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Support for East
European Democracy (SEED) Report
Fiscal Year 2000
ECONOMIC DEVELOPMENTS
In FY 2000, the Government of Bulgaria (GOB) sustained its commitment
to economic reform and restructuring. Bulgaria made substantial progress
in meeting the Copenhagen Economic Criteria for European Union accession,
defined largely in terms of competitiveness, the existence of a market
economy with liberalized price and trade regimes, and an enforceable
legal system. Still, insufficient institutional reforms, notably those
concerning the enforcement of laws and regulations, remain an obstacle
to growth and are a focus of E.U. accession negotiations. For example,
the judicial system fails adequately to uphold creditor claims, thus
discouraging commercial lending, and too often rules against financial
regulators who seek to prevent financial crimes and corruption.
Still, the GOB has made some progress against crime and corruption.
In naming Peter Zhotev as Deputy Prime Minister, Prime Minister Kostov
added a key official renowned for integrity and incorruptibility. Also,
several anti-crime and corruption laws were enacted. For example, the
Privatization Act amendment improved transparency, thereby precipitating
the resignation of senior party officials widely rumored to have profited
from the sale of state assets.
The GOB continued to sell state assets, although key companies such
as the state telecommunications company and energy and other utilities
remain to be sold. With the Privatization Act amendment, the sale of
non-bank assets should accelerate because of streamlined and more transparent
tender procedures. Within the banking sector, Bulbank was privatized,
and the last remaining state-owned bank, Biochim, has been tendered
for privatization. Private assets should exceed 70 percent of GDP in
2001.
The GOB also made substantial progress in reforming the main social
benefits systems, which were threatened with insolvency after the 1996-97
near-economic collapse. This was compounded by negative demographic
trends, which reduced contributions necessary to support a burgeoning
number of retirees. Despite weak popular approval ratings, the Kostov
government enacted reform legislation, established regulatory structures,
and moved to privatize parts of the pension and health benefits systems.
Capital market development also gained momentum, with an increase in
corporate debt issues and the listing of the Deutsche Telecom depository
receipt - a significant development as the first "receipt"
issue in Southeastern Europe (SEE). In the weeks following this event,
transaction volume on the Bulgaria Stock Exchange (BSE) swelled dramatically.
BSE signed an agreement with the Vienna-based New Exchange (NEWEX),
becoming the first SEE exchange to step deliberately toward Western
capital markets. The Securities Regulator is coordinating a regional
effort to share enforcement-related information, and to integrate and
harmonize securities oversight in the regional markets.
These gains in economic restructuring underpin the three-year-old Currency
Board Arrangement, which pegs the lev to the German DM and ties the
money supply to foreign currency reserves. With sound fiscal policies
and budget discipline, Bulgaria has preserved internal economic stability
and held core inflation in check. However, the economy is small, and
growth thus hinges on foreign demand for exports and the cost of U.S.
dollar-denominated imports. Soaring energy prices and the near 20 percent
depreciation of the DM against the dollar drove inflation above 10 percent
for 2000. However, service sector gains and the firming of world market
prices for key exports (chemicals and metals) should help Bulgaria meet
its CY 2000 growth target of 4.5 percent. Bulgaria is now well positioned
to play an increasingly important role in regional economic growth,
and in assuring regional economic stability.
POLITICAL DEVELOPMENTS
This year, the GOB devoted itself to accelerating integration into
the EU and Euro-Atlantic structures, as well as to strengthening security
and stability in SEE via participation in the Stability Pact. The European
Union's decision to open accession negotiations with Bulgaria, in December
1999, heralded a new political and economic era for the country.
During FY 2000, the GOB facilitated regional cooperation and development.
As a participant in the Stability Pact for South East Europe, Bulgaria
presented 17 projects aimed at strengthening democratic institutions,
economic recovery and growth, infrastructure, and communications in
the region. Work on one of these --Pan-European transport corridor No.
4, connecting Central Europe with SEE countries, and a bridge over the
Danube to Roma at Vidin-Calafat -- is in the planning stages. Bulgaria
also actively took part in existing regional initiatives (e.g., SECI,
CEI, SBDI, and CEFTA) and hosted a number of region high-level meetings
to strengthen cooperation and promote joint efforts toward peace and
stability.
The recent political changes in Serbia open opportunities for economic,
political, and cultural cooperation between Bulgaria and Yugoslavia.
Bulgaria has expressed readiness to enhance bilateral and regional economic
cooperation, and supported Yugoslavia's inclusion in the Stability Pact.
The GOB is pursuing a program to expand economic contacts, including
on electricity rates and a free trade agreement, and has included a
number of related infrastructure projects in its updated National Regional
Development Plan 2001.
