Strategic Goal: Democratic Transition

USAID's programs are designed to help build Bulgaria's democracy through improved popular participation in decision making and strengthened local government. The successful conduct of several elections and the growth of the private sector are good first steps for acceptance of democratic principles. The Democracy Network Program will develop grass roots organizations' ability to facilitate popular participation in public policy making and improve the enabling legal and regulatory environment for them. Through the Local Governance Initiative, USAID seeks to build local government's ability to carry forward the process of decentralization by: a) increasing the membership and organizational capacity of municipal associations, especially strengthening their abilities to lobby the central government.; b) increasing local governments' responsiveness to citizenry, c) equally building successful models for civic participation; and, d) by improving the quality of municipal services. USAID programs will continue to strengthen non-governmental groups and the media, as well as the abilities of the judiciary, to sustain democratic progress.

Strategic Goal: Social Stabilization

The dismantling of the centrally planned economy, the high rate of inflation and institutional inertia have severely undermined the living standards of the Bulgarian population since 1989. The government appears committed to changing existing practices and introducing new services, with recent legislative steps in social insurance and pending, major health and environmental laws before parliament. The USG program has targeted high impact activities to demonstrate new ways of delivering services or perform important social functions. The USG has assisted the GOB to put in place nationwide market-oriented operating procedures for use by local and regional labor offices, and also helps with organized labor to improve workplace industrial relations. A long-term program to help the GOB develop new social security policies and procedures is being planned with extensive multi-donor cooperation being led by the World Bank.

Cross Cutting and Special Initiatives

The American University at Blagoevgrad is providing a U.S. style liberal arts education for students throughout the region. The USG has joined in multi-donor efforts to improve operational safety at Bulgaria's nuclear power plant. The Global Environmental Fund activity in Bulgaria works to preserve the nation's rich biodiversity for all the world's citizens. USAID's training activity provides cross cutting training in the U.S. and region in support of all other Bureau Objectives for Bulgaria.

USAID Representative: John Tennant

Purpose: Assist the transfer of state and municipal assets to the private sector.

Background: Privatization in Bulgaria started in late 1992 but the Government of Bulgaria (GOB) has been slow to privatize state-owned assets using a case-by-case approach. Relatively more successful to date has been the decentralized approach for privatization at the municipal level. In 1994, having recognized that traditional methods of privatization would not achieve a rapid and considerable expansion of private ownership, the GOB undertook a serious effort to develop and implement a Mass (voucher) Privatization Program (MPP). Under MPP, all Bulgarian citizens over the age of 18 are eligible to receive vouchers worth 25,000 leva (about $450) which can be exchanged for shares in companies directly, or for shares of privatization funds set up for this purpose. The MPP is being administered by the Center for Mass Privatization (CMP). The legal framework for MPP was successfully established by the end of 1995, including an approved list of 1063 enterprises for the first wave of MPP. The list makes up approximately 35% of the total amount of Bulgaria's state-owned capital, about 40% of which is expected to be privatized during the first wave. Registration for participation started in January 1996. Privatization auctions are planned to start in June 1996. The newly established Securities and Exchange Commission has been tasked with the licensing and regulation of privatization funds.

USAID Role and Achievements to Date: 1) USAID's assistance to the Municipal Privatization Program in Bulgaria has been pivotal in moving the privatization process forward during a two-year period when little action was taken by the central government. The program is part of a broader effort to promote decentralization and foster local government development. A major achievement is the design and implementation in 22 major cities throughout Bulgaria (about 20% of total population) of a simple, effective, sustainable, and replicable privatization model. To date, a total of 581 transactions for US $ 26 million have been executed. 2) USAID's assistance to the Center for Mass Privatization (CMP) has been crucial in the establishment of the entire legal and technological framework for the mass privatization process in Bulgaria, including the auction format, voucher design, computer and PR tender specifications, criteria for enterprise selection, standardized form for enterprise information memoranda, and the list of 1063 companies to be privatized.

