Profile - US Department of State

Bulgaria's economy contracted dramatically after 1989 with the collapse of the COMECON system and the loss of the Soviet market, to which the Bulgarian economy had been closely tied. The standard of living fell by about 40%. In addition, UN sanctions against Yugoslavia and Iraq took a heavy toll on the Bulgarian economy. The first signs of recovery emerged when GDP grew in 1994 for the first time since 1988, by 1.4% and then by 2.5% in 1995. Inflation, which surged in 1994 to 122%, fell to 32.9% in 1995. During 1996, however, the economy collapsed due to shortsighted economic reforms and an unstable and decapitalized banking system.
Under the leadership of Prime Minister Ivan Kostov (UDF), who came to power in 1997, an ambitious set of reforms were launched, including introduction of a currency board regime, bringing growth and stability to the Bulgarian economy. Three-digit inflation in 1997 fell to 2.6% in 1999. GDP grew 3.5% in 1998, 2.4% in 1999, and due to an increase in investments and exports, the GDP rose to 5.8% in 2000.
In spite of the transition to a new government in July 2001, Bulgaria remains committed to the market reforms undertaken in 1997. The new government's economic team is young, energetic, and Western-trained. Recent measures introduced by Prime Minister Saxe-Coburg seek to reduce taxes, curtail corruption, and attract foreign investment. While economic forecasts for 2002 and 2003 predict continued growth in the Bulgarian economy, the government still faces high unemployment and low standards of living.

Bulgaria's military is currently undergoing an ambitious restructuring program. In 1997, Bulgaria officially applied for full membership into the North Atlantic Treaty Organization (NATO), and many of its efforts to restructure are in line with the country's aspirations to join that alliance. Bulgaria is a member of NATO's Partnership for Peace Program, and is working with NATO to complete its Membership Action Plan.
Bulgaria also has played an important role in resolving recent interethnic disputes within the Balkan Peninsula. Small contingents of Bulgarian troops are currently deployed with international forces serving in Bosnia and Herzegovina and Kosovo.

Foreign Relations
Bulgaria is pursuing a path of greater Euro-Atlantic integration. In addition to its application for membership into NATO, Bulgaria also applied for full membership into the European Union (EU) in December 1995 and has begun accession negotiations with the EU. Bulgaria is a member of the United Nations and in January 2002 began a 2-year term as a nonpermanent member on the UN Security Council.
Bulgaria joined the World Trade Organization in 1996. In July 1998, Bulgaria became a full member of the Central European Free Trade Agreement (CEFTA), which calls for the reduction of tariffs by 2002 on most industrial and agricultural goods traded between CEFTA countries. Recently, Bulgaria initialed free trade agreements with Turkey, Macedonia, Croatia, Lithuania, Estonia, and Israel.
Bulgaria's relationship with its neighbors has generally been good. Bulgaria has proven to be a constructive force in the region and has played an important role in promoting regional security.