Domestically, the GOB faces the widespread public perception of corruption
and non-performance. While more anti-corruption legislation was passed,
corruption remains a political and economic prob1em. The Prime Minister
undertook a major cabinet reshuffle in December 1999, to accelerate
reforms, boost public confidence, and remove some top officials suspected
of corruption. The media continued to publicize major corruption allegations
against the governing elite, which, coupled with current socio-economic
hardships, has contributed to a decrease in public support for the current
government.
The protection of human and minority rights improved in FY 2000. Following
the 1999 Roma Integration Program, Roma were nominated at several levels
of the state and municipal administration. A working group was established,
comprising representatives from different Roma organizations and GOB
officials, to minimize the effect of the economic crisis on the Roma
population. However, many observers are disappointed by the relative
lack of results. Bulgarian National Television started a program on
Roma culture and Turkish-language news broadcasts.
Following the 1999 elections, the GOB imposed fiscal constraints at
the local level, such as mandates and restrictions on borrowing. The
Prime Minister recommended a Constitutional amendment to give local.
governments more authority over budgets, but it is unclear whether there
is sufficient political will to follow through. Misallocation of municipal
funds seems to be a key reason for the imbalance in municipal budgets.
A recent audit by the State Financial Control charged municipal authorities
with improper allocation of state subsidies, infringing priority expenditures,
and financing non-budgetary activities and programs. As a result, most
municipalities face a severe budget crisis this year. Current municipal
budget analyses predict this trend to continue, due to the GOB's refusal
to cover 1999 deficits and to reduced central fund transfers. In conjunction
with weak commitment to decentralization, the financial situation at
the municipal level has become so severe that all parties recognize
that some restructuring of intra-governmental finances will be necessary.
This year, the country is likely to face increased political partisanship
due to the forthcoming elections (before June 2001). Campaigning has
begun, and political forces are jockeying for position. It is generally
accepted that the ruling Union of Democratic Forces party is unlikely
to maintain a majority in Parliament. The result will probably be a
coalition government, which hopefully will retain commitment to overall
reform.
SEED ASSISTANCE SUMMARY
Program Overview
Through FY 2000, the U.S. had contributed over $352 million in SEED
assistance to Bulgaria, with about $57 million in FY 2000 alone. USAID's
program is designed to accelerate the country's transition to a market-oriented,
democratic society and to help position it for EU accession. The current
strategy was developed in 1997, when USAID initiated programs to help
the new Kostov government implement economic and social restructuring
and reform programs, following the 1996-1997 economic crisis. That was
a "graduation strategy," designed to prepare the country for
the opening of EU accession negotiations, before phasing out in 2002.
During 1997-1998, USAID assistance played a key role in helping Bulgaria
with its economic reform agenda and in strengthening local governments
and civil society organizations.
In 1999, the impacts of the Russian and Asian economic crises and the
Kosovo conflict gave reasons to revise the USAID strategy for Bulgaria.
Further, the U.S. post-Kosovo focus on helping to rebuild and preserve
economic and political stability in the region suggests the need to
continue the SEED Program beyond 2002. A revised strategy, proposing
a post-2002 closure date for USAID bilateral assistance, will be prepared
in FY 2002.
Despite the upcoming strategy review, many elements in the existing
strategy remain valid and guide ongoing project implementation. Several
new program components were added: a health sector finance project that
complements the highly successful two-year-old pension reform initiative;
an ethnic integration/conflict resolution program to improve the situation
of minorities in key municipalities; two new initiatives to build stronger
regional markets, increase the competitiveness of key sectors, and strengthen
bilateral trade relations within SEE and with Western European, North
American, and other developed markets; and three Internet projects under
the Internet for Economic Development (IED) Initiative, launched by
President Clinton in November 1998.
Building Democracy
To support Bulgaria's efforts to establish and consolidate its democracy,
USAID promotes three primary objectives: 1) increased, better informed
citizen participation in public policy decision-making; 2) an improved
judicial system that better supports democratic processes and market
reforms; and 3) more effective, responsive, and accountable local governments.
USAID will maintain targeted assistance to civil society organizations,
working toward sustainable development of the sector and mobilizing
citizens to speak out on policy issues. U.S. programs will also focus
on key issues in media development, ethnic integration, judicial reform,
and anti-corruption and anti-crime efforts.
Civil Society Development
USAID's major program in support of civil society, the Democracy Network
Program (DemNet), began its second phase in late 1998. This four-year
program builds the capacity .of select indigenous NGOs, called Intermediate
Support Organizations (ISOs), through which services and direct grants
are provided to a broad base of local NGOs. Eleven ISOs were chosen
to assist NGOs working on democracy, economic strengthening, social
safety net, and environmental issues. These ISOs are intended to become
major funding magnets for NGOs after Bulgaria graduates from USAID assistance.
