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Bulgaria Takes Steps to Salvage Its Future

Restructuring: Government hopes austerity measures, sale of state assets can revive dismal economy.


VRATZA, Bulgaria — The sprawling, 30-year-old Chimco chemical factory sitting here in a grayish haze beneath the Stara Planina Mountains hardly seems a pearl in Bulgaria's crown. It is a collection of gigantic water-cooling tanks, smokestacks and ammonia fumes.

But it is also one of Bulgaria's few profitable state-owned firms--a busy fertilizer plant employing nearly 2,500 people and raking in more than $20 million annually. And it's for sale.

Lagging far behind the rest of the former Soviet bloc, Bulgaria has finally taken a few tentative steps toward restructuring a Communist-era economy on the brink of collapse. Scores of state companies are to be closed or sold; a quarter of the country's scandal-ridden banks have been put in receivership; and subsidies are being slashed on food, utilities and gasoline.

Resistance to reforms has combined with widespread corruption to plunge Bulgaria into its most severe economic crisis since the fall of communism seven years ago. And the government is paying the price: The ruling Socialist Party suffered its worst electoral defeat in presidential voting last week.

The crisis hit one peak over the summer when the government effectively reached bankruptcy. Bulgaria's currency, the lev, collapsed--at one point losing 80% of its value in a single day--while the internal debt soared and reserves hemorrhaged. Cornered, the government signed a $580-million standby loan agreement with the International Monetary Fund and agreed to austerity measures that in the short term, at least, have only tightened the vise on long-suffering Bulgarians. Inflation is close to 20% a month; wages are among the lowest in Europe.

"Bulgarians have been asked for the last seven years to accept the price of reform, but they haven't seen the kinds of benefits visible in Hungary, Poland--even in Romania people are seeing a certain improvement," said a European political analyst based in Sofia, the capital. "The game has been one of stick but no carrot."

A second IMF installment of $115 million has been repeatedly delayed because of the government's failure to keep its end of the bargain.

Under the IMF agreement, the government pledges to sell about 30 profit-making companies; 64 losers will be closed; and 70 or so others will be "isolated," or rehabilitated for possible future sale. Prime Minister Zhan Videnov said he hopes to raise the improbable figure of $1 billion through the sales. But economists also project that up to 70,000 jobs could be lost.

"If they don't bring in foreign investment to create jobs, it will be a disaster," one Western diplomat said. "Up until now, they have given lip service to foreign investment, but there have been few deals."

Furthermore, several prominent international companies have packed up and left in recent months. The country now has the lowest level of foreign investment in Eastern Europe.

Investors have been discouraged by a dizzying succession of governments (six in the past seven years) and by a similar lack of consistency in the rules of the investment game.


Convinced now that investment may be their only hope, government officials are rewriting legislation to include better tax concessions, relief of some customs duties and an easing of the red tape for investors. Most important, the officials say, the new legislation will include a guarantee that laws governing a particular investment will continue to apply for 10 years, even if a subsequent parliament changes the laws again.

"We are making the first steps--that is important," said Daniela Bobeva, an economist who is president of the government's Foreign Investment Agency. "Unfortunately, it's now and not one, two, four, five years ago. We made some expensive mistakes, in terms of political credibility and political confidence. . . . There was a lack of political will on the part of the government. Now [we realize] there is no other way."

Here in Vratza, in northwestern Bulgaria, Chimco is one of the first companies scheduled to go on the auction block, and it may be one of the most attractive from a motley lot of mismanaged firms.

Spread over a five-acre plain, Chimco is emphasizing to potential investors what it describes as its self-sufficiency: It has its own water and electricity sources and its own terminal on the Black Sea to facilitate the transportation of exports, the bulk of Chimco's business.

As Bulgaria's major producer of urea and ammonia, Chimco's profits and output have grown since 1990, thanks in part to an expansion last year in world trade of basic industrial commodities, said Executive Director Kiril Petkov. Principal markets for Chimco's urea include the United States and China.

Government analysts are studying Chimco's books to come up with a price tag for the plant, Petkov said; South Korean investors have already expressed interest.

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