Description: 1) The principal objective of the municipal privatization activity is to implement a quick grass roots privatization which would be transparent and would carry a clear demonstration message to other municipalities. The main focus of the project is to help municipalities sell small municipal properties through competitive auctions. In addition, an important objective is to institutionalize the capability at the municipal level to continue the program of privatization for the completion of the project. By providing confidence-building experience, developing public support, stimulating the emergence of sustainable local business consulting firms, the project demonstrates that economic development can be achieved through privatization. 2) The major focus of the mass privatization activity is the preparation of the supply side of MPP. In addition, due to the lack of other available resources at the time, USAID's contractor Barents has developed the urgent and time sensitive policy and procedural framework needed by the CMP. 3) USAID is designing a component to establish a private registry/depository for shareholders to help assure the integrity of the privatization process.

Host Country and Other Donors: Donors' assistance provided to the mass-privatization program in the country is in support of the World Bank requirements for the EFSAL. It is a paradigm of good coordination among donors. In response to the GOB's request, USAID mobilized immediate technical assistance thus filling the gap between immediate needs and the readiness of other donors to provide follow-on assistance. While USAID has initiated the assistance for the development of the organizational and legal framework, procedures, and mechanisms and has been working mainly on the supply side, the other two key players - EC PHARE and the British Know How Fund (KHF) are focusing on the demand side. EC PHARE program (some $1.9 million) concentrates on planning and implementation of the voucher scheme, as well as on the public relations and information campaign. KHF is mainlydealing with investment funds. Since the mass privatization was launched in early January 1995 and the GOB has demonstrated political will and commitment to proceed, EC PHARE has been considering assistance in support of the second wave of mass privatization and post-privatization support. Joint PHARE/EBRD work is under consideration on a Post-privatization fund. The Germans are working on the supply side - valuation of enterprises, focusing on market privatization. The French plan to assist the stock exchange development.

Beneficiaries: 1) Municipal Privatization: 22 municipalities throughout Bulgaria directly, more than 40 municipalities indirectly; 2) Mass Privatization: the Bulgarian populace.

Principal Contractors, Grantees, or Agencies: USAID implements current activities through a contract with Barents Group. An Omnibus II contract will be used for the share registry.

Major Results Indicators:

Municipal Privatization:
Ind. 1: An efficient, transparent, and replicable privatization model demonstrated in 22 municipalities.
Ind. 2: Number of municipalities adopt the demonstrated model.
Ind. 3: Number of privatized municipal entities.

Mass Privatization:
Ind. 1: An efficient, transparent, and replicable voucher privatization model designed.
Ind. 2: Registration network developed.
Ind. 3: Database of enterprises developed.
Ind. 4: Public support for MPP.
Ind. 5: Percentage of state-owned assets transferred to the private sector.
Ind. 6: Number of state-owned enterprises privatized over 67 percent.
Ind. 7: Number of mass privatization shares registered and deposited in a sound private depository.

Purpose: Increased growth of private firms in a competitive environment.

Background: The transition to a market oriented economy in Bulgaria has been slow. There has been very little market privatization and the voucher or "mass" privatization program is only now being implemented. Additionally, many of the dominant private enterprises operate as oligopolies. Increased competition and competitiveness are viewed as keys to rational private sector growth. Firm level assistance must strengthen private firms competitiveness, while policy, legal and regulatory environment assistance must strengthen competition in the system (and thus also competitiveness in firms) and provide a more level playing field. Pricing of energy must also reach international market levels if there is to be a dependable source for private sector growth. Subsidized rates also conflict with energy efficiency and competitiveness, as do the payments arrears of SOEs. The lack of an environmentally sound framework for private sector growth contribute to investor uncertainty. Finally, financial resources in the form of debt and equity funds must be made available to the emerging private sector, even in the absence of an efficient and well functioning financial sector, if the private sector is to continue to grow and expand on a sound basis.