USAID is also assessing the opportunities for a program addressing key
partnerships among NGOs, local governments, and businesses, leading
to the establishment of sustainable community funding mechanisms.
On the policy level, USAID continues to provide assistance in developing
NGO legislation. In September 2000, the Parliament enacted a framework
law on Legal Persons with Non-Profit Purposes. The law governs the establishment,
functions, and legal status of non-governmental organizations, the first
step to changing the NGO legal environment, opening the way for changes
in tax and related legislation to improve NGO sustainability.
Media
The Professional Media Program works with the Association of Bulgarian
Broadcasters (ABBRO), helping it to provide training and other services
to journalists. ABBRO has increased its membership from 21 in 1997 to
100 in 2000. With USAID assistance, the Bulgarian Media Coalition became
a unified voice of the independent media by initiating the first public
session of the Bulgarian Constitutional Court, which reviewed the newly
adopted Radio and Television Law. As a result, a drastic constitutional
violation in the new legislation -- the breach of privacy -- was eliminated
from the law, which previously allowed the authorities to check homes
for undeclared television sets. In addition, the Television Training
Center, established last year to develop a pool of highly qualified
television news reporters and producers, provided 15 two-week training
sessions to a variety of private TV stations.
Conflict Prevention/Ethnic Integration
The integration of minorities into society is key to Bulgaria' s entry
into European structures. Toward this end, USAID launched the Conflict
Resolution and Ethnic Integration Program to improve the situation of
minorities in key municipalities through training, small grants, and
technical assistance. The program, started as a pilot activity in the
city of Lom, will assist the Roma minority to improve their economic,
social, and educational opportunities.
Parliamentary Internship Program
Implementation of the Parliamentary Internship Program began in March
2000. Groups of 20 volunteer interns will serve as legislative assistants
at the Parliament, where they prepare comprehensive legislative studies
for parliamentary committees and groups. The program also increases
citizens' participation in the legislative process, as the interns solicit
the input of civil society and the NGO sector and work closely with
the Parliamentary Information Center, another USAID-supported activity.
Anti-Corruption Activities
The USAID-funded Coalition 2000 expanded its scope to include anti-corruption
work with Customs, in addition to the successful, widely recognized
Public Awareness Campaign. Sub-grants from the Coalition support small
NGOs at the local level, making a strong impact on governance in many
communities. The Draft Law on the People's Defender (the Ombudsman institution)
has reached the Council of Ministers and has a good chance of being
introduced in Parliament. The Coalition has also published a number
of pamphlets on areas of social life where corruption is most widespread,
including a Manual on Local Anti-Corruption Strategies. The overall
success of the Coalition's work has resulted in numerous invitations
to present the Coalition 2000 model at international gatherings, such
as at the OECD's Forum 2000, even though Bulgaria is not a member. Another
significant achievement was the formation of the South East Legal Development
Initiative, which, following the Coalition 2000 model, adopted anti-corruption
as a major activity area, but at the regional level.
Judicial Reform
To reinforce significant positive developments, USAID began a three-year
$7 million program to support judicial reform. The project has made
substantial progress in two areas - institutional strengthening of the
Magistrate Training Center and court administration. The Magistrate
Training Center is the only specialized entity providing continuing
legal education for new and sitting judges. It is working to uphold
the image and increase the professionalism of judges. During 2000, about
1,000 judges were trained in commercial, civil, and criminal law. In
the court administration area, USAID worked with the Ministry of Justice
to implement a pilot model court program. The first two model courts,
in Shumen and Smolyan, became operational in the program's first seven
months. They use a software system that allows case docketing and case-management
operations to be automated. In addition, the program worked on legislative
and administrative reforms necessary to implement many significant new
procedures.
Strengthening Local Governments
USAID's Local Government Initiative (LGI) supported institutional development
for local government in budget analysis, municipal property management,
citizen participation, revenue generation, communication strategies,
project monitoring, etc. Nearly 900 officials took part in LGI training
programs in FY 2000. Over 220 mayors and deputy mayors from 118 municipalities
were trained in solid waste fee-setting methodology, and agreed to disseminate
the model more broadly through the regional municipal associations.
Local governments were able to affect several key pieces of national
legislation; central government technicians participated in working
groups reviewing subsidy formulas and improving legislative crafts;
and regional governments have been brought together with local governments
in regional planning exercises. Four twinning partnerships between Bulgarian
and American cities were established: Silistra-Kettering, Ohio; Pazardzhik-West
Bend, Wisconsin; Vidin-Davenport, Iowa; and Veliko Tarnovo-Golden, Colorado.
In addition, four other municipalities replicated strategic planning,
public-private partnerships, and land-use practices that were developed
under the program.
