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FY 2007 SEED Act Implementation Report

Bureau of European and Eurasian Affairs

FY 2007 U.S. Government Assistance to and Cooperative Activities with Central and Eastern Europe

BULGARIA

Country Overview

U.S. FOREIGN POLICY AND FOREIGN ASSISTANCE OBJECTIVES & PRIORITIES

The United States government’s (USG) overriding goal in Bulgaria is to help the country become a modern European democracy that is a strong partner of the United States both in the region and globally. Four strategic priorities govern U.S. foreign policy in Bulgaria: strengthening Bulgaria’s capacity to contribute to international security; strengthening the rule of law; promoting an active Bulgarian role in NATO and European Union (EU); and building on the opportunities that EU membership brings to expand trade and investment with the United States (U.S.).

OPERATING ENVIRONMENT

Bulgaria’s January 1, 2007 EU accession was perhaps its most important event in FY 2007. But despite this progress, Bulgaria’s reforms are far from complete. In June of 2007, the European Commission’s assessment of Bulgaria’s reform progress concluded that, despite some improvements, much remained to be done. The Commission confirmed that corruption and organized crime were its main issues of concern. The Commission declined to impose sanctions on Bulgaria restricting access to funding, giving the country more time to reform. The USG also used its limited resources to further boost Bulgaria’s work in security and law enforcement. The need to respond to EU requirements helped preserve unity within the ruling coalition, although at times the relations between the partners have been problematic. The government easily survived two votes of no-confidence. It has consistently implemented responsible macroeconomic and foreign policy priorities.

FY 2007 Country Program Performance

PEACE AND SECURITY

Military Reform - In FY 2007 the USG provided the Bulgarian defense forces with field equipment (body armor, tents, sleeping bags, etc), a personnel management system, an integrated logistics system, a modeling and simulation center, navigational aids, tactical vehicles and training for 80 military personnel. Three Democracy Commission grants were also given to a number of local NGOs to inform the public about American service members’ use of Bulgarian military bases. A telephone hotline was also created to address the public’s concerns and community centers and public-information forums were established in all key cities, towns, and villages around the bases. Despite some domestic opposition, the Government of Bulgaria (GOB) extended and increased troop deployment for Afghanistan and in Iraq. Bulgaria also maintained peacekeepers in Bosnia and Kosovo, and contributed to UN operations off Lebanon. The U.S. and Bulgaria also finalized Implementing Agreements for joint training facilities within Bulgaria.

Combating Organized Crime - The USG also seeks to minimize the adverse effect of Bulgarian organized crime both within the region and on the United States. To achieve that aim the USG gave technical assistance to Bulgarian law enforcement officials on how to investigate and prosecute transnational organized crime more effectively. Sixty-nine prosecutors and judges were trained, and over 100 Bulgarian officials participated in exchanges with American experts on comparative approaches to fighting organized crime and corruption. Facilitated by the USG, Bulgaria signed an agreement with Serbia, Bosnia-Herzegovina and Montenegro on witness relocation. Bulgaria participated in five roundtables organized by the USG for prosecutors on the Southeast European Cooperative Initiative (SECI) Center and the Southeast Europe Prosecutors’ Advisory Group (SEEPAG). As a result 80 Bulgarian prosecutors became more knowledgeable about how SEEPAG can help prosecution of transnational cases.

To develop capabilities for combating financial crimes and money laundering, the USG delivered five workshops on financial investigation and financial profiling to 80 prosecutors and police in financial profiling. Seventy-six prosecutors, five judges, six officials from the Ministry of Finance and 10 from the Ministry of Interior participated in two workshops on money laundering typologies, indirect methods of proof, and use of demonstrative evidence to present understandable pictures of complex financial crimes to the fact-finder. A computer donation to the money laundering unit within the Supreme Cassation Prosecution Service enabled the unit to build a network to manage and track complex money laundering cases. In FY 2007 Bulgarian authorities uncovered and neutralized 60 money laundering groups and obtained 12 money laundering convictions. Bulgarian police disrupted two networks of individuals producing and distributing illegal music, movies and software files. Bulgarian law enforcement disrupted and restricted access to a major torrent tracker website. The prosecution service reported 40 convictions of recognized organized crime figures, and 24 prosecutions of government officials in the first half FY 2007.

