History and Economic Profile of Bulgaria - Essay Example

History and Economic profile of Bulgaria I. Introduction Bulgaria is one of the oldest countries in Europe that has retained its old for a long time. While other nations in Europe and other parts of the world changed their names, Bulgaria stood steadfast of its heritage and kept its old name. Located in the Southeastern Europe, Bulgaria lies bordering the Black Sea (COUNTRY PROFILE: BULGARIA October 2006). It is surrounded by Romania to the north, Serbia and Macedonia to the west and Greece and Turkey to the south. Bulgaria has three regions known in Classical Greece as Thrace, Moesia and Macedonia (COUNTRY PROFILE: BULGARIA October 2006). At present, the ten largest cities in this country in terms of population are the cities of Sofia, Plovdiv, Varna, Burgas, Rousse, Stara Zagora, Pleven, Bodrich, Sliven and Shumen (COUNTRY PROFILE: BULGARIA October 2006). History tells us that Bulgaria has three great empires. The First Bulgarian Empire was established between 630 – 1018 AD, the second empire thrived around 1185 to 1422 and third empire emerged when the country was freed from the Ottoman rule sometime in 17th century (Dobrev, Petar 2001). History tells is that diplomacy in this country was re-established in this country when it was established a constitutional monarchy government in 1878(Dobrev, Petar 2001). The birth of Great Bulgaria came in 632AD (www.bulgaria-embassy.org) when the Bulgarian chieftains united under the leadership of Khan Kubrat (www.bulgaria-embassy.org). Ancient chroniclers referred to this newly-formed state as Bulgaria or Great Bulgaria. From the time this new state was formed, the chroniclers were said to have erased all other records of Bulgar tribes and in its placed used the name Bulgaria to refer to all the tribes in this area (www.bulgaria-embassy.org). The early state of Bulgaria was not just a merely tribal or military alliance. Old records show that this new state has its"strictly outlined territory, its own administration, uniform laws and its own foreign policies" (www.bulgaria-embassy.org). This early Bulgarian state gave rise to the first state of Bulgaria. Bulgaria is strategically located near the Turkish strait which is considered as a major route from Europe to the Middle East and Asia (The World Fact Book www.cia.gov/library). Many strategists believe that whoever has control of this area will also have great economic and military advantage over the different parts of Europe, Asia and the Middle East (The World Fact Book www.cia.gov/library). In the older times, the strategic location of Bulgaria attracted many invaders who were hoping to gain control over parts of Europe, the Middle East and Asia. Compared to many of its neighbors, Bulgaria is not really a very big nation in terms of land area and population. It has total area of 110,910 sq kilometers composed of 110,550 sq. km of land and 360 sq km of water (COUNTRY PROFILE: BULGARIA October 2006). The geographic terrain of this country is mountainous with lowlands towards the north and the southeast portion of the country. The climate of Bulgaria is a general temperate area. Winters can be very cold and damp while summers can be hot and dry (COUNTRY PROFILE: BULGARIA October 2006). The Balkan Mountains that surrounds Bulgaria influences it climate. Northern Bulgaria is slightly cooler and has more rains compared to the other parts of the country (COUNTRY PROFILE: BULGARIA October 2006). Bulgaria has a lot to boast when it comes to natural resources. According to the world fact book, this country is rich is minerals like copper, bauxite, coal, zinc and lead. For the most part, Bulgaria has arable lands and timber lands (The World Fact Book www.cia.gov/library). About 29.94% of the total land area of the country is classified as arable land and about 1.9% of this arable land is planted with permanent crops (The World Fact Book www.cia.gov/library). Agriculture production in this country is rather good. About 5,880 sq km of land in this country is irrigated (The World Fact Book www.cia.gov/library). However, over the years, environmental issues have considerably decreased the agricultural production in the area. According to the World Bank, the country could suffer from heavy losses if the current unsound environmental practices in the area are not corrected (World Bank 2006). Water is not a problem in this area. To date, the total renewable water resources of the country are about 19.4 cu km and the total fresh water withdrawal for domestic, industrial and agricultural purposes is just about 6.92 cu km/year (The World Fact Book www.cia.gov/library). Bulgarias major rivers namely the Danube, the