The PLEDGE program, under an Interagency Agreement with the U.S. Department
of Labor, supported local economic revival and enterprise competitiveness.
In all, 29 municipalities have formed multi-sector working groups to
develop and implement local economic plans through a yearlong, community-based
planning process taught and coordinated by PLEDGE. By the end of this
year, an estimated 400 jobs will have been generated.
The NGOs and associations supported by USAID through these grants are
well structured and capable of achieving their organizational objectives,
including: providing technical services and educational programs for
local officials and municipal staff; lobbying and advocating to the
central government on issues effecting local government; building dialogue
with Ministries, Members of Parliament, regional governments, and other
donors; building cross-border programs; and implementing discrete projects.
The National Association of Municipalities represents an 262 Bulgarian
municipalities and is recognized as a model for the region.
Economic Growth
The USAID economic growth strategy seeks to establish a stable, market-oriented,
private financial sector, and to accelerate the development of an open
market environment. Sector activities being implemented contribute to
Bulgaria's preparations for EU accession, and are closely coordinated
with IMF, World Bank, EU, and other donors' programs.
Under the economic restructuring goal, USAID is helping to implement
macroeconomic reforms that will create the necessary conditions for
business to grow, to create jobs, and to generate wealth. Consistent
with the 1998 strategy, important new activities have been launched
to support the ongoing process of economic restructuring and reform.
These include an emphasis on strong, effective regulation in banking,
capital markets and related financial services sectors, including pensions,
health, and insurance.
Although growth and job creation remain central to the strategy, activities
to promote regional market development and integration are receiving
an increasing focus. For example, the Southeast European Trade Initiative
(SEETI) has inspired intra- and inter-regional trade and regional competitiveness
with more developed market economies. USAID has invested heavily in
developing new financial sector instruments that mobilize investment
and working capital. All are private sector oriented and are based on
commercial principles, characteristics that differ from many activities
being implemented by other donors.
Banking Sector Stabilization and Restructuring
Bank Privatization: In July 2000, a team of senior U.S. advisors
to the Bulgarian Bank Consolidation. Company (BCC) closed the fifth
and largest bank transaction, privatizing Bulbank AD to a consortium
of Unicredito ltaliana and Allianz. USAID support to BCC began in 1997,
when the GOB forged the bank privatization strategy with USAID, the
IMF, and the World Bank. The sale of Biochim Bank, the last state-owned
commercial bank, is being negotiated, and closure is expected in early
2001. USAID advisors have been, instrumental in all phases, from preparing
tender documents to advising on individual negotiations. Despite many
market and political obstacles, the GOB has been resolute in privatizing
the state banks.
Bank Supervision: U.S. assistance to the Bulgarian National
Bank's Bank Supervision Department has been instrumental in strengthening
banking system oversight and supervision. Initial efforts began in 1997,
and focused on the on-site supervision/examination functions. With the
exit of the EU and IMF this year, USAID assumed responsibility for off-site
supervision and policy coordination. In FY 2000, USAID assisted in drafting
legislation and in creating the Deposit Insurance Fund, an institution
akin to the U.S. Federal Deposit Insurance Corporation (FDIC).
The bank supervision project primarily supports training and the adoption
of risk-based examination procedures, using the FDIC model. USAID advisors
have worked with National Bank staff to develop the Procedures Manuals
that each examiner must follow. Advisors conduct training and accompany
bank regulators in on-site examinations to assure that prudential practices
are applied. In early 2000, USAID began training in similar risk-based
methods for off-site activities. Advisors worked to promote coordination
between the two examination teams to assure consistency in individual
bank ratings, which influence internal bank operations and insurance
premiums, and are an important indicator of banking sector health and
systemic risk.
Effective bank supervision, coupled with sound deposit insurance, is
fundamental to building public trust and confidence in the banking system.
Consequently, USAID strongly supported the newly established Deposit
Insurance Fund (DIF) in all aspects of management, operations, and policy
formulation and implementation. USAID advisors, many of them senior
FDIC officials, worked with the DIP to develop premium collections and
investment policies. In addition, advisors contributed extensively to
critical legislation that will make bank resolution (closure) an administrative
procedure assigned to the DIF, rather than a judicial process under
the aegis of the courts. This is critical for building confidence and
soundness in the banking system. It also lays an important philosophic
marker that will ultimately remove courts from non-judicial matters,
such as asset appraisal and disposition.
Commercial Banker Training: In FY 2000, USAID expanded the commercial
banker training program, which complements the successful bank privatization
and supervision programs. Bulgaria has only recently begun to develop
up-to-date banking skills and a more sophisticated banking culture.
It will take years for a generation of market- oriented bankers to be
trained to compete in a sound, stable banking system. USAID's commercial
banker training program is implemented through the Association of Commercial
Banks and its subsidiary organization, the International Banking Institute.