USAID Role and Achievements to Date: USAID's strongest advantage,vis-a-vis the other donors, is its capacity to work directly with the private sector. While most other donors have suffered from the frequent changes of governments and the heavy bureaucratic burden of having to work through government ministries and institutions, USAID's ability to work directly with the private sector has enabled it to deliver well targeted and cost efficient assistance direct to small enterprises in the private sector. The marketing of the firm level assistance is being integrated into a strategic team effort of all USAID-financed business assistance providers and is targeted at assisting firms or entrepreneurs chosen on the basis of their potential to grow and compete in a competitive environment. A diagnostic process also provides a link to Bulgarian consulting firms in order to more effectively market, target and deliver services. One example of firm level success is SAMEX, a small private Bulgarian company. As a result of IESC assistance, they obtained a franchise from KFC and have created more than 200 new jobs sustained by annual sales of $2 million. In the absence of an efficient and well functioning financial sector, USAID is addressing the needs of the private sector for both debt and equity capital through the Bulgarian American Enterprise Fund (BAEF) and CARESBAC - Bulgaria, which have provided over $9 million of badly needed capital to Bulgaria's private sector.

At the policy, legal and regulatory level, business, and professional assistance is being provided to business associations both as a means of providing improved membership services and as a means of developing them into sustainable reform advocates who also promote, along with policy think tanks, reviews of policies, laws and regulations. An example is Land O'Lakes Dairy Program which assisted in the creation of Bulgaria's first democratically established and managed private Milk Producer's Association. The Association provides inputs, training and policy advocacy to more than 5000 producer members. The association also works together with Milk Way Dairy to improve and expand their product lines, resulting in expanded exports. Another example is ACDI and VOCA's assistance in founding the Private Meat Processors which is representing its members in negotiations with the Ministry of Agriculture on the implementation of EC-compatible sanitary regulations.

The drafting and implementation of key laws which foster competition and private sector growth are also critical to the reform process, and U.S. consultants recently helped draft Collateral and Bankruptcy Laws. The Treasury Tax Program has also been very effective in the equitable and transparent implementation and administration of taxes and thus is contributing significantly to the establishment of a "level playing field." An electronic network is being utilized to streamline the coordination of the various elements of USAID's private sector program. An expanded network for countries in the region is also being developed which will focus initially on the associations and think tanks but will also have links into the existing local area network.

Description: The recently completed SME Strategy for Bulgaria, which is facilitating the integration of the private sector programs, forms the basis for much of this S.O. which is now focused on three key intermediate result areas: (1) increased debt and equity funding for private firms, (2) strengthening of private firms' business operations, and (3) key laws, policies and regulations which foster competition and private sector growth. The marketing of firm level assistance is now being integrated into a team effort of all assistance providers and is directed toward assisting the most promising high growth firms in the private sector, which overall currently employs approximately 30% of the workforce and accounts for almost 40% of the GDP.

Host Country and Other Donors: Bulgarian host country contributions to USAID funded private sector development programs are limited to municipal support to the Peace Corps Business Development Centers and possibly cooperation with the planned municipal economic development agencies. Most other major donors in Bulgaria also have programs to support enterprise growth, but must work through government agencies.

The World Bank currently has two credit lines: (1) Private Investment and Export Finance ($55 million) that covers private projects in all fields but agriculture and (2) the Agricultural Development Project ($50 million) intended for private sector agricultural projects. World Bank funds for these programs are intermediated primarily by eligible private banks. The European Union, which operates through governmental institutions only, has two programs - one for financial support (two credit lines have already been launched) and one for structural support and consultancy, under which business centers are established to support the SMEs, and independent consultants at the Ministry of Industry propose policy and legislative changes. German assistance is concentrated on staff and management training, direct consulting services to selected enterprises, and assistance to the chambers of commerce. Germany also has a project for the establishment of a development bank with a planned funding level of 40 million DM. The United Nations Development Program (UNDP) is providing support to the modernization of the Intellectual Property System in the country.

