| U.S. Government Assistance to Eastern Europe under the Support for East European Democracy (SEED) Act -FY 2004 Released by the Bureau of European and Eurasian Affairs January 2005 II. Country Assessment--Bulgaria
U.S. STRATEGIC INTERESTS Bulgaria sits at a strategic crossroad between Europe and Asia Minor. It became a NATO member in March 2004 and continues to make steady progress towards European Union (EU) accession, with an anticipated entry date in January 2007. Bulgaria has been a reliable ally, demonstrating repeatedly that it is a staunch friend of the United States, a strong supporter of the Global War on Terrorism, and a dependable partner in a volatile region. It contributes troops to multinational peacekeeping efforts in Iraq and Afghanistan, as well as to SFOR and KFOR. The U.S. Government’s (USG) highest priorities in Bulgaria are its continued support for the war on terrorism and enhanced regional stability. In this context, the overarching goals are to ensure that Bulgaria continues to play a responsible, proactive role on the international arena while remaining an anchor of stability in the region.
OVERVIEW OF U.S. GOVERNMENT ASSISTANCE In FY 2004, the U.S. Government provided an estimated $47.61 million in assistance to Bulgaria:
In FY 2004, a total of 111 Bulgarians traveled to the U.S. on USG-funded exchange programs.
U.S. ASSISTANCE PRIORITIES In FY 2004, the U.S. Embassy in Sofia continued to implement its approved strategy for Bulgaria’s phase-out from SEED assistance, with no new funding after FY 2006, corresponding to the country’s entrance into the EU. By the time USG non-military programs end, Bulgaria will be securely on a sustainable path toward democratic governance at all levels, with its market economy better integrated into international markets. The strategy is fully linked into the Mission Performance Plan and directly contributes to three of its five top priority goals: reforming Bulgaria’s law enforcement and judicial system so as to enable it to combat crime and corruption; fostering economic development and job creation that will increase prosperity, encourage regional cooperation, enhance stability, and expand the potential for U.S. exports and investment; and reinforcing democratic systems and human rights, supported by effective local institutions and multi-ethnic communities. In FY 2004, the three top priorities for USG assistance in Bulgaria remained: enhanced rule of law; economic growth and increased prosperity, with focus on job creation; and strengthened local governance. Assistance efforts increasingly concentrated on building self-sustaining local capacity and establishing reliable partnerships with other donors and indigenous entities as a way to develop the post-presence relationship between the two countries. Democratic Reform Programs: In FY 2004, the main priorities for U.S. democratic reform assistance in Bulgaria continued to be the rule of law, strengthening local governance, and supporting civil society by building the capacity of independent media, non-governmental organizations (NGOs), and encouraging public-private partnerships as a means to address community issues. The rule-of-law program was the main focus of USG assistance, with three major components: justice sector reform, anti-corruption efforts, and strengthened law enforcement and criminal justice institutions. The justice sector reform program concentrated on enhancing the institutional capacity to apply the law equally and expeditiously through training of legal professionals; formulation of codes of ethics for judges, prosecutors, and attorneys; legal and policy efforts to improve the accountability and effectiveness of the judicial system, and technical assistance in the administration of justice. The anti-corruption activities aimed to strengthen the Bulgarian Government’s (GOB) institutional capacity to prevent corruption and enhance transparency and accountability, especially in the government audit, internal controls, and public procurement areas. A civil-society component supporting anti-corruption public awareness, monitoring of public administration work, and civic investigation of corruption allegations complemented these efforts. In the local governance arena, USG assistance focused on fiscal decentralization, building the capacity of municipalities to cope with increased responsibilities, and supporting NGOs that advocate on behalf of local governments. Community-level activities expanded and provided increased opportunities for ethnic minorities and encouraged greater ethnic and religious tolerance. Building stronger civil society organizations, strengthening parliamentary practices, and improving the advocacy of the independent media further supported Bulgaria’s transition to a strong democratic society. USG-funded exchange programs sought to familiarize Bulgaria’s next generation of leaders with the day-to-day functioning of a democratic, market-based system, thereby helping to build a cadre of young leaders who can spearhead reform in the public and private sectors. Economic and Social Sector Reform Programs: Despite the impressive reforms undertaken over the last five-to-six years, Bulgaria remains among the poorest EU applicants and lags behind other Central and Eastern Europe (CEE) countries on key economic