On July 5, the newly elected Bulgarian Parliament convened for its summer session. The main mission for now is to elect a Prime Minister and a cabinet. 120 seats out of 240 are held by deputies of the National Movement Simeon the Second (NMS2), led by the ex-tsar. The ex-tzar did not run himself but will lead the government as Prime Minister. The number one coalition partner will probably be the Movement for Rights and Freedom (MRF), the political party most Bulgarian Muslims and ethnic Turks vote for. MRF won 21 seats; the rest of the seats are almost evenly divided between ex-Communists (called now Coalition for Bulgaria, led by the Bulgarian Socialist Party - BSP) with 48 seats and the United Democratic Forces (UDF), which held 152 seats in the previous legislature but has only 51 seats currently. The following analysis will outline what is to be expected in terms of political and economic policy developments. First weeks hesitation As a rule, Bulgarian voters have expected that the leader of victorious electoral party would become a Prime Minister; they anticipated this before going to the poll stations and, though they have voted party list with little attention to personalities involved the future Prime Minister was even known. In a contrast to this tradition, three weeks after the elections Simeon Sax-Koburg was hesitating to take the responsibility. The press was full of speculation on who would be a cabinet member and whether the ex-tzar will run the country behind the scene or directly. On one hand, we had a landslide-approved mandate and three times reduced electoral weight of the outgoing ruling party. This electoral success was dreamed but not really expected by anybody, including the winners. On the other hand, NMS2 parliamentary faction has been supposedly put together from folks unknown to each other and appointed by different sponsors. Since it is practically (and constitutionally) impossible even for party bosses to call a resignation of MP's, the surest way of holding the majority faction together is through the prime-ministership. If successfully completed, Mr. Sax-Koburg's mandate as an executive will not jeopardize his own and his men monarchist agenda. If failing, it would be better staying aside and blaming the system and the predecessors. Chances of Success If this government builds upon the achievements of the outgoing UtDF administration, the newcomers are doomed to succeed. The economy is on the upper cycle, and it will be relatively easy to maintain the pace and direction. Here is some evidence: -- Annual gross domestic investment is higher than in most EU accession countries (though due to low starting point); -- Foreign direct investment is sufficient to finance the current account deficit in 2001 and until at least 2002; it is channeled to more value added sectors and green-field investment exceeds privatization revenues; meanwhile, the deficit shrank (see below); -- Savings of the population grew four times on an annual basis, those of the corporation - by 1/4; -- The unemployment, after growing rapidly in 1999 and 2000 due to the liquidation of loss making state industries, stabilizes in the first half of 2001 at the level of 17-17.5%; -- Competitiveness-wise, many sectors are at a turning point in terms of productivity and search for better firm-level strategies. Even the decline of the external demand, e.g. slower growth in the EURO-area and external shock on the Macedonian market (in terms of export, Macedonia is almost equal to Russia), is not a factor to put in jeopardy Bulgaria's economic growth prospects. Compared to previous years, the government has better ground to more aggressively attract foreign investment. Such a trend is obvious in the private sector: management-employee-buy-out (MEBO's) companies and privatization holdings, as beneficiaries of previous government, are on the verge of reselling and searching for joint ventures and venture capital. No stupidity is the key to success of the new but stupidity is difficult to quantify. Political risks - factors to counter-play them Clientelism The previous governments were basically failing because they believed they could benefit their own clientele at the expense of the others. The outgoing administration was exposed to this temptation but there is a lot of evidence that it was the least corrupt: no budget deficits, discontinued practices to control prices, restricted money supply monopoly of the central bank, closed off-budget accounts, state of the art fiscal and government debt transparency (especially after 1999), rather operational public procurement system and more than ever government in the sunshine procedures. Eventually, the corruption perception index for Bulgaria, as measured by Transparency International, improved significantly. The country already caught up with the Czech Republic and Croatia. The notorious beneficiaries of the outgoing cabinet (MEBO's) can not pay back for political services or are not willing to. The key external factor that leveled the playing field was the creditors, or the IMF. It's 3-year program with the government of Bulgaria was a major brake on the cabinet's desire to pick winners. The king's men will not have the IMF sitting on their backs. They will have to rely on their own visions and affiliations. As to the visions it is not very much clear what they are up to. The affiliation is rather diverse. The new majority faction consists of three types of personalities:
b) Disillusioned law academics; c) Semi-celebrities, journalists, actors, beauty contests participants and the like. With a few disturbing exceptions, the first group has all the right ideas on stepping up creditors' rights and boosting the capital markets. They lack skills in management of public finance and it is not known whether they would resist the temptation to benefit ex-employers. For the time being they claim that they are honest slaves of the public good, but all the previous governments made similar claims. For the first time in the Bulgaria's transition, a group of people who worked for private interest groups (domestic or foreign, including sovereign debt market makers) will now appoint the finance minister, manage the national accounts and, in two years down the road, will select the board of the central bank.