Struma and the Martisa contribute to the water supply in the area. Moreover, the two alpine ranges in the country, Rila and Pirin, provide the country with plenty of water. Rila and Pirin are surrounded with about 260 glacial lakes (The World Fact Book www.cia.gov/library). Based on recent surveys of populations all over the world, Bulgaria is considered as one of the slowest growing countries is terms of population. Around the 1990s, the population growth in this area almost comes to a stand still. Based on the July 2007 data in the world fact book, the country has a population of 7,322,858. About 13.9% of the total population is between the ages of 0-14, about 38.7% of the population is around the age of 15-64 and about 17.4% of the people in this country are above the age of 65 (The World Fact Book www.cia.gov/library). At present, the population growth in the area is about -0.837% per year which is an equivalent of 9.62 births for every 1,000 people per year (The World Fact Book www.cia.gov/library). The average fertility rate of a Bulgarian woman is pegged at 1.4% as of 2007 but the country needs to 2.2% fertility rate to be able to replenish its demising population (The World Fact Book www.cia.gov/library). Indicators 2007   1995 2005 2015 2025 Population                Midyear population (in thousands) 7,323   8,256 7,450 6,867 6,258    Growth rate (percent) -0.8   -1.2 -0.9 -0.8 -1.0 Fertility                Total fertility rate (births per woman) 1.4   1.3 1.4 1.4 1.5    Crude birth rate (per 1,000 population) 10   9 10 9 8    Births 70,446   72,651 71,970 60,225 48,247 Mortality                Life expectancy at birth (years) 73   70 72 75 77    Infant mortality rate (per 1,000 births) 19   23 21 15 11    Under 5 mortality rate (per 1,000 births) 22   27 24 17 12    Crude death rate (per 1,000 population) 14   14 14 14 15    Deaths 104,570   115,334 106,242 98,131 91,300 Migration                Net migration rate (per 1,000 population) -4   -7 -4 -3 -3    Net number of migrants -27,168   -55,974 -32,037 -19,983 -20,025 Source: U.S. Census Bureau, International Data Base. See: http://www.census.gov/ipc/www/idb/country/buportal.html The birth rate or replenishment rate is rather low compared to the death rate of the place which is about 14.28 deaths for every 1,000 people per year (The World Fact Book www.cia.gov/library). Infant mortality is also a bit high at 19.16 deaths in every 1,000 live births (The World Fact Book www.cia.gov/library). More male babies die at birth compared to female. Aside from low birth rates, migration rates in the area are also almost non-existent at -3.71 per 1,000 per year (The World Fact Book www.cia.gov/library). Given this low replenishment rate, many experts fear that the population in the area will further deplete in the next several years. The people in this country can be classified into four major categories namely, Bulgarians (83.9%), Turk (9.4%), Roma (4.7%) and other groups composed mainly of Armenian, Macedonia, Circassian and Tatar (2%) (Bulgaria Census 2001). Based on the Bulgarian Census, about 96.3% of the total population in this country considers Bulgarian to be their native language. Bulgarian is actually part of the Slavic language group and remains to be the only official language of the country today. Aside from speaking Bulgarian, a minority of the people in this country also speaks Romany and Turkish. About 9.6% of the total population in the area speaks Turkish, 4.1% speaks Roman and another 1.8% speaks other languages (Bulgaria Census 2001). Region is active in Bulgaria. About 82.6% of the Bulgarians belong to the Bulgarian Orthodox Church (The World Fact Book www.cia.gov/library). Another popular religion in Bulgaria is island. About 12.2% of the people in this country are followers of the Islamic teachings (The World Fact Book www.cia.gov/library). On the other hand, a small minority of the people belongs to various protestant religious denominations (0.8%) and the Roman Catholic Church (0.5%). About 4.1% of the population declared themselves to be atheist and do not belong to any religious denomination (The World Fact Book www.cia.gov/library). The government of Bulgaria evolved over time. At present, it adopts parliamentary democracy. It judicial system follows the civil and criminal law based on the Roman laws. Bulgaria also accepts the compulsory International Court Jurisdiction (ICJ) with reservations (Curtis, Glenn 1992). Like its politics, the economy of Bulgaria has its ups and downs. At present, major industries of the country are "electricity, gas, water; food, beverages, tobacco; machinery and equipment, base metals, chemical products, coke, refined petroleum and