indicators. After 14 years of democratic government, the average Bulgarian has yet to see tangible economic benefits. Therefore, economic growth and increased prosperity through job creation remained the overarching goal of USG economic assistance programs in FY 2004. When U.S. assistance phases out in Bulgaria, the private sector share of GDP is expected to have reached 80 percent, GDP per capita (as a percentage of the EU level) will be at 46 percent, and unemployment will drop to 10 percent. USG economic assistance addressed this goal in four ways. First, SEED-funded programs focused on streamlining the enabling environment for business development to reduce barriers to market entry and attract foreign investment. Activities under this priority also supported energy regulation, commercial law and tax administration reforms, and airport concessions. Second, by providing technical assistance to Bulgarian small and medium enterprises (SMEs) and business support organizations, the USG strengthened the capacity of local business consultants to provide services to SMEs in growth-oriented industries with the greatest potential for job creation and increased exports. Third, by implementing micro-lending and loan guarantee programs, the USG empowered the private sector to grow and undertake investments in order to maintain and expand local, regional, and global market shares. At the same time, the USG continued to invest in building strong financial sector institutions and regulators. Fourth, the USG's agricultural programs targeted SMEs, increasing farm credit, trade and investment, and Bulgaria's integration into the world economy. Social sector activities focused on consolidation of pension reform; health care reform, with emphasis on hospital restructuring and decentralization; and efficiency of the labor market. U.S. environmental programs promoted the sustainability of biodiversity conservation and ecotourism, and supported water and wastewater management training. Security, Regional Stability, and Law Enforcement Programs: In FY 2004, U.S. security-related assistance promoted military modernization and enhanced interoperability, as the armed forces took on the challenges of NATO membership and participation in the Global War on Terrorism. To this end, the USG provided the GOB with $8.45 million in Foreign Military Financing (FMF) and $1.46 million in International Military Education and Training (IMET). In the law enforcement arena, the USG used SEED funding for Bureau of International Narcotics and Law Enforcement Affairs (INL) projects to help modernize criminal justice institutions. Strengthening Bulgarian law enforcement’s capacity to investigate and prosecute complex and trans-national crimes more effectively, particularly trafficking in persons, cyber and financial crime, organized crime and corruption, and trafficking in narcotics and other contraband received particular focus. Nuclear safety assistance targeted upgrading the full-scope training simulator for Units 5 and 6 of the Kozloduy Nuclear Power Plant. SECTORAL ASSESSMENTS Democratic Reform In FY 2004, Bulgaria further consolidated and deepened the stability of its institutions guaranteeing democracy, the rule of law, human rights, and respect for the rights of minorities. Building on important reforms of the judicial system achieved in recent years, there were positive developments in the recruitment and appointment of judges. Still, key parts of judiciary reform remain to be implemented. The country needs improved capacity to prosecute organized crime and corruption, which involves further reforms in the structures of the judiciary and the police. Corruption remains a problem, despite several measures Bulgaria has implemented to combat it.Important legislative changes further boosted fiscal decentralization, but work must continue to consolidate achievements and implement reform successfully. The process of enhancing local governance is still impeded by constitutional barriers to the financial autonomy of municipalities. Despite the favorable legal environment and increased number of active NGOs, the sustainability of the civil society sector remains fragile. More than 80 percent of NGO funding still comes from foreign sources. Media, while generally free, face pressures from the government and special interest groups. The implementation of the Framework Program for Equal Integration on Roma into Bulgarian Society is still in its early stages, and members of ethnic and cultural minorities, notably the Roma, are still marginalized. In FY 2004, the GOB continued to reform the judiciary, and a series of important legislative acts was adopted or amended. Reform was further boosted by the enactment of amendments to the Judicial System Act defining rules for the appointment and promotion of magistrates and the recent new regulations on court administration providing for the establishment of the court administrator position, both done with USG assistance. Sixteen indigenous NGOs advocating for rule-of-law enhancement received small USG grants to lobby for the judicial reform and raise public awareness of the importance of the changes. With USG support, Bulgaria’s National Institute of Justice (NIJ) became operational. The NIJ is one of the USG’s most significant legacies and already is among the most