Capital Markets Development
USAID's capital markets development program provides assistance to
establish sound regulation and regulatory institutions, and to build
a broad, liquid securities market by strengthening exchange, depository,
and financial intermediaries. As with all economic sector programs,
capital markets activities are based upon sound regulation and oversight.
To this end, technical assistance to the Securities Commission contributed
to the development of the Law on Public Offerings and other relevant
legislation and implementing regulations. Significant effort has been
invested in strengthening the Commission and self-regulatory institutions,
such as the Bulgaria Stock Exchange (BSE), to oversee market operations
and participants and to take appropriate action, as warranted.
In FY 2000, USAID increased efforts to bring new and diverse financial
instruments to market. This has produced a half dozen corporate debt
issues, through both private placements and public issues. The Capital
Markets Project has a1so built a platform for asset- backed products,
with the first mortgage-backed securities expected to be issued in 2001.
In FY 2000, government treasury bills and the first depository receipt
for Deutsche Telecom were listed on the BSE. These provide critical
instruments for institutional investors and signal a major move toward
market integration with developed Western European markets.
Consistent with EU accession and with broader Stability Pact-related
imperatives to integrate markets, Bulgaria has taken deliberate steps
to link its capital market with regional markets and exchanges. The
GOB has signed memoranda of understanding with Greece and Macedonia,
providing a foundation to cross-list and for cross-border settlement
and registry of securities. Of potentially greater importance, Bulgaria
is now allied with the Vienna-based "New Exchange" (NEW EX),
formed by the Frankfurt and Vienna stock exchanges. Bulgarian exchange
and regulatory officials have signed a Memorandum of Understanding with
NEW EX, and are now working to harmonize legislation, regulations, and
trading protocols necessary to cross-list and execute securities transactions.
This alliance will help mobilize capital and expand the stock of listed
securities on the BSE. Bulgaria is also seeking to enlist similar alliances
between neighboring exchanges in Croatia, Macedonia, Romania, etc.,
and NEW EX. Multiple alliances with NEW EX will create a strong attraction
for Western securities analysts and thus institutional investors seeking
to build a regional emerging markets portfolio.
Pension Reform
Bulgaria has made substantial progress in public and private pension
reform since 1998. USAID has supported these politically charged reforms
from the outset. In two years, Bulgaria enacted legislation that essentially
privatized the social security system. However, more public pension
reforms are needed, as contributions still pass through the government
as quasi-taxes, and the GOB sets pension levels. Private pension companies
maintain "member" accounts, managing both mandatory and voluntary
contributions. To date, eight private pension funds have been licensed
to receive and manage contributions. USAID has helped to train the pension
companies in back office operations and portfolio management to increase
the integrity of these systems. The Pension Project also helped create
the Social Insurance Security Agency to regulate the fledgling pension
industry. During FY 2000, the first 400,000 "high-risk" workers
were converted to the private system. The balance of the workforce,
about two million people, will convert over the next year. The record-keeping
burden associated with collecting the contributions and managing individual
accounts is immense. Thus, USAID is providing substantial and increasing
assistance to the National Social Security Institute, directed at data
management and record keeping, which are essential to the pension system's
integrity.
Health Sector Finance Reform
In FY 2000, Bulgaria undertook broad health sector reform, including
the privatization of state-owned hospitals and clinics and the medical
care financing system. USAID launched a project supporting the health
finance element, which is closely allied with pension reform. USAID
supported the setting up of individual accounts, creation of a preferred
provider type of system, and development of standardized fee structures.
A principal counterpart in this effort is the newly established Bulgarian
National Health Insurance Fund, which collects individual health contributions,
manages the assets, and pays claims to the health care providers with
whom it signs and manages contracts. USAID assistance supports the establishment
of accurate record-keeping and data management; sound investment procedures;
and efficient claims payment. USAID also backs the emerging private
voluntary health insurance funds, regulatory system, and structures
to oversee them.
Taxation and Debt Management
USAID has historically worked closely with the U.S. Treasury and, under
several Inter-Agency Agreements, has funded resident and intermittent
advisors for tax administration and policy and debt management. Working
with the Ministry of Finance's (MOF) Tax Administrative Department,
advisors have assisted in reorganizing tax administration along functional
lines, enhancing revenue estimation and audit selection procedures,
and creating a "large taxpayer" unit. In the 1999 Tax Code,
the GOB laid the foundation for a Unified Revenue Agency that collects
all tax and social contributions, including pension and health. Unification
of collections is significant and positive, and the presence of USAID
advisors in all three sectors -- tax, pension, and health -- will bring
efficiency and ensure cooperation.
