BULGARIA
In this section:
Reform Beefs Up Bulgarian Pensions
Loans Help Textile Firm Grow
Students from Minsk Move to American University
in Bulgaria
Reform Beefs Up Bulgarian Pensions
SOFIA, Bulgaria—When the collapse of communism left millions
of Bulgarians with a failing pension system, USAID helped create two
new retirement security systems: one of them allowed workers to contribute
voluntarily to old age funds, and another required them to chip in to
a separate fund.
Confidence in the new system has led to a major increase in contributions
by Bulgarian workers.
“Only a combination of various elements could ensure a retirement
standard that would be at least 80 percent of what the person received
while working,” said Nikola Abadjiev, chairman of the Bulgarian
Association of Supplementary Pension Security Companies.
Starting in 1998, the association worked with the country’s pension
agency, the National Social Security Institute (NSSI) to reform the
pension sector. USAID invested more than $10 million in a seven-year
reform project that ends next year.
Bulgaria’s old system was government administered, with pensions
depending on the length and type of employment. After the collapse of
communism, the government could no longer support the system.
Reforms to the traditional system increased the retirement age for
both men and women and created the two additional private pillars to
the pension system.
A 1999 law made it mandatory for people born after 1959 to contribute
monthly into pillar two, which invests contributions into one of eight
private pension insurance companies. A second law created pillar three,
which is structured like pillar two but is voluntary.
Today, 2 million people make private contributions into the pension
system, with half a million of them contributing to the voluntary scheme.
USAID help for the Bulgarian reforms was based on its experience with
pension reforms in Latin America. As a result, Bulgaria has one of the
most advanced pension systems in Europe, said Abadjiev.
When pillars two and three came into existence, USAID supported a
massive public awareness campaign that included print, television, and
radio advertisements; town hall meetings; and the creation of the country’s
first government call center.
In the 16 months of its operation, the center took 39,000 calls, making
it one of the most massive educational efforts in Bulgaria last year.
The Bulgarian Public Relations Society awarded its annual PR prize
to USAID’s project in April 2004 for its efforts to provide information
such as employment programs, social assistance, and benefits for people
with disabilities.
“The attitude of people was very skeptical, which is why we invested
a lot in the public education campaign,” said Rayna Dimitrova of
USAID/Bulgaria.
In Bulgaria, less than one worker supports one pensioner while, for
a pension system to be effective, that ratio should be at least 4-to-1,
said Hristina Mitreva, general director at NSSI.
Unemployment is a challenge. But an aging population (the average
age in Bulgaria is 40.7 years, compared to 32.3 years in the rest of
Europe), a historically low birthrate, and foreign immigration of working-age
people have compounded the problem.
The persistence of a gray economy—where employers pay workers
off the books to avoid transferring contributions like healthcare or
pension benefits to the government—is also crippling the pension
system.
That is the greatest challenge the new system faces, Mitreva said.
NSSI is addressing this by increasing coordination between agencies
to track the number of workers in the country and ensuring firms are
paying their obligations. Employers are further pressured by a requirement
to register all employment contracts and negotiated salaries.
USAID helped this effort by funding the design of a software information
system that keeps track of all benefit contributions that employers
pay to the government on behalf of their workers. It also supported
the establishment of a pension regulator, which supervises the second
and third pillars of the pension system.
The reforms do not alleviate the situation for people who are already
retired. But for those retiring in the coming years, the three-pillar
system will ensure higher pensions and a sustainable system, Abadjiev
said.
Loans Help Textile Firm Grow
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In the sewing room at RMD, Rositsa
Nikolova hums along, designing and sewing clothes.
Kristina Stefanova, USAID |
SOFIA, Bulgaria—A small textile company started in 1999
with a microloan has grown into a business with a wide list of clients
and three stores.
Rositsa Nikolova and Jasmina Tarpomanova, two of the owners of the
textile manufacturing and trading company named RMD, have taken out
seven loans totaling more than $20,000 through Nachala Cooperative,
an NGO backed by USAID that lends to small businesses.
The women used the funds to purchase new sewing and printing machinery
and open new stores.
Through Nachala, which means “beginnings” in Bulgarian,
borrowers can also receive loans at lower interest rates and faster
than at a bank. Since it was started in 1997, the group has lent some
$20.3 million to nearly 10,000 small businesses. About half the loans
are taken out by women.
“It seemed the best option for us because we were able to borrow
a smaller amount than at the bank and we can pay it back more easily,”
said Tarpomanova.
She took out her fifth and largest loan of about $6,200 this summer
and used the money to buy a pattern plotter, a machine that reprints
shapes automatically. Before, the shapes had to be spraypainted by hand.
At the company, Rositsa Nikolova designs, sews, and sells pants, shirts,
sportswear, and sleepwear. A fast-growing line is the production of
corporate uniforms for Coca-Cola, Ford, and Volvo.
RMD operates in rented space in the outskirts of Sofia and employs
37 people. It also owns a growing number of specialized knitting, sewing,
embroidering, and printing machines.
“We lend to the kinds of businesses that cannot get loans through
the banks because they are too small and don’t have the kind of
collateral required,” said Tzvetomira Beshkova, a Nachala loan
officer.
USAID invested $4 million in Nachala; today the group is
self-sustaining.
Students from Minsk Move to American University in Bulgaria
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Alexandra Stsefanovich and Dzianis Bykhankou
at the AUBG library.
Kristina Stefanova, USAID |
BLAGOEVGRAD, Bulgaria—Alexandra Stsefanovich, Dzianis
Bykhankou, and Natallia Medleva never thought they would study in Bulgaria
some day, let alone at the USAID-funded American University (AUBG) here.
But they were left with few options when President Alexander Lukashenko
of Belarus unexpectedly shut down the European Humanities University
(EHU), a private liberal arts college in Minsk where the three would
have started their junior year in September.
“They took the building away and the professors found out in
the morning,” said Stsefanovich.
The Belarussian government asked university officials in July to vacate
the premises in a few weeks. Shortly after, the government revoked EHU’s
operating license, saying that the school did not have adequate facilities.
USAID’s Regional Mission in Ukraine, which has
invested about half a million dollars in EHU since its inception in
1996, sought to help some 1,500 students who, at the last minute, were
left without a school.
No mission responded as quickly as USAID/Bulgaria, which referred
some of the students to AUBG, an institution in which the Agency will
have invested more than $60 million by 2006. The university offered
scholarships to five students. Three of them accepted the offer and
began classes this fall.
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