Instructions for action: Bulgaria’s reforms (Part 2)

In 1997, a salary in Bulgaria was 10 dollars, and a pension was 2 dollars, and the country literally flooded the wave of organized crime. However, in 10-11 years Bulgaria has completely changed. Gross domestic debt declined from 112% to 17%, salaries increased to 500 dollars, and pensions – up to 250 dollars, reports “Investor”.

Bulgaria is a peculiar country in the sense that reforms there took place in several stages with periods of rolling back and stagnation. At the time of the Council of Mutual Economic Assistance (CMEA) of the USSR, Bulgaria was a significant exporter of chemical and pharmaceutical products, agricultural products. It also exported weapons and drugs to the countries of the Middle East and Africa. During the transitional period it led to the emergence of powerful criminal gangs combined with state structures.

In Bulgaria, there was a "red mafia" phenomenon – criminal structures, consisting of former employees of special agencies. As a result of the acts of crime, that actively damaged the economy, Prime Minister Andriy Lukanov was killed in 1996.

The first wave of reforms began in 1990-91. During its conduct, prices for consumer goods, real estate and exchange of foreign currency were liberalized. A particularly important measure was the restitution of property confiscated by the communist authorities to former owners. This event formed the class of Bulgarians interested in the protection of property rights. The private sector increased from 20% in 1991 to 50% in 1994.

The second wave of reforms took place in 1997-2001 with varying success until 2009. At that time, the most significant changes were made. During this period, the banking sector was reorganized, the currency board was institutionalized, privatization was carried out, pension reform was implemented, the tax legislation was aligned with a European one, the army was significantly reduced (from 110 to 60 thousand).

In 1996, a third of all banks went bankrupt in Bulgaria, after which a currency board was established. It tied the Bulgarian lev to the German mark (and subsequently to the euro). It disciplined fiscal policy, the deficit did not exceed 4.4%.

At the beginning, there were 7 branch banks that funded certain sectors of the economy in the Bulgarian banking sector. There were two special banks – one for savings and one for
foreign trade. In 2008, fiscal policy was reformed and a fixed income tax of 10% was introduced. Due to the introduction of a low and fixed tax, a significant part of the economy came from the shadows.

The third wave of reforms took place in 2009 -2013 and provided partial implementation of administrative and pension reforms, implementation of medical reform, the reduction tax evasion.

Implementation of administrative reform included a reduction in the number of ministries and agencies. As a result of the reform, two ministries were canceled, and thirty of the 120
state agencies were closed. An important step was the creation of a single salary grid and career advancement for the public sector. It made it impossible an abuse of power such as an appointment by employees huge premiums to themselves.

The deficit in the pension system was about 3 billion annually. This problem has been solved by gradually increasing the retirement age. Norms that allowed police and army officers to retire after 15 years of service were cancelled.

One of the important reforms for the public life of the country was the ban on smoking in public places and the increase of VAT on cigarettes and tobacco.

Bulgaria needs further reform, as many studies say. Only a third of people are satisfied with their standard of living and only 32% support democracy. In 2005, Bulgaria became a
member of NATO, and in 2007 it became a member of the EU. Even though these decisions were largely intended to stimulate reforms in the country. The incompleteness of all areas of reform continues to leave Bulgaria one of the poorest countries of the union.

Therefore, Bulgaria is a great example of semi-reform and half-way solutions. Changes appear to occur, but they are often accompanied by stagnation and going back. There are
many reasons for this such as slow introduction of changes at an early stage and the old elites who have seized power for a certain time in the country. Despite all these problems, Bulgaria still gained the EU’s trust and continues to work on the difficult path of reform.