Combating Trafficking in Persons - USG assistance programs in combating trafficking in persons addressed the broad spectrum of protection, prosecution and prevention issues. Major efforts focused on building Bulgaria’s institutional capacity by strengthening the National Anti-trafficking Commission, which coordinates interagency efforts. The USG program helped establish a 15-member expert group comprised of representatives from relevant state entities to support the National Commission’s Secretary in her daily work and sent the members of the group on a study tour to a source and a destination country for trafficking victims. With USG support, the refurbished office of the National Anti-trafficking Commission was officially inaugurated in October 2007.

The National Anti-trafficking Commission and its expert group, with technical assistance from the USG, developed Bulgaria’s National Action Plan for Combating Human Trafficking, already approved by the Council of Ministers. Seventy-one persons were convicted on trafficking related charges. National Border Police developed a film and training modules to educate front-line officers on identification, interviewing, and assisting victims of trafficking. The Bulgarian Ministry of Foreign Affairs implemented a trafficking awareness program to standardize identification and referral procedures for victims of trafficking by Bulgarian consular officers posted abroad.

GOVERNING JUSTLY AND DEMOCRATICALLY

Governance - In the area of governance, municipal revenue generation was one of the USG’s most notable successes. The Bulgarian parliament approved an amendment to the Constitution allowing local governments to set local tax rates. Five European Union-based participant training programs exposed representatives of central and local governments to the Hungarian public procurement model, the local economic development patterns in Estonia, and EU funds absorption in Greece. Two in-country trainings for 48 local municipal experts focused on EU procedures and funding opportunities. The City Links project pioneered aprofessional approach to Local Economic Development (LED) that resulted in Bulgarian municipalities establishing 29 LED offices, and 22 municipalities establishing Economic Development Advisory Boards. Through dedicated municipal marketing, training and certification efforts, 120 million euros in new investments have flowed into participating Bulgarian cities, and local companies have expanded by 20 million euros and created 1,640 new jobs.

The USG also assisted Bulgaria to strengthen its national audit system by developing and providing the National Audit Office with software for two national registries: one with the financial disclosure information of all high public officials and one providing declarations of political party assets/ contributions. In addition, the USG assisted the fledging national organization of certified auditors and worked with the public procurement agency to complete the public procurement register. With USG support, the Center for the Study of Democracy (CSD) continued consolidating anti-corruption reforms in Bulgaria. The Corruption Monitoring System established by CSD was further enriched in FY 2007 with a series of new analytical documents. The Annual Corruption Assessment Report, published for the past eight years with USG funding, is seen in Bulgaria and throughout the European Union as an authoritative source of information.

Rule of Law - In the area of rule of law, the new Bulgarian law for the judiciary increases transparency by mandating internet posting of all court decisions. An independent survey ranked USG-assisted courts 19% higher in the level of availability of information, 14% higher in the efficiency of trial proceedings and 10% higher in the quality of administrative services than non-assisted courts. After just one year of work with the courts in the largest Bulgarian cities, the public’s extremely negative perceptions about court operations dropped by 16% and their expectations of fairness increased by approximately the same percentage.

ECONOMIC GROWTH

The USG’s priority in the Economic Growth sector is to promote an environment conducive to economic growth. Although phase-out of USG economic assistance accelerated this in FY 2007, it still covered a broad range of activities intended to encourage investment, private sector growth and job creation.

Private Sector Competitiveness - In FY 2007, USG programs were the driving force behind implementation of a fundamental reform in enforcement of contracts achieved during the previous reporting period. To strengthen the reformed system, USG-funded experts worked with the Ministry of Justice (MOJ) and the Chamber of a new profession of private enforcement agents (PEAs). They developed procedures for effective supervision of PEAs by the MOJ, built an information system to facilitate PEAs’ work, introduced standardized and transparent practices and strengthened the Chamber. USG programs provided over 1,000 days of training to the 168 PEAs and over 180 days of training to 90 MOJ officials.

Implementation of the Business Registration Act, adopted with U.S. assistance in 2006, was a major challenge in 2007. The law removes the registration process from the judiciary, centralizes it in the MOJ, and makes it electronic, thus easing market entry and enhancing transparency in the business sector. As a result of political and organizational difficulties at the MOJ, the entry into force of this law was postponed by six months until January 1, 2008. Despite difficulties in implementing business registration reform, the Bulgarian MOJ, with USG technical assistance, successfully finalized the information system for the new registry. Several USG small grants contributed to an improved enabling environment by streamlining the issuance of construction permits; the new process removes conflict of interest concerns, making the process more transparent.