Beneficiaries: The direct and primary beneficiary of this S.O. is the private sector. All citizens are, in effect, secondary beneficiaries, as a result of the overall improvements in the economy, the increased availability of jobs, and the increased quality, quantity and availability of consumer goods.

Principal Contractors, Grantees, or Agencies: USAID implements activities under this S.O. through a USG Departments; GOB ministries and courts; US and local Associations; US PVOs; US and local universities; US and local consultants; U.S. and local NGOs; and local business centers and economic development offices.

Major Results Indicators:*

Percentage of GDP provided by private firms
Number of debt and equity transactions
Number of targeted firms who adopt improved business operations or technologies
Sales growth in assisted firms.
Number of laws, policies and regulations implemented that promote growth and competition in the private sector.
Transparent energy pricing system established.

* These are illustrative indicators. ENI missions are in the midst of the complex process of developing measurable country-specific indicators and targets, which will be completed by June 1996.

Purpose: To build the capacity of Non-Governmental Organizations
(NGOs) in playing a key role in facilitating popular participation in public policy decision making. The program will develop grass roots organizations and the enabling legal regulatory environment for them, as well as promote information sharing and improve the credibility of information available through the media.

Background: Bulgaria's initial steps in the transition to democracy and a free market economy were impressive. By 1990 - 1991, Bulgaria's first democratically elected parliament in 50 years adopted a democratic constitution guaranteeing rights to individuals and passed many economic reforms. However, a highly centralized political and economic structure remains as a holdover of the past, discouraging citizen involvement and creating a sense of powerlessness. Political party machinery, like the central government itself, is highly centralized. The media, with new freedoms and difficult challenges, is highly influenced by partisan politics and lacks professionalism and ethics. Non-governmental organizations (NGOs) and professional associations are growing in strength and number, and they hold a key to empowering people to work together. However, there is no national law which legitimizes or regulates NGOs, which continue to operate under a loosely-interpreted clause of the basic Family Law. Furthermore, popular receptiveness to this 'third sector' is cautious, as voluntarism was construed quite negatively under the Communist regime. Given the difficult operating environment for this emerging sector, the NGO community is still quite small and fragile for the most part, with a few well heeled exceptions.

USAID Role and Achievements to Date: USAID programs to date have promoted free and fair elections, citizens involvement, and political accountability and transparency. The Bulgarian Association for Fair Elections and Civil Rights (BAFECR), has become a model election-monitoring organization and is assisting similar organizations in Central Europe and the world; its non-election period activities focus on increasing citizens' awareness of and interest in the democratic process and on empowering local leaders and transferring organizational skills.

The Democracy Network program, created in 1995, is beginning to build capacity of NGOs to strengthen participatory democracy. The CEELI program has helped develop the first independent NGO for training and support of the legal profession in Bulgaria. The International Republican Institute program has supported development of a multiparty political system.

Description: Public participation will be increased through: 1)strengthening capacity of NGOs to provide a voice for individuals working together, supported through grants, technical assistance and training; 2) strengthening linkages between local organizations and local government through supporting activities that demonstrate that individuals can make a difference for their community; 3) increasing the public's access to fair and reliable information through a more professional and responsible media; and 4) seeking means to support legislative reform (especially for NGOs) and providing training in implementation of supportive legislation.

Host Country and Other Donors: EC PHARE promotes strengthening the Bulgarian Third Sector through its Democracy program, administrated by the Civil Society Development Foundation. The European Union and USAID are committed to support grassroots organizations' activities in drafting new media law/regulations. The British Know How Fund, Charities Aid Fund, as well as the Open Society Fund are complementing their efforts in providing funds, technical assistance and training to indigenous organizations advocating democratic changes in Bulgaria.

