The red conglomerates are not, as a rule, involved in real production. Rather, they engage primarily in trade, importing raw materials for sale (at high prices) to state-owned enterprises (SOEs) and buying SOE output on the cheap to sell it abroad at higher prices. In the process, the SOEs accumulate debts which are ultimately passed on to the state and the taxpayers. The conglomerates' ability to exploit the SOEs in this manner is often, though not always, linked to bribery and extortion.

This activity blossomed particularly during the two years of the Lyuben Berov government. Weak government and the slow pace of structural reform ensured that the red conglomerates' opportunities did not disappear. Reneta Indzhova, who led the caretaker government that took office in the autumn of 1994, called the Berov government a "government of Multigroup." It is thus not surprising that most of the nomenklatura businesses were opposed to the calling of early elections last year.

During the December election campaign, Multigroup spent lavishly on its own election grouping, the Patriotic Union (PS), but failed to pass the 4 percent threshold needed to enter Parliament, polling only about 1 percent. Nevertheless, after the creation of the new government, several of the PS's representatives received top administrative posts. And ministers with widely known links to Multigroup have been held over from the former government.

In a signed article in the March 13 edition of the Bulgarian Socialist Party daily Duma, Multigroup President Iliya Pavlov suggested "an easier way" for the new government "to restrain organized crime." This would include the voluntary curtailment of illegal activities by the "structures" engaged in them—in Pavlov's words, "as a lizard cuts off his tail to save his life." In subsequent statements, Multigroup officials also proposed regular exchanges of information on organized crime between the government and the economic groupings, and conglomerate financial support for the cashed-strapped interior ministry.

Another danger for reform, is that real privatization and foreign investment will be blocked by the nomenklatura business' vested interests. The business groups have benefited tremendously over the past four years from the fact that Bulgaria lags behind all other East European states in both the pace of privatization and the attraction of foreign investment.

Bulgaria faces $740 million in debt servicing in 1995 alone. Its international financial obligations and the influence of the international financial organizations that have hitherto provided financial relief to Bulgaria could to some extent counter-balance the power of the economic groupings, which call themselves "patriotic capitalists" and are keen to resist foreign competition, particularly in the form of foreign investment. (Though currently the foreign currency reserves of the Bulgarian National Bank stand at about $1 billion, January and February witnessed a massive influx of foreign currency into Bulgaria, reflecting both confidence in the present government and the attractive margins to be made from converting lev term deposits back into foreign exchange. The lev, as a consequence, has risen against the dollar rapidly, despite interventions of Bulgaria's National Bank.)

The red conglomerates' future strategy will to some degree depend on the success of the government's plans for mass privatization which are to be presented to Parliament. Under the plan approved by the Cabinet on March 27, the first stage of mass privatization will run from November 1995 to October 1996; it is hoped that by the end of 1995, 20 percent of state property will pass into private hands. Some 50 percent of the value of the enterprises will be offered for cash, while the rest will be sold for Brady bonds, domestic bonds, and privatization coupons. Pensioners will probably get special discounts to buy coupons. If mass privatization is implemented as planned, the conglomerates will have to involve themselves in real production by participating in the scheme or go bust. Pavlov has put out discreet feelers to the government concerning the possibility of Multigroup voluntarily disowning and suppressing certain of its more dubious activities in return for the government's help in transforming Multigroup into a legitimate industrial conglomerate. The groups are certainly in a position to buy up many of the shares available for cash.