sophisticated training centers in Eastern Europe. The NIJ trains judges and court staff in substantive law, technical skills, and court administration. The judicial branch is struggling to keep pace with legal changes and large caseloads. Mastery of the legal intricacies and new processes is crucial to the successful implementation of Bulgaria’s reforms. After several years of USG technical assistance, Parliament passed the Attorneys Act, which became law in June 2004. This law mandates a more rigorous professional qualification exam, a modern code of ethics, and continuing legal education. The USG closely coordinates its judicial sector programs with other donors, especially the European Commission. While the overall process works well, the inconsistent behavior of key Bulgarian institutions remains problematic. Bulgaria’s Transparency International Corruption Perception Index score improved in 2004, and the country is a leader in Southeastern Europe. The improved TI index reflects the GOB’s progress in implementing measures to reduce corruption. In FY 2004, a significant part of USG support targeted fighting corruption, building on key GOB institutions’ demonstrated commitment to reform. The most significant achievements were in the public procurement area. A new Public Procurement Law was passed, implementing regulations developed, and a Public Procurement Agency established, thus completing the legislative and institutional infrastructure needed to regulate Bulgaria’s public procurement process effectively. In an effort to bring Bulgaria’s internal audit function closer to EU requirements and international best practices, the USG has supported four pilot ministries in streamlining their internal administrative controls to guarantee adherence to effective management practices, prevention and detection of fraud, completeness of accounting records, and timely preparation of financial data. Parliament passed sweeping changes to the Law on Political Parties, banning anonymous donations, regulating the use of non-financial donations, and mandating a stronger role for the National Audit Office to audit party finances. These developments were paralleled by increased civil and media activity in monitoring the work of public institutions and identifying cases of corruption. The USG supported 24 local NGOs that have pursued the anti-corruption public awareness role of the National Ombudsman and local public mediators, advocacy for anti-corruption education in secondary schools and universities, monitoring of public administration work, and civic investigations of corruption allegations. Despite some progress in 2004, however, corruption still pervades Bulgaria at all levels and impedes economic growth and democratic development. In FY 2004, the USG remained Bulgaria’s lead donor in providing assistance to local governance, focusing on good governance at the municipal level and fiscal decentralization. Following the October 2003municipal elections, the USG prepared an orientation program for the newly elected mayors and municipal officials, which addressed all major areas of responsibility of municipal decision making. Within the first quarter of 2004, the program had reached over 700 elected and administrative officials in all municipalities. Local governance continued to strengthen, although results were less impressive than in previous years. Progress at the national level was significant in relation to infrastructure finance. The draft Municipal Debt Act, developed with USG support, passed the first reading and is expected to be enacted. It will provide a consolidated, clear framework for municipal borrowing, including a reasonable debt ceiling for long-term debt and transparent borrowing procedures. Amendments to the Municipal Property Act increased municipal authority in property management and built in greater transparency in dealing with municipal properties. The GOB’s Fiscal Decentralization Working Group adopted and the Council of Ministers approved a fiscal decentralization reform monitoring system and the first monitoring report, both developed by USG-funded experts. Despite this progress, there are also signs of weakening GOB commitment to the fiscal decentralization program. The draft State Budget Act for 2005 does not support some of the reform gains of previous years, including respect for service expenditure standards and local tax revenues. At the local level, most municipal councils adopted the model ordinances developed with USG technical assistance that included more transparent and participatory operating procedures. Although there is resistance to transparency in many places, 17 municipalities demonstrated commitment to introduce more transparent practices, such as open council meetings and records, more communication with local media, and more transparent property management. In the local services area, municipalities showed improved capacity to exercise growing autonomy. A network of 14 municipalities, assisted by partner U.S. cities, applied a strategic approach to local economic development and created a certification program for local economic development officers. The network was instrumental in improving the economic development capacities of local governments, marketing of municipal resources, preparing cities to meet the needs of the