nuclear fuel. (The World Fact Book www.cia.gov/library) It main agricultural products are fruits, vegetables, tobacco, wheat, wine, barley, sugar beets, sunflowers and livestock (The World Fact Book www.cia.gov/library). Currently, the country is exporting footwear, clothing, machinery and equipment, iron and steel and fuels (The World Fact Book www.cia.gov/library). It major export trading partners are Turkey which gets about 12% of the exported products, Italy at 10.4%, Germany at 10%, Greece at 8.2%, Belgium at 6.8% and France at 4.3% (The World Fact Book www.cia.gov/library). Bulgaria is importing some of its household, industrial and agricultural products from some countries in Europe. In 2007, the country recorded around $28.79 billion in imported products (The World Fact Book www.cia.gov/library). The main import partners of the country are Germany (15%), Italy (10.6%), Turkey (7.2%), Greece (6.3%), China (5%), France (4.9%) and Romania (4.5%) (The World Fact Book www.cia.gov/library). The economy of the country is more or less stable after the country experienced economic crisis sometime in the later part of the 1990s. Note that COMECON collapsed in the 1990s and the loss of the Soviet Market took a tool on the Bulgarian economy at that time. Most of the industries in the country were affected. During this time, the inflation rate in the country surged as high as 122% and cause havoc on the countries economy (World Bank 2006). Fortunately, with major reforms, the country was able to pull itself together. At present, the country has reserves of foreign exchange and gold of around $13.8 billion as of December 31, 2007. Its foreign debts however are rather huge at $29.29 billion as of June 30, 2007 (The World Fact Book www.cia.gov/library). The lev, the official currency of Bulgaria, is strong compared to the United States dollar but its value slightly declined over the last five years. Based on the work fact book, the exchange per lev to the dollar is 2003 was about 1.7327, in 2004, the exchange rate was at 1.5751, in 2005 the exchange rate was at 1.5741, in 2006, the exchange rate was at 1.5576 while in 2007, the exchange rate slide down to 1.4366 (The World Fact Book www.cia.gov/library). The inflation rate of the country is also rather tame compared to its neighboring European countries. For the past five years, the inflation rate of the country is seen hovering between a low of 2.3% and a high of 7.3%.( http://www.stat.bg/indicator.html?lang=1&id=143&per=3) This tame inflation rate is really a far cry compared to the inflation rates of the country way back in the 1990s which reached up to triple digits. One of the good indicators that a countrys economy is progressing is the banking sector. The banking sector of the country is has drastically improved since the economic crisis in 1997 (World Bank 2006). At present, the banks of Bulgaria are liquid and profitable. With the ongoing privatization of large state owned banks, the Bulgarian government is hopeful that they will soon be at par with the other European countries. However, such status of being on equal economic footing with the rest of the more advanced countries in Europe may not really be realized for quite sometime. The other industries in the country are still suffering from the post communist effect. Privatization efforts of other industries in the country are quit very slowly materializing (World Bank 2006). Being a European country, Bulgaria became an official member of the European Union in 2007. Although the country still belongs to the poorest among European countries, Bulgaria is doing its best to be abreast with the rapidly developing Europe. II. Bulgaria Before And After World War II As with most countries in the world, World War II was the turning point of the Bulgarian economy. Note that before World War II, Bulgaria was already suffering from the impacts of the first Balkan Wars. Bulgaria became involved with the first and second Balkan wars in 1912-1913 (Crampton, R. J. 2005). Bulgaria suffered heavy losses during the second Balkan War. During World War I, it again found itself fighting along the losing side of the war. The heavy losses suffered by the country during this time took a heavy toll on the countrys economy. The Treaty of Neuilly which Bulgaria entered into in November 1919 proved to be a "second national catastrophe" which leads the country to cede nearly all of its Macedonian territory to the new state of Yugoslavia and its Aegean coastline to Greece (Crampton, R. J. 2005). Moreover, based on the treaty, the country has to reduce has to pay more than $400 million in reparations (Crampton, R. J. 2005). In order to pay for its obligations, Bulgaria was