FT: Bulgaria On the Winding Road to Stability

Views on BG | December 5, 2012, Wednesday // 07:51|  views

Bularian currency lost 90 per cent of its value in the year before it was pegged in 1997 to the German mark, and later the euro, in a currency board arrangement that remains an economic anchor. File photo

Financial Times

By Neil Buckley

Compare what is happening in Bulgaria with the state of affairs in countries around it – economic crisis in Greece, surging unemployment in parts of former Yugoslavia, political troubles in Romania – and one phrase recurs: "We are", says the country's president, Rosen Plevneliev, "an absolute island of stability".

The claim, repeated by many senior Bulgarians, has substance. Though the economy shrank by 5.5 per cent in the 2009 global recession, unlike neighbouring Serbia, Romania and Greece, Bulgaria required no international bailout. It has since had 13 consecutive quarters of growth, even if this has been anaemic. With among the lowest budget deficit and government debt figures in the European Union, it is one of only three countries, alongside Finland and Denmark, that fully meet the Maastricht criteria for euro membership.

There have been no mass street demonstrations against austerity, though occasional protests on specific issues have flared. Support for premier Boyko Borisov’s government has waned since it came to power on an anti-corruption platform in 2009. But polls suggest in parliamentary elections due next June or July it may be the first in Bulgaria’s post-communist history to win re-election.

“You can’t underestimate his charisma,” says Ognian Shentov, director of the Centre for the Study of Democracy, a think-tank, of Mr Borisov, a square-jawed former police chief and karate black belt. “His approval rating is high. People trust him.”

Beneath the surface of stability, however, lurks disquiet: about the state of democracy, about how much is still to be done in the battle with graft and organised crime and the need for deep reforms to enhance growth prospects. Such complexities of today’s Bulgaria reflect an often rocky post-communist transition. After faltering early reforms, it slid into an economic and banking crisis and hyperinflation in 1996-97. The currency, the lev, lost 90 per cent of its value in the year before it was pegged in 1997 to the German mark, and later the euro, in a currency board arrangement that remains an economic anchor.

After a period of more effective reforms and privatisations, Bulgaria joined Nato in 2004 and the EU in 2007 and began to transform its business environment. Like other new EU members, it had seen in the years before the 2008 financial crisis a flood of foreign investment, which had fuelled rapid growth. But not enough went into factories and too much into non-tradable sectors such as real estate. This inflated a bubble which – as in Ireland and Spain, if with slightly less force – burst after Lehman Brothers went bankrupt.

Bulgaria remains the EU’s poorest country, with the lowest average wage. Helped by EU funding, which the country has become more adept at managing, the government has preserved some sense of progress despite slow post-crisis growth and the need to rein in public finances. It has built a metro in Sofia and started to construct motorways and upgrade railways. Under Vejdi Rashidov, a renowned sculptor brought in by Mr Borisov to be culture minister, the country, for the first time since the 1980s, has even modernised theatres and opened new museums.

“We have started delivering on Bulgarians’ dreams” for better roads and infrastructure, says Mr Borisov. “We did it in Sofia,” where he was mayor from 2005 to 2009, he adds, “and now we have done it for the rest of Bulgaria.” Yet the country has long battled perceptions in western Europe that it, like neighbouring Romania, was admitted to the EU before it had done enough to tackle corruption and organised crime. It has had to live with continued EU monitoring of progress in those areas, which Brussels says remains inadequate.

Perhaps more unsettling are accusations that the country has slipped back in some other key areas. The fact that the popularity of Mr Borisov and his Citizens for the European Development of Bulgaria party (known by its acronym, Gerb) has held up reasonably well, say opponents, can be explained not just by charisma and new roads. It owes much to a largely pliant print media, much of it in the hands of owners loyal to the government. Neelie Kroes, European Commission vice-president, wrote to Mr Borisov in October expressing concerns about media freedom.

Meglena Kuneva, formerly Bulgaria’s first EU commissioner and who has set up a political party, says the country has retreated, politically, since its EU admission. “I swear – and I was the chief negotiator for my country, so believe me – that if Bulgaria was to negotiate [EU] accession now, it would fail.”

Georgi Kadiev, who last year was Sofia mayoral candidate for the main opposition Socialist party, agrees. Bulgaria’s biggest problems during its membership negotiations, he notes, were in concluding talks on “Chapter 24” – relating to justice, freedom and security. “I don’t think Bulgaria would be able to close this chapter today,” he says.

Mr Borisov rebuffs such criticisms. “Bulgaria is number one in terms of freedom of speech,” he says. “We have 240 media outlets, if not more. Everyone is free to say and write whatever he or she wants.”

Some critics suggest Mr Borisov, by appointing loyalists and using the authority stemming from his own law enforcement background, has established a firm grip on power based on control of the police and security services.

Evgenii Dainov, an academic, writer, and civil society activist, says Bulgarian democracy had long been something of a “fa?ade”. “The fa?ade still reflected some reality,” he adds. “But today, on top of this, we have the first concerted attempt at establishing personal rule.”

Symbolic of how things have developed, say critics, was last month’s scandal over the nomination to Bulgaria’s constitutional court of Veneta Markovska, a magistrate who then faced accusations of links to corruption, which she denied. Though nominated by parliament, she was widely seen as backed by Gerb.

The European Commission, without naming her, made its concerns apparent by threatening to publish an emergency report under the “co-operation and verification mechanism” that monitors Bulgaria’s reforms. President Plevneliev, a Gerb member, ultimately blocked Ms Markovska’s swearing-in.

Opposition parties warn of potential attempts to manipulate next year’s parliamentary elections. They claim that regional elections last year were the dirtiest for some years. Many observers, including Mr Dainov, suggest Bulgaria’s relatively well-developed civil society will ensure the poll is fair.

Whoever wins next year’s elections faces big challenges in ensuring Bulgaria can benefit fully from any broader European upswing, and deliver the growth still needed to narrow the gap with wealthier EU members. As even Mr Plevneliev acknowledges, Bulgaria needs deep reforms of its creaking healthcare and education systems.

Real progress on the rule of law will be necessary, too, not just to satisfy the EU and ordinary Bulgarians, but to help foreign investment rebound to healthier levels. Many say the government deserves credit for avoiding a damaging economic or fiscal “bust”, keeping the deficit under control and making progress on infrastructure.

The government’s problem, says Parvan Simeonov, analyst at pollster Gallup, was not too much power but “not using this power for major reforms”. There had been too much governing “day by day, sometimes even hour by hour”.

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Tags: Bulgaria, greece, Romania, former Yougoslavia, Rosen Plevneliev, Boyko Borisov, bailout, GERB, infrastructure, stability, Meglena Kuneva, Neelie Kroes, European Commission, Georgi Kadiev, currency


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