E. Europe's Sluggard Feels Chill of No Reform

By the lights of an Italian storefront display, a couple of homeless preschoolers are playing football on the sidewalk of Vitosha Boulevard with a small plastic ball nearly as grimy as they are. It's nearly midnight, nobody is keeping score, and a winter chill is in the air.

"Nobody gives anything to them these days, so they play to pass the time," says a woman selling books from a nearby bench.

Bulgarians are bracing for a hard winter. The economy is in a shambles, the currency is collapsing, banks are folding, inflation stands at 150 percent, and now citizens are facing the prospect of critical food and energy shortages this winter. Like voters in neighboring Romania, Bulgarians are demanding change.

But the Nov. 3 election of opposition presidential candidate Peter Stoyanov may not change anything for the country's increasingly desperate citizens.

Mr. Stoyanov, a divorce lawyer, easily defeated his Bulgarian Socialist Party (BSP) challenger in the election. But the post is largely ceremonial, and the victory largely symbolic.

Outgoing President Zhelev and Stoyanov, as members of the same party, the Union of Democratic Forces, are expected to have similar policies. The parliament and government remain under the firm control of the BSP, the country's renamed Communist Party. Since taking power in 1994, the BSP has led the country to the brink of economic disaster.

It is not clear if the government will find the money needed to keep people warm and fed this winter. With its farms and power plants lying largely idle for lack of investment, Bulgaria must purchase critical supplies of food and energy from other countries. The government's refusal to implement real economic reforms has caused the International Monetary Fund (IMF) to stop lending the money Bulgaria needs to service its staggering $9-billion debt.

As a result, foreign-exchange reserves have fallen to a paltry $500 million, not enough to pay for critical imports.

"Most politicians sit on company boards that dominate large parts of the economy or key foreign-trade sectors. Reforms would weaken their positions," says James Derleth, a Bulgaria specialist at the School of International Studies at the University of the Pacific in Stockton, Calif.

Most of the economy remains under state control, and the country has the lowest level of foreign investment of any former Warsaw Pact country. A number of poorly regulated commercial banks have collapsed after their managers distributed millions in unguaranteed loans to their buddies.

The entire banking system also staggers under the weight of hundreds of loss-making state enterprises that the state continues to subsidize. Mafia activity is on the rise and believed responsible for the assassination of former Prime Minister Andrei Lukanov earlier this year. Privatization is at a standstill.

The much-delayed reforms won't make winter any more pleasant for ordinary citizens. Subsidies on gasoline, electricity, and residential heating have been lifted, pushing prices beyond the means of the poor. Sixty-four industrial firms are being closed down, with 10,000 of their employees already laid off.

After two years in power, the government last month started taking steps to meet the IMF's demands and lift the loan freeze. But negotiations with the IMF remain stalled over the creation of an independent board to supervise the exchange rate of the national currency, the lev.

Expecting the worst, officials at the US Embassy say they have informed Washington that humanitarian aid may be needed here in the coming months.

"If the government does come to a settlement with the IMF, there will be enormous benefits for Bulgaria," says Nikolai Petrov, an editor at the Sofia-based financial weekly newspaper 24 Chasa. "A number of major restructuring loans from international lenders are waiting in the wings and would help stabilize the situation, at least for a few months."