Mind-frames and visions
In fact, NMS2 has two contradicting programs, one launched by the above-mentioned bankers, the other maintained by the so-called "patron" of the king's men.
The first is based on maintaining the price and fiscal stability with some not yet articulated ideas of investing the fiscal reserve of the central cabinet and re-securitization of the foreign debt. The second set of ideas is said to have been drafted by Mr. Sax-Koburg's advisor of Russian descent, a holder of an American MBA, Vladimir Kvint. It contains all the opposites: boosting salaries and pensions, and provision of rate-free subsidized loans to everybody. For these messages, some humorists already call the ex-king Simeon the Miraculous. The commonality of the two is declared support for the protectionism visions of some business associations.
For the time being, NMS2's economists claim that they will stick to what they have said to be their program but some silently swath on Mr. Kvint's proposals.
The likeliest coalition partner, MRF, would lobby in favor of government investment programs for regions where Muslims live and for a proportional presentation of Muslims in the state administration. Since these things are already happening, both aspirations are almost pointless. The real MRF stake is to replace UDF appointees (themselves Turks) who currently run the state-owned Tobacco Fund, have a say in privatizing the tobacco monopoly, and have the agriculture ministry so that MRF can manage EU subsidies.
The rhetoric that disseminates these attitudes coincides with many voters' sincere conviction that government creates prosperity.
Time factor and first steps
Delays in forming the cabinet contain another risk, the risk of failing to secure the continuity between the two administrations.
The normal rhythm of the fiscal year since 1997 is the following: by July the macroeconomic framework of the budget for the next year is ready and first draft is being discussed within government agencies; then, in early September, the draft amendments to the tax laws are being debated and adopted in the parliament while the cabinet fine-tunes the budget. Eventually, the budget is usually adopted by the parliament in early November.
Currently, the macroeconomic framework is basically there but it reflects the vision of the outgoing administration. The first budget draft is also ready but it not discussed by anybody. The absence of the new cabinet prevents negotiation of administrative transition with senior public servants. Many of those who might sustain the memory of decision making are leaving.
There is of pre-determination of administrative failure but the feeling is that time is being wasted. It would be easy then to blame predecessors but it would be too late to implement drastic changes in what has been drafted so far without running the risk of mistakes. At the same time, the NMS2 members of parliament are dealing with obviously insignificant issues:
Difficult adjustment
Many of these developments are to be explained by the fact that the king's men are 100-percent newcomers.
There were similar situations in the past. In 1990, all non-Communist parties in the parliament were with zero administrative experience but most of the political leaders had a background in either pre-Communist past (mid-late 1940's) or in late Communist dissidents movement (of especially 1980's). In 1997, the UtDF newcomers in the parliamentary group were about 85% of all majority faction members. Their leaders, however, were part of the transition political establishment of the 1990's with an experience in the legislature and the executive as well in the local government or in countryside party structures. This experience helped them to promptly take over the leadership in committees and government agencies. In any event, both the society and the businesses knew what these people had in mind, who are their sponsors and what are their values. Generally speaking, there was no hidden agenda and no second thought on whether to change the form of government or not. At the end of the day, it has been always clear what to expect form the newcomers, regardless which political party they were with.
The 2001 newcomers are rather different. The change they bring about is rather substantial. There is mixed knowledge about their CV's and aspirations. What is known is too bleak, what is to be expected is too much wishful thinking in the area of good hopes. King's men do not talk openly about restoration of the monarchy but they are obedient, servile and glorifying
Le Patron.
It might well turn out that one sort of public hypocrisy replaces another one. But the political change is profound. The king's men have successfully challenged the political establishment of the country, which has existed since the time of the so-called Round Table Talks of January - April 1990.
One of the key parties legitimized then, the Union of Democratic Forces (UDF) is threatened with disappearance. The other key party, the ex-communist BSP, is doing OK in relative terms, at least it did not lose 2/3 of its electoral support. It will not have a political weight in determining economic policies. But if NMS2 develops its intrinsic populist ideas they would enjoy BSP support. The UDF, which has only one new face in the parliament, would have a hard time commenting on the policies from a proper stance. The cabinet may end up lacking criticisms from the Right.
The new cabinet will be elected between July 20-25. What can be expected is a difficult adjustment of everybody to everybody and everything. The political risk remains significant, although still almost impossible to measure.
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