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King's
Men of Bulgaria are Already in Charge: What to Expect?
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:
a)
Junior ex-investment bankers (and analysts) and bankers
from the city of London and some domestic boutique-banks
plus one central banker (a key drafter of the existing bank
regulations);
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.
The
law professors were supporting their measly university income
through consulting businesses known as privileged clients
of the central governments that preceded the outgoing UDF
government. The same businesses were sponsors of the celebrities.
There is abundant evidence that the outgoing cabinet has
cracked down the privileges of these groups: it licensed
insurance companies and forced former protection-sellers
to re-channel activities; it sold all the banks to foreigners
and closed 18 domestic banks for embezzlement of shareholders
and depositors, introduced price stability and transparency
rules, teamed up with the international community against
Milosevic, and last but not least, it granted deals to foreign
and domestic newcomers, including own party clout. The risk
now is not that pre-UDF favored groups are striking back
but that they may opt for changing the rules to their benefit,
as was the case before 1997.
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:
· They
claim they would change Rules of Procedures of the Parliament
in order to diminish the time for interpolations and increase
the number of parliamentary committees; these Rules are
far from perfect, but there is no attention paid to financing
parliamentary factions and expertise, public access to parliamentary
files and hearings, etc.; it has even been declared that
those procedures are not subject to change;
· The
new committees are thought to be more on a sector basis,
resembling the parliamentary structure of the late Communism.
There are plans to introduce committees on telecommunications,
transport, and civil society. There is public pressure to
establish committees of tourism, high tech and other industries.
Ideas about the structure of the new council of ministers
are for the time being similar: more line ministries and
more government agencies;
· The
first draft bill submitted by a king man is the Draft Law
of Religion, similar to the Russian Religions Act of 1999,
benefiting Orthodox Christianity and implementing the most
vague provision of the Bulgarian constitution (Article 13.3),
which maintains that "Orthodox Christianity is the traditional
religion of Bulgaria";
· As
reported in the press, a key preoccupation currently is
drafting a bill on flight capital and tax evasion amnesty,
a bill originally suggested by Mr. Kvint.
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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