forced to reduce its army to only 20,000 men (Crampton, R. J. 2005). By this time, the economy of the country was more or less in ruins. The already weak economy of Bulgaria suffered yet another blow during the world economic crisis which took place in 1929 (http://countrystudies.us/bulgaria/16.htm) The severe economic condition which was brought about by the great depressions caused some 200,000 workers to lose their jobs (http://countrystudies.us/bulgaria/16.htm) when dozens of companies went bankrupt. People who have lost their jobs turn to the streets to protest and strikes hit Bulgaria in waves around 1930-1931, causing severe unrest in the area. As the political and economic situation in the area worsens, the Tsar Boris III became an active political force in the country in 1935 (http://countrystudies.us/bulgaria/16.htm). Tsar Boris III ignored the peoples demand to restore the traditional political supremacy of the subranie (http://countrystudies.us/bulgaria/16.htm) . He also quelled the peoples demand for a constitution and delayed the elections of parliament members to ensure that he has control of the parliament. During the 1930s, the economy of Bulgaria was more or less state run. Although small private owned companies flourish during this time, the biggest industries were still controlled by the government and economic activities were centralized in Sofia which is the seat of powers of the government (Crampton, R. J. 2005). The nominal rich people controlled the vast resources of the country while the majority of the people who are poor as to be content with whatever little resources are left to them. As World War II begun the social and political disparity among the rich and the poor of Bulgaria became more and more pronounced. When World War II started, Bulgaria was again thrown into the war. Failing to keeps its neutral grounds, Bulgaria was forced to enter into a passive alliance with the Axis. Unfortunately, its leader, Tsar Boris III suddenly died in 1943 leaving his six year old son Simeon to run the country (Crampton, R. J. 2005). At this point, Bulgaria was forced to reconsider its international policies. As Bulgaria becomes more involved in the war, the social and economic dislocation took place. The Germans who are once the allies of the Bulgaria started to plunder the resources of the country. As the atrocities of war continue on Bulgarian soil, the Soviet troops entered into the Bulgarian territory. Many Bulgarians saw the Soviets as their liberator from the Germans. Eventually, the Bulgarians took the side of the Soviets and became under communist rule. The 1947 constitution of Bulgaria was patterned after the 1936 constitution of the Soviet Union (Crampton, R. J. 2005). The constitution also outlined the plan for the nations economic recovery. As part of the economic rehabilitation plan, all private industries in the country were confiscated and nationalized. In 1948, the then newly formed Soviet Union begun to exert its powers over Bulgarian territories. Soon, the traditional informal structure of the Bulgarian government was replaced with the rigid government structure of the Soviet Union. By the 1950s, the economy of Bulgaria started to shift away from heavy industry towards a more consumer oriented model. As the Soviets started to heavily intervene into the national and economic affairs of the country, the social political and economic activities in the area started to go down hill. Agricultural harvests were very poor around the early part of 1960s and the unrest among peasants in the countryside forced the government to increase the food prices. As prices of food and other basic commodities in the country increased, the urban dwellers become more dissatisfied with the government system. Eventually, a crisis broke out in the summer of 1962. (http://countrystudies.us/bulgaria/20.htm) After long years of hardship, the economy of Bulgaria started to improve in the late 1970s to the early 1980s (http://countrystudies.us/bulgaria/20.htm) Bulgaria started to export high-quality goods in the early 1980s to pay off is ballooning foreign loans. The move of Bulgaria to step-up its export product started to pay-off after a couple of years but its progress was quite short lives. By 1984, Bulgaria started to suffer some acute energy shortage due to the unreliable Soviet-made nuclear power plants. Production slowed down due to unreliable power source. At this point, although Bulgaria still relied heavily on the Soviet Union, clear signs of differences started to appear between them (http://countrystudies.us/bulgaria/20.htm) Much as Bulgaria still see the Soviet Union as a strong partner in development, Bulgaria is beginning