national and international business communities, and attracting private investment. NGO sector assistance continued at the community level and addressed issues of fundraising; insufficient service offerings, particularly in the social sphere; and low citizen participation. USG programs fostered public-private alliances by engaging the private sector, local government, and citizens in resolving community issues. Community Funds were established in six cities. Ten concept projects were approved and funded by $177,873 raised locally, matched with USG funds. Seventy-eight out of 173 Peace Corps volunteers working throughout the country and serving as change agents further supported community efforts. Thirty-eight social service NGOs supporting marginalized groups enrolled in the Social Enterprise program to receive training and technical assistance. In cooperation with other USG-supported indigenous entities, the Social Enterprise Foundation was created to give loans to social enterprises. The ethnic integration efforts created models for addressing social, economic, and educational problems in towns with large Roma populations. FY 2004 witnessed the expansion of the pilot effort to four new communities with Roma and Turkish populations. Over 70 projects were funded to improve the educational, economic, and social opportunities for Roma and Turks. A successful alliance with an indigenous entity was established in 2004 further to replicate the integration model in Muslim communities. Work with the GOB in developing a governmental social program for ethnic integration was completed, and the strategy was officially presented to the GOB. The Democracy Commission small grants program supported NGOs that promote civic involvement, youth development, and human rights. U.S. speakers addressed key audiences on issues of freedom of speech, media and the law, and professionalism in the media. Economic and Social Sector Reform In FY 2004, Bulgaria sustained good macroeconomic performance and sound fiscal policies. Real GDP growth has exceeded 4 percent a year since 1998, and according to preliminary estimates, the economy grew by 5.6 percent in the first half of 2004, compared with 4.3 percent for all of 2003. Bulgaria has leapfrogged Poland to take 59th place in the World Economic Forum’s recently released Global Competitiveness Report 2004-2005. The inflow of foreign direct investments (FDI) was expected to reach a record high of €2.5 billion by the end of 2004. Central Bank data show that foreign capital deployed in Bulgaria in the first half of 2004 topped the €1.3 billion mark of last year. The new figure includes over €1 billion committed to green-field investments, which is another good indicator of improved economic policy and country performance. Preliminary estimates show that FDI will reach 10 percent of GDP, making Bulgaria number one in Eastern Europe in terms of FDI/GDP ratio. The private sector share of GDP grew to 67 percent for the first three-quarters of the year. The GOB remained committed to key structural reforms and private sector development. The EU recognizes Bulgaria as a functioning market economy but warns that reforms must continue for it to cope with EU competitive pressures and market forces in the near term. An inefficient judicial system, corruption and organized crime, persisting administrative barriers for businesses and foreign investments, and a high trade deficit hinder further economic progress. Per capita income is still about 30 percent of the EU average, and unemployment and low living standards persist. Although the GOB is pursuing an active employment-creation policy, which resulted in a decline in unemployment to a record low of 11.7 percent at the end of the third quarter of 2004, unemployment is double the EU average and remains among the region’s highest. With a minimum wage of €61, average salary of €152, and average pension of €64 monthly, Bulgaria maintains the lowest compensation levels in the region. Labor market structural weaknesses include long-term unemployment, high youth unemployment among the less educated and skilled, and wide regional variations. Health care reform continues at an uneven pace and is an oft-cited reason for public discontent. The educational system is also failing to meet the needs of the country’s job market. The population’s health status is well below the EU average. Although HIV/AIDS infection rates remained low, a World Bank report warns about a possible pandemic increase in the region. FY 2004 marked the completion of the successful firm-level assistance model, which coordinated the support provided through USG-funded private voluntary organizations to export-oriented Bulgarian SMEs in selected competitive sectors. Two extremely successful programs -- the banker training and the bank supervision programs -- were phased out, leaving behind sustainable institutions. The Bank Supervision Department of the Bulgarian National Bank acts as an effective bank supervisory agency, conforming to international best practices. The International Banking Institute offers Western-style bankers training, using its Bulgarian faculty of over 120 instructors trained under USG assistance programs. In FY 2004, under the phase-out strategy, significant USG resources were directed to enterprise development and