Beneficiaries: Indigenous grassroots organizations and, more generally, the Bulgarian populace will benefit from these activities at the community level.

Principal Contractors, Grantees, or Agencies: USAID implements activities through U.S.-based NGOs, Bulgarian local government, and indigenous NGOs including The Institute for Sustainable Communities, the National Forum Foundation, and the Center for Not-For-Profit Law.

Major Results Indicators*:

Law implemented providing regulatory framework for NGOs.
Consensus-Building partnerships (e.g. Public/Private, NGO/NGO, NGO/Public, etc).
Number of community-level information systems.
Percentage increase in positive public response to credibility of information among target groups.
USG-supported Organizations increase income generated from non-USG sources.

* These are illustrative indicators. ENI missions are in the midst of the complex process of developing measurable country-specific indicators and targets, which will be completed by June 1996.

PROGRAM: BULGARIA
TITLE: Local Government, 180-S002.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1997: $2,200,000 SEED
INITIAL OBLIGATION: FY 1995; ESTIMATED COMPLETION DATE: FY 1999

Purpose: To support the transition to transparent and accountable governance and increased decentralization and local autonomy through: building the capacity of local officials to better (more effectively and responsibly) manage municipal resources and be responsive to citizen needs and demands; facilitating local economic development as a means of empowering citizens as well as supporting the emergence of market forces; supporting associations of municipalities so that they better serve their members and begin to lobby effectively at the national level.

Background: More than 50 years of monolithic, undemocratic rule has left Bulgaria with a highly centralized framework of governance. Great progress towards free elections has not been paralleled by increased governmental ability to respond to the needs of the people. There is only limited decentralization of central government authority at the regional level. U.S. assistance to date has revealed that building the capacity and citizen involvement in local governments is crucial to support the efforts of reform-minded, innovative local officials who are striving to make government more responsive to the people.

USAID Role and Achievements to Date: In 1995, the Local Government Initiative (LGI) was launched in ten change- oriented municipalities, to accelerate and concentrate USAID assistance for strengthening both the capacity and accountability of local governance. The LGI also facilitated formation of several regional associations and a national association of reform mayors, helping them to overcome strong barriers to working together and sharing information, and to take the first steps at creating a unified voice for local government. The association has already demonstrated its importance by providing inputs to the drafting of amendments to the local government law.

USAID's efforts have led to results such as adoption of municipal plans with clear development priorities, establishment of a Foundation for Local Government to support decentralization, a mayor's use of the media to combat organized crime, establishing model financial and administrative systems, reducing the percentage of municipal rents in arrears from over 60% to under 20% in a few months, assisting in the institutionalization of transparent and open bidding processes (for municipal development sites) in three municipalities and disseminating the process to several others; and establishing a municipal data exchange network facilitating communications among the municipalities. The activities will increase the capacities of local governments and local government associations to represent themselves on a national level, to act independently, to manage their own affairs, and to meet the needs and demands of their citizens.

Description: Local governments are being strengthened through: 1) capacity building by implementing LGI municipal development plans with the newly-elected local government officials; 2) further developing public participation and involving the citizenry in improving the quality of municipal services; 3) increasing the membership and organizational capacity of municipal associations, especially to lobby the central government; and, 4) institutionalizing training in local public administration. Parallel national efforts are required as well, such as training provided to central government ministries (as sustainable decentralization cannot occur without support and legislation from this level), improving the legislative framework, and replicating principles and experience gained in decentralized government.

Host Country and Other Donors: The British KHF is providing assistance to the municipal administration in several cities in the country, following the demand-driven approach. The focus is on the establishment of a Municipal Development (Investment) fund, tourism, housing development and agriculture. A resident KHF advisor is working at the Ministry of Regional Development and Construction coordinating the assistance. At the specific request of the Bourgas municipality experts from Netherlands are reviewing the legislation on solid waste. The Dutch plan to further work at local level following an initial needs assessment, and the Swiss have a program much like elements of ours with different municipalities. USAID and other donors are jointly building the capacity of municipal associations, particularly their continuing efforts to pursue legislative changes supporting decentralization and strengthening of local government.

