BULGARIAN GOVERNMENT GRAPPLES WITH ESCALATING TEACHERS'

UNCLAS SECTION 01 OF 02 SOFIA 001262 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ECON PGOV BU SUBJECT: BULGARIAN GOVERNMENT GRAPPLES WITH ESCALATING TEACHERS' STRIKE ¶1. (SBU) SUMMARY: Thousands of Bulgarian teachers have been on strike for a month, demanding a doubling of their salaries and shutting most of the country's schools. The Socialist-led government of PM Sergei Stanishev believes meeting the teachers' demands would fuel inflation, trigger a wave of protests by other sectors, and jeopardize economic stability. Tense on-and-off talks between the trade unions and the government have failed to yield a compromise, as the teachers turned down the government's offer for a gradual salary increase accompanied by job cuts in the sector. The IMF and other economic analysts have backed the government, encouraging it to stick to fiscal discipline and not yield to teacher's demands. The strike, the longest protest by teachers in post-communist Bulgaria, has added pressure on the center-left government, and could affect the ruling Socialists' showing in the important October 28 local elections. END SUMMARY ¶2. (U) Bulgaria's school and nursery teachers began their strike on September 24, demanding a 100-percent salary increase (monthly average is currently 411 levs or USD 300). Trade unions say over 95 percent of the country's teachers are taking part in the strike, the longest in the post-communist period. Teachers from all over the country are staging daily rallies in central Sofia in pursuit of their demands. Demonstrations, though sometimes numbering as large as 30,000, have been orderly but have taken a toll on traffic and patience. The strike has practically paralyzed the school system, closing most schools (and leaving parents scrambling to handle restless children). Teachers have also demanded an increase of budget spending for education to five percent of the GDP compared to the current level of about four percent. Bulgaria has some 3,000 schools which employ some 120,000 people. ¶3. (SBU) The center-left government acknowledges that teacher's wages are low and need to be increased but says meetings teachers' demands for a 100-percent rise will pump inflation, which reached 13 percent in September (it is running at about eight percent annually but fuel, food, and utility costs are running higher),and jeopardize the country's economic stability. PM Stanishev repeatedly said he "would not put the interests of a certain group before the interests of the country," warning that doubling the teachers' salaries would lead to hyper-inflation, which in turn could jeopardize the currency board regime. Launched in mid-1997, the fixed exchange rate system allowed Bulgaria to emerge from the financial crisis of late 1996/early 1997 and maintain financial stability since then. Bulgaria plans to maintain the currency board until it joins the Eurozone. Stanishev also voiced fears that giving in to the strikers' pressure would have a "domino effect," unleashing demands from state employees from other sectors. Indeed, health care workers have already echoed demands for sizeable salary increases. ¶4. (U) Multilateral lenders and analysts sided with the government, praising its commitment to rigid fiscal policies. A visiting IMF mission said earlier this month the government should be cautious with budget spending despite the budget surplus of 5.5 percent of GDP in August, and warned it against temptation to loosen the purse strings. IMF mission chief Albert Jaeger encouraged Stanishev's team not to give in to the strikers but to stick to his present policy aimed at maintaining macroeconomic stability. The reputable Institute for Market Economy, a Bulgarian think tank formed by center-right-leaning economists, also backs the government's stance, saying a 100-percent increase in teacher's salaries would put at risk the currency board regime and lead to a Bulgarian version of the "Argentinean scenario," in which annual inflation reached 35 percent. Both the IMF and analysts said any reasonable increase in teachers' wages should be accompanied by structural reforms in the sectors. ¶5. (U) The firm positions of both the teachers and the government have made it difficult to reach a compromise. On-and-off talks between the two sides have failed to bring results so far. Tension has been further raised by the attitude of the education and finance ministers, who represent the government in the talks and who the trade unions and some local press accuse of arrogance and disinterest in the teachers' plight. (A gaffe with an open mike fueled anger at the ministers, who discussed "delaying" tactics. A damage control campaign has barely assuaged teachers.) The government has made several offers for a compromise over the past week, the latest being a scheme for a salary increase in several installments that would raise salaries by 47-percent by mid-2008. The raise would be accompanied by job cuts in the sector, introduction of separate budgets for each school and performance-based payment. The teachers rejected the offer but indicated they might agree on a 67-percent rise, an option that the government says would be possible only if a third of the country's school personnel are laid off. Talks are still ongoing. ¶6. (SBU) The strike comes at a sensitive time for the ruling Socialists, who are struggling to close ranks ahead of Sunday's election and prevent another loss to Sofia Mayor Borissov's populist GERB party following its narrow victory in the May election for European Parliament. An ongoing conflict between PM Stanishev and SOFIA 00001262 002 OF 002 influential BSP Interior Minister Petkov over restructuring the country's secret services puts further pressure on the PM. In addition, the center-right opposition in parliament was quick to use the strike to attack the coalition government and called a no confidence vote against Stanishev's team on October 23. The ruling majority in parliament easily defeated the no-confidence motion but the high-profile debate over the government's handling of the strike could still affect the BSP showing in the election. ¶7. (SBU) COMMENT: The month-long teachers' strike has brought a sense of deja vu for the Socialists, whose previous government was toppled from power by mass street protests amid acute economic crisis in 1997. Although the current circumstances are different and the teachers' strike alone is unlikely to bring down the government, this context could partly explain PM Stanishev' firm stance on fiscal discipline. Socialist Party insiders tell us Stanishev is determined not to follow in the footsteps of his Socialist predecessor Zhan Videnov, thrown out of power for bringing the country to the verge of economic collapse. Stanishev's resolve may also be bolstered by an October 24 poll, which shows a drop in public support for the striking teachers. If the teachers' strike drags on and if/if GERB wins big in the local elections, exacerbating current BSP infighting, Mayor Borissov may be tempted to reconsider his promise not to use public protests to push for early elections. While this may be a relatively low probability, the government is facing a hotter political season as it pushes to complete its mandate. END COMMENT.