BULGARIA 2008: PERSPECTIVE ON A TOUGH YEAR

C O N F I D E N T I A L SECTION 01 OF 03 SOFIA 000020

SIPDIS

E.O. 12958: DECL: 01/14/2019
TAGS: PREL PGOV ECON BU
SUBJECT: BULGARIA 2008: PERSPECTIVE ON A TOUGH YEAR

Classified By: Ambassador Nancy McEldowney for reasons 1.4 (b) and (d).


1. (C) BEGIN SUMMARY: Bulgaria begins 2009 with a bad
hangover. Pervasive disgust over the problems of recent
months and the even grimmer prospects of the coming year has
led many here to sink into an already deep hole of apathy and
cynicism. Tangible improvements in family income and overall
economic performance are discounted as political scandals and
international criticism have dominated public debate. Many
predict that the election of a new government this summer
will only exacerbate the situation, as an unsteady and
visionless coalition is likely to result.


2. (C) To be sure, 2008 was a hard year featuring scandals,
suicides, and a humiliating rupture with the EU over
unchecked corruption. At the same time, the country
registered solid economic progress, emerging stronger than
many neighbors in the face of the global downturn, and
maintained a steady foreign policy including close engagement
with the United States and its EU partners along with
military deployments in Iraq, Afghanistan, Bosnia and Kosovo.
Among the established states of central Europe (setting
aside the former Yugoslav space),Bulgaria had one of the
slowest and most uneven post-communist transitions. Real
reforms were only implemented after the economic collapse of
1996-97 and then only in fits and starts. The Socialist-led
government of Prime Minister Stanishev came to power in 2005
and delivered the once unimaginable -- EU membership, an
agreement for joint basing with the U.S., and a ten percent
flat tax on corporate and personal income that revitalized
the economy. But Stanishev's failure to get a handle on
corruption -- within his own party, the government, and
throughout society -- is what most Bulgarians now highlight.


3. (C) Without minimizing the immediate problems, putting
the contemporary circumstances in the context of Bulgaria's
long-term transition yields a more nuanced conclusion. Once
the joke of the Warsaw Pact, this country has made tremendous
progress and, its lingering romanticism toward Russia
notwithstanding, is now locked on a strategic course
westward. Bulgaria has proven itself a reliable NATO ally
and an important partner for us. Rooting out corruption,
especially within the government and political parties, will
be neither easy nor quick. But, with political will, EU
insistence, and U.S. support, it can happen. The key now is
for us to provide the strategic direction and standards of
integrity that Bulgarians crave. Our influence here goes a
very long way and the benefits of helping Bulgaria become a
more modern democracy and a more capable ally are
significant. END SUMMARY.


4. (C) After Bulgaria joined the EU in January 2007, Prime
Minister Stanishev cautioned that truly hard work was yet to
come: implementation of EU norms would severely test both
governance and civil society. While Bulgaria skated through
2007, its systemic rule of law shortcomings broke wide open
in 2008, earning it the dubious distinction of the EU's most
corrupt country. We take a look below at key events,
offering perspective that Bulgaria can still turn the corner.

A Bad Year for the Interior Ministry
--------------


5. (C) A messy Ministry of Interior (MOI) scandal launched
the government's troubles. Centered on issuance of a
Bulgarian passport to a notorious Serb drug lord, the
reverberations led to a larger scandal involving Minister
Petkov, who met known OC figures in a "secret" meeting.
Petkov eventually resigned in disgrace (though he retained
his powerful party and Parliamentary positions and eventually
was acquitted in November).


6. (C) To replace Petkov, the PM appointed a new Interior
Minister (Mikov),who cleaned house of Deputy Ministers and
the Secretary General. Though widely credited as honest,
Mikov's effectivness is widely questioned as he has struggled
to overhaul the 63,000 person ministry, notorious for low
morale, organizational dysfunction, and political
complications.

DANS Slips, Slides and Stumbles
--------------


7. (C) To clamp down on corruption and organized crime's
cozy relationship with government officials, Bulgarian
authorities in early summer turned to the newly-created State
Agency for National Security (DANS). Established in January
2008, DANS was by design more an intelligence/security agency
than a law enforcement body. Ill-equipped for its crime
fighting role, it had its own leadership and management

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challenges -- not least combining four competing intel
services and resolving critical personnel decisions. By
mid-summer, brewing squabbles burst into open feuds.