investment, through improving the business climate, streamlining the tax collection system, and restructuring the energy sector. Parliament passed two significant new economic laws, developed with USG support -- the Law on Promotion of Investments and the Act on Small and Medium Enterprises. In the commercial law area, the USG supported the development of legislation on a private bailiffs system that would introduce market incentives in the bailiffs’ profession, thus addressing the current inefficiency of enforcement. The draft Law on Private Bailiffs was submitted to Parliament with broad political support, in September 2004. Another USG priority was to reform the antiquated business registration system, which takes up valuable court resources and imposes undue barriers to market entry. Persistent efforts resulted in a major breakthrough -- a political decision for a radical reform of business registration, which will remove it from the court system. The USG contributed to increased investment in Bulgaria by supporting the GOB to develop a National Investment Strategy and an Invest Bulgaria 2004 guidebook, which is now broadly used to promote the country’s potential for investment and economic development. The USG fostered the creation of the National Council for Economic Growth (CEG) at the Ministry of Economy, already the leading GOB body for public-private dialogue and policy formulation. With CEG support, the GOB endorsed the cluster-based economic development strategy and competitiveness approach, which became the overarching theme for all economic policies in Bulgaria. Together with the National Revenue Agency, the U.S. Treasury Tax Program launched a pilot system for simplifying tax procedures for SMEs, reducing red tape and educating private entrepreneurs in tax compliance. Although with a huge delay, Parliament passed the amendments to the Civil Aviation Act. As a result, the tender for concessioning two Black Sea airports, in Varna and Burgas, was published in September. This is Bulgaria’s first significant transport concession transaction, which would not have materialized without USG assistance. The projected foreign direct investments as a result of the transaction are about €130 million over the next 10 years. USG technical assistance in Bulgaria’s energy sector resulted in the adoption of a new Energy Law, in December 2003, and secondary legislation in 2004 that ensures fair, transparent, and predictable energy sector regulation and the opening of competitive electricity and gas markets. By supporting the re-organization and capacity building of the energy regulator to act as an independent body, the USG has enhanced its authority, autonomy, and accountability. The introduction of a transparent legal framework, predictable tariff mechanisms, and uniform accounting systems created the perception of regulatory stability and predictability and was critical to increasing investors’ confidence. These efforts were essential for the successful privatization of the seven Bulgarian electricity distribution companies. Over 56 percent of Bulgaria's land is agricultural, and since 1991 the country has undergone a complex, disruptive land restitution process. Although the resulting fragmented structure of land ownership has adversely affected farm production, 2004 was successful for Bulgarian agriculture. Large grain crops at reasonably high prices are expected to raise the value of agricultural output in 2004. Following the success of the first USG agricultural sector trade and investment mission, which resulted in over $2 million in immediate sales and investment, a second such trade mission took place in June 2004. The projected resulting sales are $10 million. Following a slow start, the two loan guarantee schemes launched to stimulate agriculture sector lending are gaining speed, and $2.3 million in loans (out of a $21 million portfolio) has been already disbursed. The USG also supported the sector’s increased productivity and efficiency by providing assistance to the food processing and post-harvest food storage industries. Finally, in an effort to improve consumer health and the quality of local animal products, the USG supported four Bulgarian professors in an exchange program with U.S. universities. Representing 99 percent of all registered companies, 62 percent of employment, and 20 percent of total export value, SMEs are now Bulgaria’s main source of economic activity. In 2004, a new program supporting the SMEs and Business Support Organizations was launched. This will be USG’s final effort to strengthen the capacity of local business consultants to provide services to SMEs in growth-oriented industry clusters. The two micro-finance programs sustained their lending operations throughout the country, and there are now over 20 branch offices. By September 2004, the number of active borrowers exceeded 7,000, making it the leading micro-lending program in Bulgaria. The active outstanding portfolio increased to $5.6 million, as compared to $4.5 million a year earlier. The micro-credit portfolio helped to create 7,675 new jobs and sustain close to 16,000 jobs. These programs maintained their commitment to provide equal access to financial services to the smallest and most disadvantaged micro-entrepreneurs, and over 60 percent of their customers are