The USAID Debt Management advisor has worked with the MOF and the National
Bank for the past two years. The advisor has improved debt management
and issuance practices, and played a significant role in drafting the
Sovereign debt Law. Assistance to the MOF has greatly improved the GOB's
auction procedures and has helped to reduce yields and extend the term
structure of Bulgarian government debt. Additional efforts focus on
strengthening the primary dealer network and on broadening the secondary
market for Bulgarian government debt.
Energy Sector Restructuring and Reform
In FY 2000, the GOB broke the National Electric Company into separate,
state-owned generation, distribution, and transmission companies as
the first step in de-monopolization and privatization. However, several
key reforms remain to be implemented, including third-party access and
a fully independent regulator. The State Agency for Energy and Energy
Resources (SABER) exercises near-absolute control over the energy sector,
functioning much as a Ministry, although it has no such official status.
In violation of open-market principles and contrary to IMF and World
Bank conditionality, SABER imposed energy price caps in mid-2000. SABER
also precipitated the en masse resignation of a11 the State Energy Regulatory
Commission's commissioners and wavered in its commitment to EU accession
criteria for third-party access to the power transmission network and
the closure schedule of the Kozloduy nuclear power plant. SABER has
not advanced a strategy for energy sector privatization that adequately
promotes electricity sector competition. For these reasons, USAID suspended
direct energy sector assistance in 1998, and instead focused on promoting
municipal and industrial energy efficiency. The energy efficiency program
provides technical assistance in project identification and design.
A companion commercial finance facility, known as the Development Credit
Authority, was established with the United Bulgarian Bank. This facility
provides a partial guarantee for energy efficiency-related loans and
has mobilized some commercial credit to the sector.
Private Sector Development
Despite lingering economic and political instability in SEE, Bulgaria'
s private sector continued to expand, representing about 70 percent
of gross value added, or 57 percent of GDP. Adding the "gray market" economy could boost reported GDP by 20-50 percent, according to some
analysts. Although such micro-entrepreneuria1 production is important
to household incomes, it is not considered to be a source of sustainable,
long-term economic growth and will not drive EU accession. USAID's strategy
for business development supports the EU accession effort, which rests
largely on the establishment of a market- oriented economy and businesses
that can sustain the competitive pressures of the EU. USAID efforts
support laws and policies conducive to private sector growth; increased
access to capital; and improved competitiveness within the region and
with Western Europe. Improving the competitiveness of viable firms is
at the core of USAID's enterprise strategy. This means working with
industry clusters in tourism, garment manufacturing, high-tech, and
other sectors, and focusing sharply on increasing revenues, exports,
and employment. Intensive firm-level assistance concentrated on improved
production, operations and finance, trade, and marketing supports. Since
part of competitiveness relates specifically to reducing administrative
barriers to business development and investment, USAID invests significant
effort in improving the legislative and business climate.
To support competitiveness, USAID actively promotes trade through multi-country
efforts, such as the South East European Trade Initiative (SEETI), and
through business-to-business events with Macedonia, Romania, and others.
Each has generated exports for participating countries and enterprises.
For instance, SEETI inspired a trade agreement between Bulgaria and
Croatia that facilitates trade. The first Bulgaria-Macedonia trade event
produced nearly a million dollars of sales contracts, with subsequent
events yielding similar results. USAID also established a Trade Development
Center that provides marketing assistance and has already brokered trade
relations resulting in increased exports. USAID supports local and regional
trade through high-tech matchmaking facilities such as the Global Technology
Netwerk and Ecolinks; which is dedicated specifically to environmental
technologies.
In conjunction with the U.S. Department of Agriculture (USDA), USAID
has implemented highly successful programs targeting agricultural commodity
markets and farm-sector finance. USAID and USDA assisted in enacting
the Grain Storage and Trade Law, under which warehouse licensing and
bonding procedures were developed, and the Warehouse Receipt System
(a marketable financial instrument secured by warehoused grain) was
created. In FY 2000, 22 bonded warehouses were licensed, with nearly
250,000 metric tons of stored grain. Using receipts as collateral, SG-Express
Bank, UBB, and Union Bank originated more than $3.56 million in working
capital loans to help farmers finance seed and fertilizer purchases
for the next crop cycle. Bulgaria's success has been fundamental to
stabilizing domestic farm sector revenues, thus sustaining household
incomes.
Improved Quality of Life I
The establishment of the Currency Board Arrangement in 1997 helped
to reverse the downward trend of the main macroeconomic indicators.