8. (C) A civil war broke out inside DANS as directorate
heads battled their Chief. DANS documents were leaked to
scurrilous websites; a journalist who had published leaks was
brutally beaten; and MPs accused DANS of improperly obtaining
their phone call records as part of the leak investigation.
Three DANS directorate chiefs were either fired or submitted
resignations, the internal affairs chief resigned, and
parliamentary inquiries were launched along partisan lines.
DANS has since slowed its free fall, but infighting has
sapped trust and institutional capacity.

A Suicide Rocks Political Parties
--------------


9. (C) In October, Bulgaria's parties were jolted by the
suicide of the chief of staff to Ahmet Dogan, leader of the
ethnic-Turkish MRF party, a governing coalition partner. The
suicide took place inside Dogan's house, with abundant
campaign finance documents at the scene. Fevered speculation
dominated all analysis. After a stunned Dogan withheld all
comment for a week, he went on the attack, denigrating his
former colleague and touting MRF's role in ethnic peace and
stability. In a clearly coordinated tack, both the President
and PM echoed a similar line of ethnic stability. That, in
turn, fueled additional speculation of secret deals within
the governing coalition to close ranks and prevent exposure
of additional scandals.

The EU Loses Patience, Packs Punch
--------------


10. (C) Concerned over Bulgaria's inability to absorb and
transparently use EU funds, Brussels in July issued a
scathing report. Citing embezzlement, insufficient
oversight, and a culture where no one seemed to be held
accountable, the EU froze approximately $700 million in
assistance funding. This prompted Bulgaria to establish a
new Deputy Prime Minister-ship charged with cleaning house in
multiple agencies and ministries -- a Herculean task. Deputy
PM Plugchieva initiated a flurry of reform, ministerial
re-organization, tighter fiscal and audit oversight, and
production of an 80 point action plan to achieve
demonstrable results. Progress was uneven. Bulgarian
authorities started legal proceedings against some powerfully
connected figures involved in siphoning off road
infrastructure funds, but the charges are at the lower end of
the scale. Other officials have resigned or been dismissed,
but few have been charged. In November, the EU permanently
withheld 220 million Euros in Phare funds, with hundreds of
million more Euros still in their gun-sights. Another EU
technical report is due in February, with a full report due
in June/July, just as Bulgaria heads to parliamentary
elections.

Some Darkness, Some Light
--------------


11. (C) Bulgaria ranks at the bottom of EU tables on rule
of law. Among EU states, Bulgarians have the lowest
confidence in public institutions, with mistrust of police,
prosecutors, and judiciary all in the seventy-plus percentile
range, a damning indictment. But even in this bleak
landscape, there is incremental progress: Plugchieva's
hard-hitting scrutiny of EU funds; new laws on public
procurement, conflict of interest, and party financing; some
indictments and (sluggish) trials of those accused of
siphoning EU funds; sanctioning 68 MOI employees, firing 37
others and 44 taken to court; and dismissals of nine
prosecutors. By far the weakest point in Bulgaria is the
judiciary, and it will be the hardest institutionally to
correct given constitutional provisions protecting judges.
While legislation and regulation can always be strengthened,
what Bulgaria has on the books is pretty much in line with EU
norms. But that's not enough -- what is needed is concerted,
fierce action by political authorities and meaningful
convictions by the judiciary. Civic society NGOs and a
number of think tanks and media outlets are speaking out more
vocally against corruption and organized crime, a very
welcome development.

Strategic Stakes
--------------


12. (C) Bulgarians recognize they are in a hole and need to
climb out by cleaning out. Bulgaria is still a country in
transition; the right push can give it momentum in the right

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direction. Reform-minded Bulgarians need and want that
supportive push. And it matters. Despite all its problems,
Bulgaria has come through when called on: supporting MAP for
Ukraine and Georgia; stretching out a helpful humanitarian
hand to Georgia; recognizing Kosovo; sustaining commitments
in Iraq; quadrupling forces in Afghanistan; concluding a
Defense Cooperation Agreement with us and hosting large joint
exercises; taking our recommendations on military
modernization and procurement decisions; welcoming U.S.
advice on energy diversification. The U.S. offers strategic
direction and standards of integrity that Bulgarians crave.
And because Bulgarians value our respect and authority, our
influence goes far. The corruption and OC game is far from
over here. A Bulgaria that gets through its homegrown
problems with our help will be a more vigorous and active
ally.
McEldowney