to notice the efficiency of the Soviet government especially on the delivery of basic services. (http://countrystudies.us/bulgaria/20.htm) However, since Bulgaria is a member of the union and its economy relies heavily on the Council for Mutual Economic Assistance or COMECON and the Soviet Union, Bulgaria remained as a faithful ally of the Soviet Union ("Germany (East)", Library of Congress Country Study http://memory.loc.gov/frd/cs/germany_east/gx_appnb.html). When the Soviet Union finally disbanded in 1989, the Bulgaria economy declined dramatically. The standard of living in the country dropped by about 40% ("Germany (East)", Library of Congress Country Study http://memory.loc.gov/frd/cs/germany_east/gx_appnb.html) as people started to lose their jobs. We have to understand that up until this point, the economy of the country was closely tied up with the Soviet market and the COMECON ("Germany (East)", Library of Congress Country Study http://memory.loc.gov/frd/cs/germany_east/gx_appnb.html). The COMECON is actually an interstate organization which allows its members to give each other mutual support in the areas of technical cooperation, economic activities and scientific undertaking ("Germany (East)", Library of Congress Country Study http://memory.loc.gov/frd/cs/germany_east/gx_appnb.html). In a sense, the COMECON is somewhat like the present European Union minus some of the benefits. The economic situation in Bulgaria was exacerbated by the UN sanctions against Serbia around 1992-1995 (Cramptom R.J. 2005). Note that Serbia is one of the economic partners of the country and the sanction took a devastating effect on the already sluggish economy of Bulgaria. In 1996, the Bulgarian economy collapsed due to mismanagement of economic reforms in the area. The Bulgarian Socialist Partys (BSP) economic reform plans did not work out as expected and the agricultural policies that the BSP implemented was a total disaster. Moreover, poor banking systems led to the collapse of the lev and brought the inflation rate of the country to an astonishing 311% (The World Fact Book www.cia.gov/library). The poor economy of the people led to unrest among the people. As more people lose their jobs during the economic crash down, mass protest and violence started to rule the streets of Bulgaria (The World Fact Book www.cia.gov/library). III. Transition and Recovery In response to the looming economic crisis after the Soviet Union collapsed, the State Planning Committee proposed to do away with central planning and adopt a more liberal approach to economic recovery (Dobrinsky R. 2001). What is a centrally planned economy? Under the centrally planned economy, the market forces do not dictate the flow of the economy. Allocation of outputs, the value of goods and services and the exchange rates were dictated by the government and not by the market. The shift from the centrally planned economy to a more market driven system was meant to create a material balance between the supply and demand in the area (Dobrinsky R. 2001). Unfortunately, the ambitious economic plan "lack coordination between fiscal and monetary policy"(Dobrinsky R. 2001). The unstable banking system contributed much to the downfall of the countrys economy. Moreover, the plan was obviously mismanaged and was not properly executed. Privatization of the government owned and controlled corporations were very slow and the economy languished even more. The government was losing more money than ever and the people become more discontented as the quality of life in the country became bad. As a result of the mismanagement of the economic recovery plan of the country, the economy plummeted to a new low by the year 1996. There were several reasons behind the long-lasting transitional recession suffered by the country. First, the transition period from the communist regime to the democratic regime allowed for the quick removal of the centrally planned economy framework. Although establishing a free-market environment is a good thing, Bulgaria was not really for this kind of quick transition at that time. For one thing, the people and the business sectors were not ready for such transition which accounted for the confusion that occurred during the transition. It must be noted that during this time, there were no clear property rights and the legal system of the country was not really functioning as it should be (Dobrinsky R. 2001). Moreover, the financial sector of the country remained underdeveloped. The banking system was weak and it was not ready to shift from the centrally controlled economy to a more open and market driven economy (Dobrinsky R. 2001). The second reason why Bulgaria had a difficult transition