A business and trade development program provided training, volunteer and consultant-based business support services to business support organizations and small and medium enterprises (SMEs). The program created the Authentic Bulgaria independent quality mark, establishing a benchmark for tourism products. Through the Authentic Bulgaria initiative, the USG assisted 92 small tourism providers to improve their products and attract higher-value tourists. In addition, a trade development program supported twelve Bulgarian software and Information and Communication and Technology (ICT )service companies in obtaining the internationally recognized quality standard certification (CMMI), thus helping them achieve process maturity and gain competitive advantage. An important legacy of the USG support to the SME sector is the Internet-based platform that provides user friendly and current information about the financial products available for Bulgarian small and medium enterprises.

To improve the supply of sufficiently and appropriately skilled labor, the USG established 34 career development centers at universities and two at vocational schools, as well as a system for career facilitation within the Ministry of Education. More than 150,000 students can access the services of the career development centers. More than 120 counselors received the internationally recognized Global Career Development Facilitator certification and a National Board of Career Counselors was launched in Bulgaria. USG-funded fellowships supported sixteen students who completed a Masters of Science in Information Systems program jointly delivered by the Stevens Institute of Technology and Sofia University - the first program in Bulgaria to combine management and Information Technology (IT) training. Through the Junior Achievement Bulgaria (JAB) program, the USG continued to support entrepreneurship and student operated mini-enterprises. As a result, over 16,260 Bulgarian students participated in entrepreneurship educational programs during 2006/2007 academic year. The number of teachers trained to teach Junior Achievement programs doubled in a year reaching 220. JAB secured approval of its business education programs by the Ministry of Education and signed a partnership agreement with the Sofia University to include JAB teachers training in the academic program.

Financial Sector - In its support of the financial sector, the USG continued using development credit authority (DCA) guarantees to improve access to credit, particularly for competitive sectors of the economy. By the end of FY 2007, the cumulative use of these guarantees exceeded $98 million. The current utilization balance for the four partner banks under five guarantee schemes exceeded $26 million in loans. These loans mainly supported SMEs and agricultural borrowers. A municipal credit Development Credit Authority (DCA) facilitated municipal access to infrastructure credit with loan guarantees for municipal infrastructure projects. The two USG microfinance legacy institutions continued to operate on a sustainable basis with no direct USG support. USG programs enabled financial sector regulatory institutions to provide better oversight of the increasingly sophisticated financial system. USG assistance helped the Financial Supervision Commission develop a risk based supervision methodology and an actuarial certification program with nine applicants passing the first series of qualifying examinations.

Agriculture - USG programs continued to facilitate agricultural loans to small and medium size farms by establishing linkages between farmers and banks. Several participating banks created mobile units to seek rural customers and expanded their client base. Banks modified products to fit the needs of the farmers. As of September 2007, over 450 new loans have been extended to farmers for over $5 million, 30% of which were new clients. In addition, the program developed a training kit and record keeping system to teach farmers how to keep, record and analyze financial records both for the purposes of applying for capital, and for better management of their business.

A food safety program trained over 600 veterinary inspectors and plant managers from the meat and dairy processing sectors to implement and audit the new food safety system that is required by law. In addition, the Bulgarian Food Safety Agency received practical guidance on key inspection and audit tasks. The animal health and genetics program provided technical knowledge and advanced farming practices to the Bulgarian dairy industry, while improving the dairy herd by supporting the import and sales of high-quality U.S. genetics. The USG-funded activities in the agriculture sector improved Bulgaria's public health systems by assisting the GOB Food Safety Agency and the food industry in meeting international food safety standards. One important outcome of the technological assistance is the fact that Bulgarian farming has been the number one international market for dairy genetics in two of the last three years for the leading U.S. exporter of animal husbandry genetics, with sales reaching record high in 2007.

Bulgaria has substantially reduced policy and regulatory barriers to establishing businesses and improved contract enforcement, thus providing a more favorable environment for the growth of private sector competitiveness. In FY 2007, the utilization and effectiveness of the new, private system for enforcing judgments increased exponentially. During the first six months of its operation in 2006 the system handled approximately 20,000 cases and successfully closed approximately 2,000 cases. For the same period in FY 2007 the workload mounted to over 60,000 cases with over 6,000 successfully closed. As a recognition of Bulgaria’s achievement in reforming enforcement, the World Bank “Doing Business 2008” ranked Bulgaria among the top ten reformers in the world for 2006/07.

INVESTING IN PEOPLE

In the area of higher education, the American University in Bulgaria (AUBG) received the final tranche of funding from the EUR 22.7-million endowment. This year, AUBG celebrated fifteen years of existence as a four-year American style liberal arts institution and now has over 1,200 graduates. AUBG’s last financial audit showed significant improvements over the last three years. In FY 2007, AUBG successfully raised over EUR 1 million in private contributions, thus contributing to the overall financial sustainability of the University.

