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Bulgaria’s Former King Announces Economic Program Simeon Sakskoburggotski, former King Simeon II, who won Bulgaria’s June 2001 elections and in early August became its new prime minister, has announced his first package of economic measures. Simeon defeated the two main parties that had dominated Bulgarian politics since 1990: both his predecessor Ivan Kostov’s party, the Union of Democratic Forces, and the main opposition Bulgarian Socialist Party. Simeon promised to significantly improve the situation of ordinary Bulgarians within 800 days. The economic package foresees higher utility tariffs and minimum wages, cuts in public administration and several taxes, and establishment of a fund for small and medium-size enterprises. Simeon also plans macroeconomic rigor, a better environment for foreign investors, and active financial management. His policy proposals are pragmatic: · On the macroeconomic front, he intends to maintain the course set by the previous government, which saw inflation for the first seven months of 2001 held to 0.6 percent against an annual target of 4.5 percent, and economic growth that moved from an 18.0 percent contraction in 1996-97 to real growth of 4.5 percent in 2000 and a projected 5.0 percent in 2001. The government also plans to support these trends by implementing a balanced budget policy.· On the microeconomic side, Simeon plans to create a better environment for small and medium-size enterprises through deregulation, tax cuts, and development of a venture capital sector; to expedite privatization, including the sale of telecommunications and tobacco monopolies; to liberalize prices, notably in the energy sector; to develop the capital market; and to root out corruption.· The new government plans to continue preparing Bulgaria for EU accession by introducing active management of the country’s $10 billion in foreign debt and encouraging foreign investment.The program involves some risks. Aiming for a balanced budget will make it harder to support small and medium-size enterprises. Raising energy prices may boost budget revenues, but it will further reduce real wages and increase pressures on Bulgaria’s long-suffering population. Privatization and higher energy prices will prompt further rationalization in industry, but that may increase unemployment—which at 17 percent is a major source of popular discontent. At the same time, Simeon has more maneuvering room in the international area, and the administration seems well-equipped to manage this dimension of the country’s transition. The former king is an experienced businessman, Finance Minister Milen Velchev used to work for Merrill Lynch, and Economy Minister Nikolai Vasilev for Lazard Capital Markets. The government will introduce tax incentives for foreign direct investment, which has been growing steadily and reached nearly $1 billion in 2000. But foreign direct investment per capita remains under $3, compared with almost $2,000 in Hungary and $1,600 in the Czech Republic. With labor so cheap in Bulgaria—real unit labor costs fell 19 percent in 2000—there is enormous scope for increasing foreign direct investment. In seeking to maintain the preceding administration’s sensible macroeconomic orientation while introducing policies to develop private enterprise and elaborating a broad strategy for integrating the economy with global financial and technological networks, Bulgaria’s new government is demonstrating an impressive sureness of touch. Excerpted from a report by Oxford Analytica, the International Research Group, Oxford, United Kingdom. |
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