was because its government lacked the political will to implement the economic plan of the country (Bell, John D., ed. (1998). Many government officials had misconceptions about the idea of privatization of government assets that it became quite difficult to start the bidding for government assets. Note that it was not until 1996 when the countrys economy was already is serious jeopardy when the government actually started to roll out its asset privatization scheme and open these government assets to bidding (Dobrinsky R. 2001). By this time, the countrys economy was already limping so badly after seven years of recession. The transition period is one of the most challenging times that the country has to face. During the economic debacle, corruption tainted the government that a lot of people have become quite distrustful of the people who are running the country. The fact that government retained control on government owned and controlled corporations further slowed down the economic progress of the country. Many investors were wary about the governments policies on domestic and foreign trade controls. Moreover, the unstable tax regulations in the country make the business environment rather unfriendly especially for foreign investors (Dobrinsky R. 2001). By April of 1997, the first signs that the Bulgaria economy recovering finally showed itself. By this time, the Union of Democratic Forces (UDF) won the pre-term parliamentary elections in the country and real economic reforms started. The UDF introduced the International Monetary Fund (IMF) currency system into the country which led to the stabilization of the economy (The World Fact Book www.cia.gov/library). To arrest the downward spiral movement of the economy, the IMF and the World Bank intervened and the privatization of the government assets started towards the end of 1996. By 1997, the economy of the country started to stabilize although there is much to be done to bring the economy of the country closer to the status of the rest of the European nations. IV. Economic transition The economic transitions of Bulgaria are quite interesting to say the least. Towards the end of the communist rule in the country in 1989, the Gross Domestic Product (GDP) per capita of the country was $2,513 (http://www.ime-bg.org/news/dec99/gdp.pdf). Unfortunately, the economic shock that accompanied the break up of the Soviet Union pushed the GDP per capita of the country down to $946 in 1991 (http://www.ime-bg.org/news/dec99/gdp. pdf ). This scenario is really a far cry from the 2006 GDP per capital of the country which reached $10,700 (The Economist 2008). The drastic reduction of the GDP was partly attributed by analysts to the fact that before 1991, the exchange rate used by the country was dictated not by market forces but rather by government directives (The Economist 2008). It must be noted that until the collapse of the Soviet Union, Bulgaria had command over its economic based through centralized planning. After the collapse of the Soviet Union, Bulgaria shifted towards a market driven economy which accounted for the continuing economic growth of the country from 1997 up to the present. Moreover, the fact that government is finally taking its economic reform program and started to strengthen its banking system, helped a lot in propelling the countrys economic status forward. At present, the banking system of the country is already much more reliable that it was in the past and the private businesses in the area also flourishing. In January 2007, in the spirit of cooperation and unity among other European nations, Bulgaria joined the European Union. The move of Bulgaria in joining the European Union opens the countrys doors to trade liberalization. The liberalization did not really have some dramatic effects on the economy of the country. Between 2006 and 2007, the government reported a surplus of above 3% (http://capital.bg/show.php?storyid=330539). The countrys foreign debts are also listed at 22.8% of the GDP which is quite an improvement (http://capital.bg/show.php?storyid=330539). The question now is whether or not the country is ready to assimilate itself into the EU systems. Unfortunately, being one of the poorest countries in Europe and with its history of corruption, the European Commission is imposing strict regulations on Bulgaria (The Economist 2008). The EU is tightly monitoring the progress of the country especially in the areas of judicial reforms and anti corruption programs. Despite the fact that safeguard measures have been taken to properly implement judicial reform measures and the curve the cases of corruption in the government, the experts still believe that there is real