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Political crisis threatens Bulgaria's fragile economy

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(Globalpost/GlobalPost)

After weeks of protests, Bulgaria's new technocrat caretaker government must urgently restore trust in state institutions or risk exacerbating an already dire economic situation in the European Union's poorest country, analysts say.

"If protests continue and political instability drags on, it is set to pose problems for the economy by pushing new investors away and prompting those already here to postpone any development plans," Institute for Market Economics analyst Kaloyan Staykov told AFP.

"Failure to find a relatively swift way out of the political crisis risks resulting in an economic downturn, the loss of hundreds of thousands more jobs and growing poverty," added Georgy Angelov of the Sofia branch of the Open Society Institute in a Presa newspaper editorial.

The cash-strapped government of right-wing premier Boyko Borisov resigned on February 20, swept up by a tide of public anger against deepening poverty and corruption, five months before the tough-guy former bodyguard's term was due to end.

An interim technocrat administration headed by former deputy foreign minister and ambassador to France Marin Raykov, including as finance minister deputy central bank governor Kalin Hristov, was named on Tuesday to run the country until elections on May 12.

Former Soviet Bloc member Bulgaria, which joined the EU in 2007, has been spared the major economic turmoil causing such problems elsewhere, not least over the border in Greece, helped by fiscal discipline and its currency, the lev, being pegged to the euro.

The government squeezed the public deficit to just 0.5 percent of output in 2012 and public debt to 15-19 percent of gross domestic product -- one of the lowest across the 27-nation EU.

But this has come at the price of drastic government spending cuts, and freezing public sector salaries at an average of 400 euros ($534) over the past three years. Average pensions in the rapidly ageing nation have remained stuck at 138 euros.

The 7.4-million-strong country's economy was slow to recover after output plunged 5.0 percent in the global financial crisis and economic downturn of 2009. Growth was only 0.8 percent in 2012 and is expected to be little better -- 1.0 percent -- in 2013.

Its major driver, foreign direct investment, has slumped, hitting between 1.7-2.0 billion euros last year, a far cry from 6.6 billion euros in 2008. The government has even offered Bulgarian -- and therefore EU -- citizenship to large foreign investors.

As a result, with unemployment at 11.4 percent and rising, poverty levels have risen and living standards have fallen, causing ordinary Bulgarians to resent a political elite they see as more preoccupied with lining their own pockets and those of their cronies.

The final straw was a sharp rise in utility bills in February, prompting thousands to take to the streets around the country in the biggest upsurge of public discontent in 16 years, with demonstrators fighting running battles with riot police. Three people died after setting themselves on fire.

"This poisonous combination of poverty and injustice sent people on the streets," Bozhidar Danev, chairman of the country's largest industrial association, said.

Borisov's decision to throw in the towel has however failed to soothe people's anger, with several thousand people taking to the streets of the capital Sofia and other cities on Sunday, brandishing banners like "Out with the Mafia".

Raykov's first task will be to restore confidence that justice can be done and poverty battled, Danev said. Fair elections were the first step, as well as more transparency and a thorough analysis of the current fiscal situation.

Whichever government emerges after the election -- polls suggest voters will return a fragmented parliament -- must then go on "to employ prudent fiscal policies and not slide down the hill of populism", said Staykov.

"We simply cannot afford that now."

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http://www.globalpost.com/dispatch/news/afp/130312/political-crisis-threatens-bulgarias-fragile-economy