Bulgaria
The Development Challenge
Bulgaria's transition to a market-based democracy has been slow and troubled. Despite the exceptional progress of the past six years, the country remains poor with the lowest compensation levels in Central and Eastern Europe. Macroeconomic stability and democratic politics have not yet been transformed into tangible social improvements for the majority. Bulgarians are frustrated and angered by the influence of organized crime and endemic corruption. Lack of transparency and accountability; serious delays in the judicial system; legal professionals with inadequate legal expertise and experience; the politicization of the judiciary; human trafficking; and waste, fraud and abuse in government procurement feed general distrust in the public institutions, hamper business investment, and prevent Bulgaria from meeting international and European Union (EU) standards in the rule of law area. Fiscal decentralization is far from complete and requires political will to speed it up. Despite the favorable legal environment and the increased number of active NGOs, the sustainability of Bulgaria's civil society sector remains fragile.
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In spite of the sustained solid macroeconomic performance and sound financial discipline, Bulgaria's real GDP remains below its pre-transition level and foreign direct investment remains low. The business environment, though improving, continues to hinder investors with frequent changes in the legislative framework, poor law and contract enforcement, and burdensome administrative barriers. While unemployment started to decline in 2003, living standards have not yet improved for all Bulgarians. Ethnic minorities, the long-term unemployed, and people with low education continue to face poverty. Therefore, one of the key challenges is to ensure that growth generates wealth for all groups in society. To realize Bulgaria's potential and meet the aspirations of all, the country will also need to stay on course in tackling the remaining challenges in its transition agenda, including: creating an efficient and competitive business environment; finalizing second generation economic reforms with an emphasis on key privatization deals in the telecommunications, tobacco, and utilities sectors; putting in place better and transparent government systems; and improving the quality and access of social services for all citizens. While the Bulgarian Government (GOB) remains committed to addressing these challenges, the pace of reform has been mostly uneven. Increasing disagreements within the ruling majority and constantly declining support for the current government point to a growing uncertainty as to the future of the cabinet, whose current mandate runs through the spring of 2005.
U.S. national interests in Bulgaria are two-fold: Bulgaria remains a dependable ally and a reliable partner in the war on terrorism; and has the potential to continue to be a stable political and economic anchor in Southeastern Europe, contributing to the stabilization of the Balkan region.
The USAID Program: The Program Data Sheets provided below cover the four strategic objectives for which USAID is requesting FY 2004 and FY 2005 funds. These objectives are in compliance with the priorities identified in the recently approved Graduation Strategy for Bulgaria, with FY 2006 the last year of SEED assistance: enhanced rule of law, economic growth and increased prosperity, local governance, and program support. To assist in the process of institutionalizing the rule of law, USAID devotes resources to modernizing the court administration, increasing the capacity of legal professionals to apply the law equally and swiftly, and combating corruption and trafficking in persons. On the economic front, USAID fosters the development of a competitive and thriving market economy as an approach to spread the benefits of increased prosperity for the majority of Bulgarians. The Mission will seek to improve the Bulgarian business climate, boost economic growth, and contribute to job creation by improving the legal/regulatory environment to attract investments and encourage the growth of small and medium enterprises (SMEs), enhancing the competitiveness of priority industry clusters, facilitating trade, and providing access to credit. In the area of local governance, USAID focuses on fiscal decentralization, building the capacity of municipalities to cope with increased responsibilities and supporting NGOs that advocate on behalf of local governments. This effort is complemented by community-level activities, which provide increased opportunities for ethnic minorities and encourage greater ethnic tolerance. To mitigate the adverse social impact of transition, the Mission will continue to support crucial reforms in the areas of labor market efficiency, healthcare financing, pension reform, and inclusion of vulnerable groups. FY 2004 funds will be used to implement ongoing programs in rule of law, economic and democratic development, local government, and the social sector as described in the FY 2004 Congressional Budget Justification. USAID also intends to use FY 2004 funds to carry out certain new activities or modify existing ones in response to changing circumstances.
Other Program Elements: In addition to the resources requested in the Program Data Sheets, Bulgaria will benefit from several regional programs. Bulgarian non-governmental organizations (NGOs) will benefit from the Balkan Trust for Democracy, and the Regional Youth program. Bulgarian municipalities will participate in the regional Fiscal Decentralization Initiative. The country will also benefit from USAID/EGAT managed programs dealing with corporate governance, commercial law reform, and information technology for development. Bulgaria will participate in several E&E managed initiatives, including the Regional Infrastructure Program for Water and Transportation, the Energy Regulators Regional Association, and Balkan Regional Electricity Markets. In addition, Bulgarian experts will participate in 14 long-term academic and two short-term programs in U.S. universities, and over 150 trainees will attend short-term in-country training under the Eastern and Central Europe Scholarship Program. The American University in Bulgaria also continues to receive USG support.
Other Donors: EU support to Bulgaria has progressively increased, with the EU currently being the largest multilateral donor providing nearly $300 million per year. Assistance is channeled through three pre-accession instruments: PHARE (institution building, regulatory infrastructure development, and economic/social cohesion), SAPARD (agricultural and rural development), and ISPA (environment and transport infrastructure). The EU Accession Roadmap envisions a progressive increase in assistance towards 2006. Given that increased funding is subject to the country's absorptive capacity, Bulgaria might not be able to take full advantage of this opportunity. World Bank assistance to Bulgaria has been set at $750 million for 2002 - 2005. The United Nations Development Program (UNDP) centers its Country Cooperation Framework on good governance, job creation, information technology, and environmental protection.
USAID is among the leading bilateral donors in Bulgaria and the only bilateral represented at the donors' task force, closely working with the Deputy Prime Minister to streamline the coordination efforts. Other major bilateral donors include the Swiss Government (natural resources management, social services, small and medium enterprises (SMEs)); Dutch Government (agriculture, industry and technology, energy and environment, transport and infrastructure, civil society); German Government (agriculture, SMEs); Japanese Government (infrastructure development), and the British Know-How Fund (public sector, civil society, financial markets, social welfare). While USAID was the first donor to announce its graduation strategy, others are already thinking in the same direction, linking their graduation dates to Bulgaria's EU accession in 2007.
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