However, there is strong evidence that living standards have fallen
dramatically in recent years. The income gap between population groups
(which is closely correlated to increased poverty) has risen. The unemployment
rate hovered around 18 percent for most of FY 2000. Real incomes are
decreasing, and the social assistance system in place has not responded
effectively to the most needy and vulnerable groups, such as the growing
elderly population and ethnic minorities. The 2000 UNDP Human Development
Report indicates that over the last decade Bulgaria's accumulated change
in the Human Development Index, measuring the average achievement in
a given country in the basic dimension of human development (along and
healthy life, knowledge, and a decent standard of living) has been minus
0.01, the most acute downturn within the region. Finding additional
resources to sustain stabilization, encourage self-reliance through
access to development opportunities, and increase much-needed expenditure
for health and education is a major challenge for the GOB. USAID addressed
some of these issues through the $8 million in the Regional Initiative
Fund and the $5 million Social Safety Plan, pledged under the ESF program,
as well as through the conflict resolution/ethnic integration program.
Special Initiatives
Economic Support Fund (ESF) Grant Agreement: In early FY 2000,
USAID provided $25 million in Economic Support Funds (ESF) to the GOB
for emergency balance-of-payments support to cushion the effects of
the Kosovo crisis on the economy. These funds were used to service GOB
debts to the U.S. (outstanding PL 480 corn debt) and the World Bank.
This enabled the GOB to redirect its local currency resources to support
four major social and economic welfare programs. These included severance
payments to employees of closed, state-owned enterprises; the Social
Safety Fund (SSP) for the poorest pensioners; the Regional Initiatives
Fund (RIP), launched with a $5 million World Bank loan and administered
by UNDP; and budget support for the GOB's refugee programs in Macedonia.
The SSF targets disadvantaged groups, including the poorest pensioners,
and contributes directly to ongoing efforts to redesign the state pension
system. Thus, USAID support to the Fund plays a critical safety-net
function in assisting the poor to meet their energy needs, while helping
to sustain public support for the difficult economic reform process.
Together with the Ministry of Labor and Social Policy, UNDP, and the
World Bank, USAID participated actively in implementing the RIP, using
$4.5 billion to fund 70 new infrastructure projects, including rehabilitation
of market structures, roads, water supply, bridges, schools, and healthcare
centers. These projects provide short-term employment opportunities
and tangible social benefits for the country's poorest communities.
Bulgaria Crisis Recovery Program (BCRP): The Bulgaria Crisis
Recovery Program (BCRP) was designed and funded with $5 million in SEED
Supplemental resources to accelerate the recovery of communities affected
by the Kosovo crisis. The program has two elements - the Danube River
Initiative (DRI) and the training and education program for Kosovars
at the American University in Bulgaria (AUBG).
Assistance to Danube River communities is provided under the DRI to
strengthen local governments and to improve social and economic conditions
through economic development, planning, and technical assistance to
enterprises. DRI grants fund citizen participation projects and small-scale
infrastructure projects in 23 municipalities along the Danube River
and 31 others associated with this region. DRI achievements include:
micro-credit loans to nearly 400 clients; successful operation of a
business incubator in Vidin; extensive technical assistance and training
to six municipalities in solid waste fee-setting; individual assistance
grants to a number of small and medium enterprises; small-scale infrastructure
grants in nine municipalities; 10 local economic development projects
under the PLEDGE program; Customer Service and Information Centers operational
in four Danube River cities; seven NGO grants to create multi-sector
partnerships within the community; and an education program for displaced
workers.
As part of the BCRP, the AUBG offers vocational training and education
to young Kosovar refugees. The program's main objective is to build
future human capacity by providing practical job skills for today's
marketplace and enhancing career opportunities for young adults. Thus
far, 276 Kosovar students have completed training programs in business
administration, public administration, and journalism. In addition,
76 Kosovars attended courses in AUBG's English Language Institute, and
10 Kosovar students directly related to this project were admitted to
AUBG's regular undergraduate program.
Biodiversity Conservation and Economic Growth (BCEG): To support
the creation of a sound nature protection management system, USAID launched
the Biodiversity Conservation and Economic Growth Project (BCEG) as
a follow-on to the GEF Biodiversity Project. Under this initiative,
important elements of small enterprise development and municipal administration
supplement a host of new national park management responsibilities.
USAID assisted the Ministry of Environment and Waters in the finalization,
review, and public hearings of the management plans for the Rila and
Central Balkan National Parks. The activity supports the development
and management of the planning process for the newly established Rila
Monastery Nature Park and the development of financial mechanisms for
protected-area sustainability, thus alleviating constraints to protected-area
revenue capture.
EcoLinks: Bulgaria was the regional leader in grants awarded
under USAID's regional EcoLinks Program, with 29 Challenge Grants and
35 Quick Response Awards for the implementation of cross-border partnership
projects in FY 2000. The program links businesses, local governments,
and associations with counterparts in the U.S., or other countries in
the region, to promote regional efforts to address environmental problems
with market-based solutions. EcoLinks assists these organizations to
identify environmental issues, adopt best practices, and increase trade
and investment in environmental goods and services.