female. These micro-lending institutions are now completely sustainable and represent a major legacy of USG assistance. The Development Credit Authority (DCA) portfolio is used to encourage business lending by commercial banks and to improve private sector access to finance. The partnering banks have placed more than $21 million in loans under various DCA guarantees, thus significantly leveraging USG initial subsidy costs and facilitating productivity, business growth, and exports. Building on the success of the previous municipal energy efficiency DCA, in May 2004, a new $10 million loan portfolio guarantee agreement was signed with United Bulgarian Bank to stimulate lending to municipalities for energy efficiency projects. A new financial activity, launched in 2004, will consolidate USG gains already achieved in building strong financial institutions and regulators, and help combat money laundering, a key issue in the country. USG technical assistance helped the newly emerging pension industry to improve its transparency, increase its compliance with pension laws, and boost public trust and participation in mandatory and voluntary pension funds. The number of participants in such funds has grown by 50 and 11 percent respectively during the last four years. The USG labor market program worked with the GOB to increase the effectiveness of Bulgaria’s labor market as a major prerequisite for economic growth. As part of that effort, the Ministry of Labor and Social Policy fine-tuned its program to move people from social assistance to employment. This program created 75,000 temporary jobs for untrained workers. USG-funded information technology efforts enabled prompt, efficient registration of over 200,000 new labor contracts and greatly improved the system’s transparency. In the health sector, FY 2004 marked a milestone, with the adoption of an implementation strategy and detailed timetable for introducing a new in-patient financing system based on Diagnostic Related Groups. Assessments of inpatient care services were completed in four regions and provided recommendations to policy makers. The Ministry of Health and the Parliamentary Health Commission approved the framework, proposed by USG advisors, for institutionalizing of the National Health Accounts, which defines the process for collecting, analyzing, and reporting health care expenditures. The Social Partnership Program focused on improving the sustainability of Labor Counseling Centers – a key USG legacy. To help build the capacity of future Bulgarian business leaders, the American University in Bulgaria enrolled its first class in its Sofia-based College of Business. With the progress of country’s integration into global markets, the need for English language fluency has grown significantly. Currently, 69 Peace Corps Volunteers work in primary and secondary schools to improve students’ and teachers’ English language skills. Youth development has become an increasingly important focus of policy makers and communities, who view the enthusiasm, flexibility, and potential of young people as a major asset as they implement the changes required for EU accession. The Peace Corps Youth Development program supports two of Bulgaria’s most important national initiatives: the Ministry of Youth and Sport’s initiative to provide all youth with greater opportunities for personal development, and the State Agency for Child Protection’s initiative to improve the conditions of the over 30,000 children living in orphanages and other state institutions. International Visitor programs sent Bulgarian officials, journalists, and NGO members on programs on food safety in the United States, tax and revenue enforcement, and economic development. FY 2004 marked the successful completion of over 12 years of USG support to nature conservation and sustainable development in Bulgaria. One specific result, achieved in close collaboration with the World Bank, was the establishment of the Protected Areas Fund (PAF) in Bulgaria, the first conservation trust fund in Eastern Europe. The PAF is institutionalized within the National Eco Trust Fund and is envisioned as a sustainable mechanism for financing protected areas activities. The PAF is expecting a $2 million grant through the World Bank's Global Environment Facility and matching contributions by the GOB. In January 2004, Bulgaria’s first National Eco-Tourism Strategy and a five-year Action Plan, developed with major USG assistance, were officially presented to the GOB. Security, Regional Stability, and Law Enforcement The focus of U.S. security assistance to Bulgaria in FY 2004 was on providing assistance toward modernization and interoperability, as the armed forces take on the challenges of NATO membership and participation in the Global War on Terrorism. To this end, the USG provided $8.45 million in Foreign Military Financing (FMF) and $1.39 million in International Military Education and Training (IMET). FMF facilitated Bulgaria’s acquisition of up-to-date, NATO-compatible Communication Information System equipment, a National Military Command Center, defense reform initiatives, and an integrated logistics system. IMET ensured Bulgaria’s continued exposure to Western models of force structure, tactical doctrine, resource management, and the professional military education (PME) of