Due to its proximity to Turkey and Romania, Bulgaria is at risk for the highly pathogenic strain of Avian Influenza (AI), and has already experienced some limited outbreaks. In FY 2007, the USG continued to implement four programs to improve Bulgaria’s preparedness to deal with AI. In cooperation with the World Health Organization, the USG trained 264 state experts on how to deal with an AI pandemic. In addition, more than 400 veterinarians, including all state and a huge number of private ones, improved their professional knowledge in dealing with AI. Professional equipment and computers were donated to the Ministry of Health AI Laboratory to improve surveillance, prevention and control of AI. In addition, the USG donated 4,500 personal protective equipment sets. Through the public awareness program, an indigenous NGO translated training materials and manuals, developed an AI awareness website, and worked with the zoo-technical commissions throughout the country to educate the public on AI related issues.

HUMANITARIAN ASSISTANCE

In summer 2007, Bulgarians faced loss of property, loss of livelihoods, and actual and potential loss of life caused by heat wave-related wildfires. The fires affected approximately 23,000 decares and damaged woodlands, natural parks, and farmlands. An emergency situation was declared in four regions and 11 municipalities. The USG immediately responded to the request of the Bulgarian government for assistance and $50,000 was released for immediate disaster relief. The USG resources bought firefighting and communications equipment.

FY 2007 Measures of Country Performance

The following data are based on the Monitoring Country Progress in Europe and Eurasia system developed by the United States Agency for International Development (USAID) to measure and track progress in the region. The system uses four different indices to monitor progress, drawing on readily available standardized country-level data on economic reform, economic structure and performance, democratic reform, and human capital. The primary data sources are the European Bank for Reconstruction and Development (EBRD), the World Bank, the United Nations Children’s Fund (UNICEF), and Freedom House. The data for each of the four indices are converted and standardized to a 1-to-5 scale, with a “5” representing the best performance of the Eastern Europe and Eurasia region, and a “1 the least advancement of the region.

Bulgaria’s Democratic Reform* Scores in 2006 compared to Romania and Bulgaria in 2002

The graph to the left shows Bulgaria’s democratic reform scores in 2006* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s democratic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership. *Actual 2007 scores not yet available

Bulgaria’s Democratic Reform Scores in 2006 compared to its Reform Scores in 1999

The graph to the left shows Bulgaria’s democratic reform scores in 2006* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line). *Actual 2007 scores not yet available

*Democratic reforms include the electoral process (the extent to which elections are free, fair and competitive), civil society (primarily NGO development), the independence of media, public governance and administration, rule of law (primarily judicial reform) and the scope of corruption as well as anti-corruption income.

Bulgaria’s 1^st Stage Economic Reform* 2007 Scores Compared to Bulgaria and Romania in 2002

The graph to the left shows Bulgaria’s stage one economic reform scores in 2007* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

Bulgaria’s 1^st Stage Economic Reform 2007 Scores Compared to its Scores in 1999

The graph to the left shows Bulgaria’s stage one economic reform scores in 2007* (the grey shaded area) as compared to its economic reform scores in 1999 (the bold line).

Bulgaria’s 2^nd Stage Economic Reform 2007 Scores Compared to Bulgaria and Romania in 2002

The graph to the left shows Bulgaria’s stage two economic reform scores in 2007* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

Bulgaria’s 2^nd Stage Economic Reform 2007 Scores Compared to its Scores in 1999

The graph to the left shows Bulgaria’s stage two economic reform scores in 2007* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line). available

 

Bulgaria’s Progress on the USAID Country Progress Indices between 1998 and 2007

(1) Economic reforms index include “first stage” reforms of privatization, stabilization, and liberalization (domestic price liberalization and trade liberalization), and second stage reforms in the financial sector, infrastructure (physical and energy), corporate governance and competition policy.

(2) The economic structure and performance index tracks indicators such as the size of the private sector as % of GDP, export share of GDP, and the size of the small and medium enterprise sector as % of GDP, economic growth, inflation, debt, and foreign direct investment.

(3) The Democratic reforms index include the electoral process (the extent to which elections are free, fair, and competitive), civil society (primarily NGO development), the independence of media, public governance and administration, rule of law (primarily judicial reform), and the scope of corruption as well as anti-corruption efforts.

(4) USAID tracks progress on the Human capital index by analyzing trends in health (life expectancy, under five mortality rates, and public expenditures on health), education (secondary school enrollment rates and public expenditures on education) and per capita income.