Internet Initiative for Economic Development: In FY 2000, USAID
initiated three activities under President Clinton's Internet for Economic
Development Initiative to boost economic development, gain access to
knowledge, improve standards of living, and foster the free flow of
ideas. First, public-private partnership telecenters will be established
by the Public Computer & Communication Center Pilot Telecenter Project
to bring the opportunities of the Internet to remote, under-served areas,
mostly viewed as commercially unattractive. Second, the Southeast Europe
Online project, implemented by an indigenous NGO, seeks to develop a
virtual network of NGOs, as well as an Internet platform, that could
serve as a meeting place for civil society and donor organizations in
the region. Third, a Public Internet Portal on the Bulgarian Economy
will be created as a "one-stop shop" for businesses and researchers.
Peace Corps SPA: The Small Project Assistance (SPA) Program
is a unique activity that joins Peace Corps Volunteers' human resource
capabilities with the financial resources of USAID to help community
groups help themselves. In FY 2000, 23 community projects were funded,
supporting environmental activities and the establishment of computer
labs or English language centers at secondary schools.
Cross-Cutting Projects
TRANSIT -Europe: Technical Training for Societies in Transition
(TRANSIT-Europe) is the primary human capacity development program in
Bulgaria providing short-term training in the U.S. and other countries
in the region. TRANSIT's goal is to further enhance USAID's ability
to achieve its strategic objectives by equipping Bulgarian leaders and
professionals with skills and practical knowledge to develop and support
democratic processes, free enterprise, a market economy, and an improved
quality of life. More than 800 Bulgarians, including ministers, mayors,
supreme court justices, commissioners of the SEC, and the President's
chief advisors have participated in the program. In FY 2000, over 200
people took part.
Social Benefits and Services: The USAID-funded American Center
for International Labor Solidarity (ACILS) program has provided technical
assistance to Bulgaria's trade unions and has supported democratic trade
union development though labor education and leadership training for
10 years. In FY 2000, nearly 1,000 union workers were trained each month,
and participated in seminars on collective bargaining and labor law,
health and safety, privatization and economic reform, and modern labor-management
relations. The program also focuses on mitigating the impacts of economic
transition by supporting eight regional labor counseling centers to
provide legal, employment, and economic counseling services to workers.
An important new aspect of the program is its regional dimension to
include education activities, information exchange, and best practices
programs with trade unions in neighboring countries, using Bulgaria's
successful experience.
Public Diplomacy Activities
SEED funds for Public Diplomacy were used in several key areas to promote
democracy, free and responsible media, graduate education in business
and economics, public administration curriculum development, and civic
education.
The Democracy Commission continues to play a fundamental role in helping
community-based NGOs to develop democratic structures at the local level.
Small grants, averaging less than $20,000 each, have funded programs
advocating children's rights in Sliven, establishing model areas of
inter-ethnic partnership in ethnic Turkish regions, producing television
programs on Roma issues, and in other fields of concern. All of the
funded projects enhance stability and pluralistic participation in Bulgaria's
developing democracy.
SEED funding has been used for U.S.-based media training, principally
at the University of Missouri-Columbia, to develop journalists' skills
in reporting on important social, economic, and governmental issues.
Many of these programs are short-term, i.e., a few weeks, but last year
two were one-year professional development courses designed to enhance
the participants' skills across themes. The programs also address new
technologies in journalism, including on-line resources and information
dissemination.
The Office of International Information Programs offers speakers (e.g.,
a media trainer and a library sciences specialist) or other services
(the establishment of a media corner, databases, journals, and other
reference materials at the Sofia American Center) to support the free
flow of information in a democratic society.
The Ron Brown Fellowship Program, which offers an MBA (or similar)
degree in business and related fields, promotes building a new executive
corps in Bulgaria skilled in Western business approaches. The Fulbright
Commission administers this two-year program, in conjunction with the
State Department's Bureau of Educational and Cultural Affairs (ECA).
Competition is keen, and the Fulbright Board examines each application,
holds extensive interviews, and selects the best two or three fellows
each year. ECA coordinates their placement and tracks their academic
progress to ensure that the program serves its purpose in each case.
Civic education included the funding of textbooks used from early primary
through secondary education on democratic institutions and the role
of the citizen in a democracy. These texts were developed by the Center
for Open Education (a Bulgarian NGO) and approved by the Ministry of
Education for the curriculum. The Center's work has covered both primary
and secondary levels quickly with quality Bulgarian-language and Bulgaria-oriented
texts.
SEED funding is also being invested in graduate public administration
studies. During FY 2000, funding is expected for a series of Academic
Specialists to build curriculum at the New Bulgarian University and
the University of Sofia. These programs will lead to a university affiliation
on public administration.
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