military and civilian personnel expected to occupy key positions in a defense-reformed environment. A total of 160 Bulgarian officials participated in training courses under broad U.S. security programs—IMET (60), JTCP (37), Marshall Center (53), and EUCOM-funded Regional Defense Counter-Terrorism Fellowship program (10). Another program targeting the safety of the Kozloduy Nuclear Power Plant, launched in 2003, continues at a slow pace. Bulgaria’s criminal justice institutions remain weak, and organized crime and corruption continue to be major problems. In FY 2004, the Department of State/Bureau of International Narcotics and Law Enforcement Affairs (INL) administered five projects in Bulgaria with SEED funding: Department of Justice/Office of Overseas Prosecutorial Development, Assistance and Training (DOJ/OPDAT) Resident Legal Advisor (RLA); Central European and Eurasian Law Initiative (CEELI) Criminal Law Liaison; Department of Justice/International Criminal Investigative Training Assistance Program (DOJ/ICITAP) Forensics Lab Development; ICITAP and CEELI-implemented Regional Criminal Justice Initiative (RCJI); and ICITAP Organized Crime Analytical Unit. Building on previous years’ accomplishments, USG assistance in FY 2004 helped Bulgaria complete a strong legislative framework to combat trafficking in persons through regulations implementing the landmark 2003 Anti-Trafficking Act. Two additional criminal justice legislative reforms developed with substantial USG assistance moved close to passage: establishment of a comprehensive system of witness protection and institutionalization of a probation system as an alternative to incarceration for non-violent offenders. At the GOB’s request, the RLA began a critical new project to help in revising the legislation governing specialized investigative techniques and secured a major role in a project to revise the criminal and criminal procedure codes. USG assistance was also instrumental in the development and approval of the first-ever comprehensive code of ethics for prosecutors and commencement of training for prosecutors on the code. In addition, a private-public sector cyber crime and intellectual property working group was launched to combat cyber crimes. The RCJI, the only USG regionally based grass-roots rule of law assistance project, provided training for district and regional judges, prosecutors, investigators, and police in financial crime investigation and prosecution. The Treasury Department’s Office of Technical Assistance (OTA) targeted its efforts in FY 2004 at improving Bulgaria’s criminal tax enforcement record, as well as supporting financial crimes investigations and prosecutions generally. The OTA Enforcement Program successfully advocated the creation of an inter-agency criminal tax enforcement unit staffed by relevant GOB entities with responsibility for investigating and prosecuting tax crimes and related offenses, and amendments to tax secrecy legislative provisions to permit more effective information sharing among those entities. The initial focus of the newly formed unit will be on Value Added Tax (VAT) fraud schemes, given the significant losses they cause to the Bulgarian budget. In 2004, the OTA Enforcement Program also continued the operation of a financial crimes task force. The task force facilitated dozens of international law enforcement information and assistance requests between Bulgarian task force members and U.S. operational law enforcement representatives, including information exchanges that resulted in indictments in both the U.S. and Bulgaria. The task force has become a model for other inter-institutional law enforcement efforts in Bulgaria. Humanitarian Assistance In FY 2004, the long-term commitment of U.S. Humanitarian Assistance Programs (HAP) aimed at continued cooperative efforts with the GOB to improve the quality of life and health care services for Bulgaria’s population. In September, the ODC coordinated the EUCOM-USG donation of excess property valued at $192,000 in medical supplies and equipment, furnishings, and other property. A grant of $300,000 enabled the extensive rudimentary renovation of the Multi-Profile Hospital for Active Medical Care in Sliven. The project facilitated full refurbishment of the hospital's infrastructure, roof and gutter replacement, and the installation of the main water supply. A modern, fully functional complex emerged as the operating rooms, anesthesia rooms, and recovery and intensive care units were fully upgraded and integrated. COUNTRY PERFORMANCE MEASURES
ECONOMIC & DEMOCRATIC REFORMS, 1991-2004
Data are drawn from EBRD, Transition Report (November 2004) & Freedom House, Nations in Transit 2004 & Freedom in the World 2004. Ratings are based on a 1 to 5 scale with 5 representing the most advanced. ECONOMIC STRUCTURE AND HUMAN DEVELOPMENT 1990-2004 World Bank, World Development Indicators 2004 (2004); UNICEF, Social Monitor 2004 (2004); EBRD, Transition Report (November 2004); and UNDP, Human Development Report (2004). MEASURES OF PROGRAM EFFECTIVENESS IN FY 2004 DEMOCRATIC REFORM Performance Indicator: Rule of Law: Constitutional, Legislative, and Judicial Framework, Drawing from Freedom House, Nations in Transit 2004 as modified by "Monitoring Country Progress in Eastern Europe and Eurasia" USAID/E&E/PO, #9 January 6, 2005. (1-lowest, 5-highest; data based on previous calendar year)
