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

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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.