IV.  POLITICAL ENVIRONMENT

A.  Background & Synopsis of the Political System

In historical perspective, Bulgaria's changeover to a democratic
system and market economy surpasses even the transformations of
many communist countries in Central Europe given Bulgaria's
faithful status and concentrated trade links with the COMECON
countries.  While other communist countries of the region adopted
reform and displayed bursts of democracy, Bulgaria remained the
most loyal and most bloc-dependent state in Eastern Europe.  In
1989, after 35 years of rule Todor Zhivkov was removed from power
and a reform-minded but communist-led leadership took over in a
bloodless transition.  Following two Socialist Governments in
1990, the first non-Communist election was won by the Union of
Democratic Forces (UDF) in October 1991.  The UDF is an alliance
of anti-Communist Parties and groups with strength among city
dwellers and younger voters.  Voters in the countryside and the
older generation are still generally supportive of the former
Communist Party, the Bulgarian Socialist Party (BSP).  The UDF
fell from power in late 1992, replaced by Prime Minister Lyuben
Berov, a compromise candidate with no party affiliation.

B.  The U.S.-Bulgarian Bilateral Relationship

U.S.-Bulgarian bilateral relations are generally on a favorable
basis, with no serious problems.  Since 1989, these relations
have been strengthened by a series of formal agreements, such as
the U.S.-Bulgarian Bilateral Trade Agreement, which provides
most-favored-nation trading; a Bilateral Investment Treaty (BIT),
which guarantees national treatment for U.S. investments and
creates a dispute settlement process; an Overseas Private
Investment Corporation (OPIC) Agreement, for the promotion of
investment in Bulgaria.  Under the trade enhancement initiative,
Bulgaria gained access to the General System of Preferences (GSP)
permitting duty-free import of Bulgarian goods into the U.S.
EximBank has been open in principle for short-term loans and as
of August 1, 1994 a new EximBank program was launched which will
ease conditions for loans to Bulgaria.  The U.S. Trade and
Development Agency (USTDA) has been active in Bulgaria, providing
several million dollars in feasibility study funds.  Total U.S.
assistance for Bulgaria in fiscal year 1994 will amount to $45.6
million, with nearly $150 million appropriated since 1990.  On
the foreign policy front, Bulgaria was a firm supporter of the
Allied Forces in the Gulf War and a key country in the sanctions
enforcement against Serbia and Montenegro.  In February 1994,
Bulgaria joined NATO's Partnership for Peace; full membership in
NATO remains a key foreign policy objective.

C.  Major Political Issues Affecting the Business Climate

As of mid-1994, Prime Minister Berov was trying to maintain his
hold on power in the face of increasing opposition. In June, the
BSP called for pre-term elections for the fall of 1994. The UDF
walked out of parliament in June.  No date has been set for
elections, however, and it is by no means certain they will be
held before the required elections are due in late 1995.  The
fragile status of the Berov government has meant a perceptible
slowing of Bulgaria's economic reform program.  On the positive
side, restitution of shops and houses that were confiscated by
the communists in the 1940's has put capital into the hands of
many ordinary Bulgarians, helping to fuel rapidly growing
consumer goods and service sectors.  However, privatization of
state-owned industry has moved slowly, as has the breakup of
state-organized collective farms.

Political tensions remain over the pace and impact of reform, the
unemployed, and the level of corruption.  Many of the difficult
decisions facing parliament require a strong coalition or
consensus, something the current Government is sorely lacking.
Moreover, politics in Bulgaria has moved to the extremes of left
and right, creating a vacuum of the center.  As a result a
political discourse of compromise and pragmatism is difficult to
achieve.  However, some hopeful signs of recent are parliamentary
agreements on a debt settlement, a bankruptcy law, a mass
privatization program and an ironic consensus on the need to
avoid elections.  The impact on business is simply that needed
legislation is frequently the subject of political deadlocks.
Moreover, leadership at the highest levels is needed to assert
the critical role of foreign investment, to move a lethargic
bureaucracy, and to enunciate the proper and ethical basis for
business.  Of course, Bulgarians have been used to such political
flurries before and continue on a "business as usual" basis,
which fairly well characterizes the situation today.