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Country Commercial Guides FY 2000: Bulgaria Report prepared by U.S. Embassy Sofia, released July 1999 Note*

CHAPTER III. POLITICAL ENVIRONMENT

A. Nature of Political Relationship with the United States

U.S.-Bulgarian bilateral relations are steadily improving and have intensified over the last two years, reflecting a wide range of shared interests. The U.S. Government strongly supports political stability, the growth of democracy, and the development of a market economy and economic prosperity in Bulgaria. U.S.-Bulgarian high-level contacts are increasing, with President Stoyanov having visited the Washington in February 1998 and First Lady Hillary Clinton paying a visit to Sofia in October 1998. Bulgaria hosts a number of U.S. assistance programs including a wide range of programs administered by the Agency for International Development (AID) and the Peace Corps offices in Sofia.

In February 1994, Bulgaria joined NATO's Partnership for Peace. U.S.- Bulgarian defense relations are active and include regular naval ship visits to Bulgaria's Black Sea ports. Defense Secretary Cohen visited Sofia in July and October 1997 to discuss requirements and preparation for Bulgaria's eventual application for full NATO membership. The Department of Defense has a number of military liaison programs with the Bulgarian military, to help modernize the Bulgarian armed forces, purchase appropriate equipment, and prepare for interoperability with NATO forces. Bulgaria will cooperate in the multilateral peacekeeping force for southeast Europe, whose first headquarters will be in Plovdiv.

Since the fall of Communism at the end of 1989, numerous bilateral agreements have been signed between Bulgaria and the United States. In the areas of aviation and defense, these include the Civil Aviation Security Agreement of 1991; an agreement on the United States International Military Education and Training (IMET) Program (1992); and a Memorandum of Cooperation on Defense and Military Relations (1994).

Agreements on postal matters include a Memorandum of Understanding on the INTELPOST service (1990) and the International Express Mail Agreement (1991). Other trade-related agreements include a 1993 agreement on trade in textiles and textile products, the Investment Incentive Agreement (1991).

On February 1, 1999, a bilateral Memorandum of Understanding came into force providing for tax free treatment of U.S. government assistance.

B. Major Political Issues Affecting Business Climate

The ruling Union of Democratic Forces (UDF) has enjoyed a stable parliamentary majority, and has followed a mandate of leading Bulgaria out of the 1996-1997 economic crisis, although reforms have not been implemented as fast as some have hoped. And although the Currency Board has been highly successful in stabilizing the economy, sustained growth has yet to be achieved.

Organized crime and corruption are a concern of both the government and ordinary citizens. Prime Minister Kostov has declared this a priority issue. The National Assembly has passed laws to amend the Penal Code and the Criminal Procedures Code. Violent crime against persons is extremely low but property crime--car theft, pick-pocketing, and burglaries--are still widespread although on the decrease. Among some state-owned companies, assets have been siphoned off by unscrupulous managers in league with private businesspeople--a practice which the current government has attempted to curb.

The government actively pursues membership in Western institutions, including NATO and the European Union (EU). The UDF has declared its intention to maintain close contacts and an active dialogue with NATO and the EU on all relevant political, financial, military and other issues related to future full membership. In many ways the Bulgarian Government has attempted to cooperate as though it were already a full NATO member, as witnessed during the Kosovo crisis. The government hopes that active engagement to fulfill the membership criteria will encourage foreign investment and promote greater confidence in Bulgaria's political and economic institutions.

C. Brief Synopsis of Political System, Schedule for Elections and Orientation of Major Political Parties

Following the removal of long-time communist leader Todor Zhivkov in 1989, Bulgaria has been a parliamentary republic ruled by a democratically elected government. A new Constitution was enacted in 1991 which lays out the basic rights and obligations of citizens, and is the basis for Bulgaria's legal system. The Constitution allows for the freedom of association and the formation of political parties.

The Constitution provides for the separation of powers among the executive, judicial, and legislative branches, and a system of checks-and-balances. The president is the head of state. The presidency is empowered to conclude international treaties and to schedule parliamentary (or National Assembly) elections. The president is also the commander-in-chief of the armed forces. The National Assembly is a unicameral legislative body that consists of 240 members who are elected for a term of four years.

Petar Stoyanov of the Union of Democratic Forces (UDF) won a decisive victory in the November 1996 presidential election. He assumed the presidency in January 1997 for a five-year term.

Failure to follow through on reform measures through most of the 1990's led to the rapid downward spin of the economy which seriously affected the living standards of all Bulgarians. Between 1989 and 1997 there were eight governments in Bulgaria. By giving local groups without management ability priority in the privatization process and access to questionable loans, this cronyism spread weakness throughout the economy, causing the banking system to nearly collapse in May 1996. The Bulgaria Socialist Party's slow progress in implementing reforms and mishandling of the economy led to a host of financial, social, and economic problems which reached crisis level in late 1996 - early 1997. Meanwhile, the UDF developed a new sense of unity and purpose by promoting a consensus, pro-reform, pro-West agenda as recommended by the international financial institutions.

In February 1997, after several weeks of escalating public protests televised worldwide over the government's handling of the economy, the ruling Bulgarian Socialist Party (BSP) agreed to step down. Later that month President Stoyanov dissolved the National Assembly (Parliament) appointed a UDF-led caretaker government to replace the unpopular Socialist government.

The caretaker cabinet moved quickly to stabilize the economy in March 1997 by concluding a $510 million standby arrangement with the IMF to help pull the country out of crisis.

In April 1997, a reform-minded coalition headed by the center-right United Democratic Forces and which includes the UDF, the People's Union, the Bulgarian Social Democratic Party, and a number of smaller parties--won an absolute majority in the pre-term general parliamentary elections. UDF Chairman Ivan Kostov was appointed Prime Minister by the National Assembly.

The key priorities of the UDF-led coalition government are economic stabilization, crime control, and Euro-Atlantic integration. On foreign policy matters, the government has clearly stated Bulgaria's desire to seek full NATO and EU membership, unlike its BSP predecessor, which while wholeheartedly advocating EU membership, was ambiguous on joining NATO. The next parliamentary elections will be held in the year 2001.

Local elections will be held in October 1999. The BSP, which controls most local governments, will try to prove its staying power by retaining the mayoral seats it holds, and may campaign in cooperation in coalition with other opposition parties. The UDF, whose support has been strongest in large urban areas and among younger, more educated voters, has been trying to broaden its base, and will try to prove that it has wide voter support for its policies by increasing its vote at the local level.