danger that "the EU will withhold potential funding to Bulgaria"(The Economist 2008) if the country cannot show clear improvements in its judicial system. Another thing that held back the country from completely joining the European Union is that public investment in the country is still below the requirement to strengthen the central administration of the country, the local government units and the private sectors (see Bulgaria http://siteresources.worldbank.org/INTBULGARIA/Resources/CEM.pdf). Strengthening the central administration and the local government units of the country is crucial to build the confidence of investors in the countrys economy. A strong government system that meets the EU standards is also very important to create a more favorable investment climate in the country and facilitate the interfacing of the public and the private sectors (see Bulgaria http://siteresources.worldbank.org/INTBULGARIA/Resources/CEM.pdf). Aside from strengthening the governments capacity to respond to the economic challenges in the country, the government also needs to infuse more funds into infrastructure projects in the country (see Bulgaria http://siteresources.worldbank.org/INTBULGARIA/Resources/CEM.pdf). Although privatization has considerably reduced the need for the government to channel its funds towards public infrastructure projects, it did not totally remove the responsibility of the government in maintaining public infrastructure. We must understand that public infrastructure remains to be a focal point in attracting investors into the country. If the government negates the responsibility of keeping roads, public buildings and the likes on top condition, the investment climate in the country will suffer. Who would want to pour in capital in a country when basic services are at its worst? We must bear in mind a government is required to put up public guarantees to cover selected risks that investors in its territories may suffer. V. Contemporary Economic Issues Before Bulgaria can be called as a full fledge member of the European Union, it need to adopt the EU standards and norms. This requirement may be difficult for Bulgaria to follow considering the fact that this country is still trying to establish is economic systems. At present, Bulgaria is still faced with many problems. "There is little scope for discretionary monetary policy under the currency board. Excessive growth in domestic demand is the main economic risk." (The Economist 2008). Note that the increase in food prices in the area has kept the inflation rate quite high in 2007 (The Economist 2008). This scenario is mostly likely to sustain throughout 2008 as well. Many economic experts are fearful that if this excessive growth in domestic demand will continue, the economic crisis that happened in 1996-97 will happen again. To arrest this growing problem, stricter fiscal policy may be adopted by the country (The Economist 2008). Again, this situation may call on the political will of the government of the country to impose strict regulations. Another contemporary problem that Bulgaria faces in 2008 is income tax collection. According to The Capital, a Bulgarian publication, as off January 1, 2008, the government of Bulgaria is only imposing a flat rate income tax of 10% on its citizens (see The Capital (2008) http://capital.bg/show.php?storyid=330539) What is really very surprising about the situation is that even corporations that are operating within Bulgaria soil are also made to pay a measly 10% income tax (http://capital.bg/show.php?storyid=330539). This tax rate is actually the lowest income tax rate in the European Union (see http://www.stat.bg/indicator.html?lang=1&id=143&per=3). In fact, the current tax rate imposed by the Bulgaria government is one of the lowest in the world! (See http://www.stat.bg/indicator.html?lang=1&id=143&per=3). The low tax rate may be favorable to the citizens and the business sector of Bulgaria but it can be quite detrimental to the government. Note that taxation is the lifeblood of a nation. The expenses of running a government is taken from the taxes collected for the people. If the tax collection is too low or inefficient, it becomes difficult for the government to deliver basic services to its people. A talk about increase the tax rates in the country is met with protest from the affected working classes (http://capital.bg/show.php?storyid=330539). This really quite understandable because people do not necessarily want to pay more money to their governments but the point is, if the government does not increase the tax rates, sooner or later, government operations may be affected. With the many turn of events in the country, many people