2010-03-11
* Cabinet gives in to public pressure, stops reforms
* Economic pain, policies erode popularity
* EU's poorest nation faces lengthy economic slump
By Anna Mudeva
SOFIA, March 11 (Reuters) - Seven months after coming to power on pledges of radical change, Bulgaria's centre-right government has put important economic reforms on hold, risking prolonged stagnation in the European Union's poorest nation.
While Bulgaria's public finances are widely praised as among the healthiest in eastern Europe and a Greek-style crisis is unlikely, analysts say a lull in reforms and the cabinet's populist tendencies will mean more pain and slower recovery.
Prime Minister Boiko Borisov's government last month caved in to growing public resistance and froze plans for a healthcare overhaul, including closure of inefficient hospitals, as well as a planned rise in the pension age.
It promised more money to pensioners over the age of 75 and subsidies to protesting tobacco growers.
Apart from some staff cuts at ministries, the tax and customs offices, Sofia has so far failed to kickstart a major overhaul of the bloated public sector that it had promised.
To make up for the lack of cost saving reforms and keep its budget deficit low, the cabinet of Borisov's GERB party has delayed hundreds of millions of euros in payments to contractors and tax returns owed to companies, provoking outcry.
"The feeling is that they are just fighting fires," said Stanislav Stoyanov with independent pollster Alpha Research.
"There are high expectations for reforms but the policy appears chaotic and that eats the support. A big part of the population voted for GERB expecting it to come up with clear measures to take Bulgaria out of the crisis."
An Alpha survey showed last month approval for the government had dropped 13.3 percentage points since August to 45.7 percent. Analysts attributed the decline to badly planned and poorly communicated hospital and pension overhauls.
A lack of managerial and political experience among many ministers is also hampering progress, analysts say.
Finance Minister Simeon Djankov, an ex-World Bank economist, met his goal to end 2009 with a budget gap of below 1 percent of GDP -- but only by not paying doctors or social aid in December, and even President Georgi Parvanov's November pay was delayed.
ERODING POPULARITY The deepening recession and lack of exit strategy is likely to further erode popular support for the cabinet, although that is not expected to topple it.
"At some point the prime minister might be forced to reshuffle the cabinet in response to the growing pressure," said Kiril Avramov of Political Capital think-tank in Sofia.
But most Bulgarians see no alternative to the GERB party after the previous Socialist government was voted out amid accusations of incompetence and being soft on graft and crime.
The government, elected last July on pledges to tame rampant corruption and crime, still commands fairly strong support thanks to police operations targeting powerful organised crime gangs and prosecution of former ministers suspected of graft.
Growing unemployment, which hit 9.9 percent in January, is increasing pressure on the cabinet to loosen its fiscal belt but the tough-talking Borisov warned this week he would rather resign than allow a looser-budget and a Greek-style scenario.
Surveys show that one in five households in the Balkan country of 7.6 million has seen a member lose their job or had their salaries delayed or cut.
Economists say Bulgaria will recover more slowly than other countries in eastern Europe and forecast marginal growth this year after a 5.0 percent contraction last year.
The troubles in neighbouring Greece and patchy recovery in western Europe -- Bulgaria's main export markets -- are also set to contribute to a prolonged stagnation.
Borisov admitted last week that the budget gap could reach 1.8 percent this year, well above the 0.7 percent target.
Measures to raise revenues by cracking down on tax evasion have so far failed to bear fruit and economists estimated tax collection fell about 30 percent in January.
Some analysts warn the delay in reforms might widen the deficit and put pressure on the lev currency peg to the euro.
"It is important not to allow a further rise in the deficit, otherwise we may start suffering like the Greeks," Georgi Angelov of Open Society Institute told broadcaster Nova TV.
Some relief could come in the form of fresh capital from 11 billion euros in EU aid promised to Sofia until 2013 to revamp its Soviet-era infrastructure, farming and rural areas, but that is conditional on Bulgaria doing more to stop fraud.
(Editing by Elizabeth Fullerton)
(Reuters) / Bulgaria Today
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