately 65% in 1997 and 1998, 62% in 1999; it should increase further with continuing privatization. Since the currency board constrains borrowing, the government needs to keep wage growth modest and focus on improving productivity to generate revenues. The main threats to the Bulgarian economy's medium-term prospects are the effects of the Kosovo conflict and the threats of wider regional instability and turmoil in global financial markets affecting investments in emerging markets. This may adversely affect revenues to the government from privatizing large enterprises. Due to Bulgaria's geography, the Kosovo situation has interrupted Bulgaria's main highway and Danube River trade routes with western Europe through Serbia in Yugoslavia, which have increased transport costs and may reduce future economic growth and market potential over the short term. However, the Governments of the United States, European Union countries, and southeast European countries have committed to a Stability Pact aimed at developing prosperity and stability throughout the southeast Europe region. Washington is currently developing a major comprehensive plan for economic development in the region to be implemented in the aftermath of the Kosovo crisis. This should lead to new and expanded trade and investment opportunities in Bulgaria over the long term.
A second potential impediment to Bulgaria's economic transformation is the slow and less than fully transparent privatization process itself. The Bulgarian Government has relied heavily on controversial management-employee buyouts for smaller enterprises, and on use of foreign consultants to privatize pools of medium and large companies. The privatization framework has also included complex criteria for selecting buyers that has generated concerns about transparency and corruption. As a result, ownership transfer has been delayed and, in some cases, has provoked litigation.
However, the government completed a number of large privatization deals in mid-1999, meeting its commitment to sell or commence liquidation of a group of loss-making enterprises by June 30, 1999. These deals included sales of the Kremikovtsi Steelworks, Balkan Bulgarian Airlines and DZU compact disk factory.
As a relatively small market in the Balkans, Bulgaria will have to make extra efforts to attract investors--by improving transparency, for example--as well as by more fully marketing its many advantages, including a highly skilled, low cost labor force and proximity to both European and Near Eastern markets.
With their close historical, cultural, and economic ties, Bulgaria seeks a mutually beneficial relationship with Russia, on which it is largely dependent for energy supplies. Negotiations are underway among Greece, Bulgaria, and Russia for construction of a gas pipeline from Burgas on the Black Sea to Alexandropolis to transport Caspian Sea oil.
Bulgaria's EU Association Agreement came into effect in 1994, and Bulgaria formally applied for full EU membership in December 1995. In 1996, Bulgaria acceded to the Wassenaar Arrangement controlling exports of weapons and sensitive technology to countries of concern and also was admitted to the World Trade Organization. Bulgaria is a member of the Zangger Committee and the Nuclear Suppliers Group. After a period of equivocation under a socialist government, in March 1997 a UDF-led caretaker cabinet applied for full NATO membership, which the current government is pursuing as a priority.
Bulgaria joined NATO's Partnership for Peace in 1994 and applied for NATO membership in 1997. It is working toward NATO compatibility in communications and training, and has established a Peacekeeping Training Center. In 1999, Bulgaria inaugurated the headquarters of the Multinational Peacekeeping Force Southeast Europe.
In 1989, the U.S. Congress passed the Support for East European Democracies Act (SEED), authorizing financial support to facilitate the development of democratic institutions, political pluralism, and free market economies in the region. The U.S. Agency for International Development (USAID) administers the SEED programs in Bulgaria under the guidance of the U.S. ambassador. Bulgaria has received more than $290 million in SEED assistance as of 1999, along with an additional $60 million in food programs and a $15-million endowment for the American University in Bulgaria. Much of USAID's assistance focuses on strengthening non-governmental organizations and other grassroots initiatives, promoting the private sector, and enhancing local government effectiveness and accountability. An additional $25 million has been pledged for budget support due to losses incurred during the Kosovo crisis.
In addition, the Peace Corps, with 106 volunteers in Bulgaria as of 1999, offers assistance in English-language instruction, small business centers, and environmental protection programs. The Department of Defense provides monetary and professional assistance through several programs, including the Joint Contact Team Program, Partnership for Peace, International Military Education and Training, Excess Defense Articles, Foreign Military Financing, and humanitarian assistance. Bulgaria serves as coordinator for the South Balkan Development Initiative, which is funded through the U.S. Trade and Development Agency to promote infrastructure development in Bulgaria, Albania, and The Former Yugoslav Republic of Macedonia