Bulgaria Defence and Security Report Q4 2009

Bulgaria’s only notable security threats are related to pervasive organised crime and corruption. Indeed, Bulgaria rates lowest (that is, worst) out of the 27 EU members in Transparency International's most recent (2008) Corruption Perception Index. It had a worse score last year than in 2007. Further, Bulgaria lies geographically on the transshipment route for drugs travelling between Central Asia and the Caucasus; as a result, it is significantly affected by the international drug trade, with its associated crime and corruption.

In its July 2009 review of progress in stamping out corruption, the European Commission (EC) said in its report that ‘more substantial results in investigating, prosecuting and judging cases of high-level corruption and organised crime are needed in order to secure lasting change in Bulgaria. A profound reform of the judiciary has still not started. This requires long-term and unequivocal political commitment.’ However, it acknowledged that ‘some steps have been taken to respond to the recommendations contained in the July 2008 report.’ Bulgaria is one of the poorest countries in Europe. Aside from growing concerns over the economy and falling living standards, we feel that a lack of progress in eradicating corruption would be at the top of a list of what we perceive to be government policy failures.

In the parliamentary elections on July 5, the opposition Citizens for European Development of Bulgaria (GERB) party resoundingly won, forming Bulgaria's new government. We believe that this is a positive sign for Bulgaria's immediate financial and economic stability, and for EU-relations. We caution, however, that Bulgaria will still endure hard times economically and financial stability is far from assured. In addition, despite its anti-corruption rhetoric, GERB faces a tough challenge in eradicating entrenched graft.

Economically, the hard landing expected for the Bulgarian economy has arrived. There was a considerable plunge in real GDP of 3.5% year-on-year (y-o-y) during Q109. We expect a deep recession this year and caution that the slow rebalancing of the economic model away from a reliance on domestic spending will take time, with growth set to remain constrained by the private sector balance sheet over the medium-to-long term. We forecast a decline of 1.5% in 2010, as demand remains weighed down by the lack of external credit availability and as the deleveraging process continues to gain ground.

Prior to 1989, Bulgaria’s defence industry earned several hundred million dollars annually from sales to other Warsaw Pact countries, with up to 90% of output exported. Prior to NATO membership Bulgaria had a conscript army, but now the demands placed on the military are very different. Smaller and far more professional forces are now required, trained to operate in peacekeeping and humanitarian roles.

There is also a requirement to work alongside other NATO forces. To this end, the Ministry of Defence is working to standardise and codify its military products to comply with NATO standards. In this way, there have recently been appropriate military acquisitions, such as a pair of Belgian frigates and armoured security vehicles from the USA.

Defence industry reform and privatisation has been slower in Bulgaria than in the other former communist countries in Central and Eastern Europe. However, the Bulgarian defence industry recently stated that Bulgaria is regaining its position in the international arms markets. In 2007, it exported ‘special production’ valued at EUR180mn. The government claims that the country has retained positions in its traditional markets in Northern Africa and Europe, and has also placed products in the US.

In July, members of the Bulgarian Defence Industry Association together with the Land Forces Association, called for the Bulgarian government to stop ‘experiments with the transformation of the army and the defence industry.’ They are asking for government protection, because they state that nearly 100% of tenders are being won by foreign companies. They are asking for a 15-year plan to develop the Bulgarian defence sector. The declaration continues, ‘the Bulgarian defence industry needs support and incentives by the state. The total privatisation is not always the best decision, and equals evading responsibility.’ BMI has recently introduced to its Defence reports the City Terrorism Rating (CTR), which assesses the risk of a terrorist attack. The CTR takes into account the overall Terrorism Rating for the country in question and incorporates the ‘prevalence’ of terrorism, which recognises the frequency of attacks and whether the city is a target for terrorists. The CTR also recognises the ‘threat’ of terrorism in terms of the likely numbers of victims and the ability of groups to launch sustained campaigns.