FY 2004 Results: Primarily due to the passage of the constitutional amendment in 2003, Bulgaria’s rating for constitutional, legislative, and judicial framework improved from 3.33 to 3.5. In 2004, judicial reform was further boosted by the enactment of the amendments to the Judicial System Act, the establishment of the National Institute of Justice, and the increased authority of the Supreme Judicial Council. The Judicial Performance Index (JPI), developed in-country, to determine progress for the sector, captured some of the sector’s positive developments in 2004. On a scale from 1 to 10, where 1 is the lowest and seven is the threshold level indicating irreversible change and well-functioning judicial system, the JPI score in FY 2004 was 6.36, compared to 6.13 in FY 2003. Nevertheless, Bulgaria still needs to address major deficiencies, such as serious delays in the judicial system, legal professionals with inadequate legal expertise and experience, and the politicization of the judiciary. Performance Indicator: Transparency International (TI) Corruption Perception Index (0 = highly corrupt; 10 = highly clean)
FY 2004 Results: The TI survey shows a slight improvement for Bulgaria and reflects of some of the GOB’s measures to reduce corruption. Bulgaria continues to share places from 54 to 56 in the international ranking, but the number of countries included on the list has increased from 133 last year to 146 this year. Despite this modest progress, corruption remains a major issue. Performance Indicator: Civil Society Rating, Drawing from Freedom House, Nations in Transit 2004 as modified by "Monitoring Country Progress in Eastern Europe and Eurasia" USAID/E&E/PO, #9 January 6, 2005. (1-lowest, 5-highest; data based on previous calendar year)
FY 2004 Results: The sustainability of civil society remains fragile because of resource issues, in spite of the increased number of active NGOs and a favorable legal environment. The slightly improved indicator reflects NGOs’ active participation in the legislative process and various public debates on the Ombudsman Act and the Limitation of Administrative Regulation and Control over Economic Activity Act. ECONOMIC AND SOCIAL REFORM Performance Indicator: Private-sector share of GDP (Source: National Statistics)
FY 2004 Results: FY 2004 has been unique in terms of moving forward with important privatization deals. In June 2004, the GOB finalized the sale of its 65 percent share of the Bulgarian Telecommunications Company. In the fall of 2004, the GOB finalized the privatization of 67 percent of the country’s seven electricity distributors. Preliminary offers for five of Bulgaria’s district heating companies were due in early October. The privatization of Bulgartabac is underway. Although SMEs remain the main source of economic activity, privatization deals finalized in 2004 will result in increased value added generated by the private sector. The official statistical data for this indicator are through September 30, 2004. With all the successful privatization deals, expectations are that the target of 68 percent will be exceeded. Performance Indicator: Unemployment Rate (Source: National Statistics)
FY 2004 Results: Unemployment has continued to decrease since the first of the year. There is a trend toward stabilization in net job creation that is likely to keep the unemployment rate lower than a year ago. However, unfavorable seasonal effects will lift the ratio during the last quarter of 2004 and the first months of 2005. The projections are for a year-end unemployment rate at around 12.5 percent. The autumn forecast of the European Commission sees the year-average rate at 12.2 percent. SECURITY, REGIONAL STABILITY, AND LAW ENFORCEMENT Performance Indicator: TIP Convictions (Source: National Statistics)
FY 2004 Results: FY 2004 saw the first-ever convictions for trafficking in persons. However, all of the rulings were at the first instance with possibility for appeal. Overall investigations and indictments for trafficking and crimes related to trafficking have increased. Despite the increase in awareness of trafficking and related crimes, TIP remains a problem in Bulgaria. Performance Indicator: Restructuring of Bulgarian military as measured by implementation of Plan 2004 and of NATO Partnership Goals. (Source: GOB)
FY 2004 Results: Desired end state of security cooperation in Bulgaria centers on the completion of the reforms required for full integration of Bulgarian military forces into NATO, including the development of niche military capabilities with emphasis on Construction Engineering, Chemical Defense, Light Infantry, and Military Police. As a new NATO member as of May 2004, Bulgaria is moving forward in trying to overcome the challenges of defense modernization, interoperability, and severe downsizing. The MOD and General Staff began and completed a critical Strategic Defense Review (SDR). The SDR implementation plan/goal is pending publication. With continued USG and EUCOM assistance, the SDR can be expected to move forward, and Bulgaria will come to achieve a force it can afford and that can be relevant in the Alliance. BULGARIA
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Area: 110,910 sq km, slightly larger than Tennessee 