are asking as to whether or not the transition of the country is already complete. Unfortunately, with the current events in the country, we cannot really honestly say that the transition period of the country is already over. We must understand that for a country to be considered as past its economic transition period that country must already have a stable economy and its fiscal policies should already be in place. At present, Bulgaria seems to have not really achieved any of these two. Yes, the economy of Bulgaria has improved a lot since its crash down in 1996-1997 but there is no clear showing at the moment that the country has passed it critical period. If we take a look at the development of the country today, we see that there is more to be done to stabilize Bulgarias economy and its political climate. The political situation of the country is far from stable. The European Union clearly sees this situation that is why it is adamant that Bulgaria should institute major reforms especially in its judicial systems. The balance of power in the government has to be addressed if the country wants to create a more investment friendly environment. Issues of corruption in the country need to be addressed squarely. On the economic side, there is much to be desired when it comes to the economy of Bulgaria. Yes, the banking sector of the country is already doing well and the banking sector is already improving by leaps and bounds but the rest of the economic indicators of the country still give us the impression that the country is not yet economically stable. For one thing, the tax system of the country is not as efficient as it should be. With a flat rate of 10% tax, the government of Bulgaria cannot really hope to deliver the best services to its people. The short-term perspective of the transition was to create a more market driven economy in the country through sound fiscal policies. This short-term perspective is already more or less achieved. However, the long term perspectives of the transition are fiscal and financial stability which, at the moment, the country has not really achieved. Part of the move to stabilize the countrys financial status is to enter the Eurozone sometime in 2011 or 2012. The country still has a long way to go but it is already making good progress especially in the areas of banking. The banking system of the country is already functioning well and this one of big successes of the transition. On the other hand, the judicial system is one of the areas that Bulgaria still needs to work on. With issues of corruption still pervading in the local scene and the seemingly inability of the judicial system to bring these people who are suspected of corruption to justice, we can say that Bulgaria still has a long way to go in establishing a strong judicial system. Given the fact that the EU is closely monitoring the progress of Bulgaria in this area, it is therefore very important that the country takes this task seriously. References: 1. Bell, John D., ed. (1998) Bulgaria in Transition: Politics, Economics, Society, and Culture after Communism 2. Bulgaria Census 2001 http://www.nsi.bg/Census/Ethnos.htm 3. Bulgaria https://www.cia.gov/library/publications/the-world-factbook/geos/bu.html 4. Country Profile: Bulgaria October (2006) Library of Congress – Federal Research Division Country Profile: Bulgaria, October 2006 1 ISBN 9546041 http://lcweb2.loc.gov/frd/cs/profiles/Bulgaria.pdf211 5. Crampton, R. J. (2005) A Concise History of Bulgaria Cambridge, UK; New York: Cambridge University Press 6. Dobrev, Petar (2001) Unknown Ancient Bulgaria. Sofia: Ivan Vazov Publishers 7. Dobrinsky Rumen (2000) The transition crisis in Bulgaria Cambridge Journal of Economics 2000, 24, 581–602 8. Gallina Andronova Vincelette (2001) Bulgarian Banking Sector Development, Post-1989 Central European University, Budapest Southeast European Politics Vol. 2, No. 1 May 2001 pp. 4-23 http://www.seep.ceu.hu/issue21/andronova.pdf 9. Glenn E. Curtis, ed. Bulgaria: A Country Study. Washington: GPO for the Library of Congress, 1992 http://countrystudies.us/bulgaria/ 10. History of Bulgaria http://www.bulgaria-embassy.org/History_of_Bulgaria.htm 11. http://countrystudies.us/bulgaria/34.htm 12. Lampe, John R. (1986) The Bulgarian Economy in the Twentieth Century London: Croom Helm 13. The Economist 2008 http://www.economist.com/countries/Bulgaria/profile.cfm?folder=Profile-Economic%20Data 14. World Bank 2006 The Dual Challenge of Transition and Accession Poverty Reduction and Economic Management Unit Europe and Central Asia Region http://wbln0018.worldbank.org/eca/eca.nsf/Attachments/Bulgaria+Country+Economic+Memorandum/$File/Bulgaria_CEM-FinalReport.pdf Read More