Beneficiaries: The LGI will directly benefit the people and the local officials of the 10 target municipalities. The rest of the populace will benefit through replication of successful models developed in the target municipalities as well as through the strengthening of democracy at the local level.

Principle Contractors, Grantees, or Agencies: USAID implements activities through U.S. and local organizations, including The Urban Institute, The International City Managers' Association, Chemonics, KPMG, the University of South Carolina, and other private firms and non-governmental organizations. Activities are supported and coordinated through a coordinator's office.

Major Results Indicators*:

Number of legal changes and provisions that promote independent municipal finance, and private property and enterprise.
Percent of local funding that is self-generated.
Number of public hearings by local government.
Number of public/private partnerships.
Number of local administration training models implemented by local institutions.
Number of cities with regular garbage collection.
Number of citizen organizations dealing with local government issues.

* These are illustrative indicators. ENI missions are in the midst of the complex process of developing measurable country-specific indicators and targets, which will be completed by June 1996.

Purpose: To strengthen the capacity to manage the human dimension of the transition to democracy and a market economy and to help achieve sustainable development of social benefits and services.

Background: Since the dismantling of the centrally planned economy in 1989, the high rate of inflation and the absence of a modern legal framework undermined severely the living standards of the population. The existing social benefit system is critically in need of reform, as the system is inefficient, regressive and too costly under current budget realities. The State is struggling to achieve greater sustainability, change the existing administrative practices and improve services to target those most in need.

USAID Role and Achievements to Date: With USAID's support, three health programs have been carried out in Bulgaria to improve capacity to deal with cardio-vascular diseases, pediatric trauma and ophthalmic care. Programs have provided American technologies and techniques to serve as models for continuing education. Up-to-date coding practices are laying the basis for movement towards broad reform in hospital finance. As jobs-for-all policies were relinquished, the U.S. was able to help the GOB put in place effective regional employment services nation- wide, and an early intervention mechanism was developed for quick response in cases of mass lay offs. A community approach to the work force needs of socially disadvantaged groups was developed, and has already brought substantial savings from welfare benefits. USAID programs have also improved workers access to social benefits and services through collective bargaining.

Description: USAID is focusing on the following activity areas in F 1996 and beyond: support for social insurance reform, continuing to improve employment services and dislocated worker programs, and helping strengthen the capacity to deal with these issues on a sustainable basis.

Host Country and Other Donors: The World Bank and GOB are to finalize negotiations on an investment loan incorporating USAID-funded TA, which will be keyed to supporting social insurance reform. EC PHARE has provided assistance for the preparation and establishment of an automation system for the social assistance system. UNDP completed a comprehensive training program for social insurance staff at the central and the regional levels, while the British Know How Fund finances advisors to the National Employment Service and the Social Security Institute. Good working relations have been established with the Bulgarian Ministry of Labor and Social Welfare and the GOB has been successful in submitting important social legislation to Parliament.

Beneficiaries: Unemployed, ethnic minorities and other disadvantaged groups of the population, pensioners.

Principal Contractors, Grantees, or Agencies: USAID implements activities through MSCI, USDHH, Solon Inc., the USDOL, the Free Trade Union Institute of AFL-CIO.

Major Results Indicators*:

Revenues per Beneficiary
Coverage of Individual Social Security Contributors and Insured
Administration of Social Benefits and Services Responsive to Regional and Local Variations
Public Acceptance of the Reform of Social Benefits and Services
Industrial Relations in line with Free Market and Democratic Principles

* These are illustrative indicators. ENI missions are in the midst of the complex process of developing measurable country-specific indicators and targets, which will be completed by June 1996.