A Royal Leap Of Faith

On a September evening in 1946, Simeon II, the 9-year-old boy king of Bulgaria, was hustled by the communist authorities onto a train and into a life of exile. He felt lucky to have escaped with his life. Now he is back. Simeon's reformist party won a landslide election victory in June, and last week he took power as Bulgaria's new prime minister, heading a government composed of young Bulgarian expatriate bankers recruited from jobs in the City and Wall Street. Their task: to jump-start the stagnant Bulgarian economy and catch up with the likes of Poland, the Czech Republic and Hungary. His crash program for recovery includes fast and radical privatization, a corruption crackdown, a new tax code--and very attractive incentives for foreign investment.

Simeon has pledged to improve his peoples' lives within 800 days--not to mention join NATO by 2004, and the European Union not long after. It's a tall order. Bulgaria has fallen far behind its more successful East European neighbors, chiefly by lagging on reform. After 10 years of mismanagement, unemployment is close to 28 percent--rising to 70 percent in rust-belt areas like the steel town of Pernik. Seventy percent of the population lives below the official poverty line. Small businesses (the backbone of any economic recovery) have been strangled by high taxes and corruption. Simeon's new team aims to change all that in a stroke of what Poland once called "shock therapy." As one London banker puts it, "It's a giant experiment in how emerging-markets bankers would run a country, if given the chance."

Six months ago most of the new cabinet were midlevel desk jockeys at London and New York investment houses. Now they're arranging their papers on expansive desks once belonging to top communist apparatchiks. Nikolai Vassilev, a 31-year-old U.S-educated market analyst, was plucked from Lazard Capital Markets to become deputy prime minister and Economy minister. He gained prominence when the previous government, scouting for emigre talent, organized a forum of young Bulgarians who have been working abroad. Like all of the new expatriate team, Vassilev grew up in Bulgaria but left in 1990 to escape the country's spiraling poverty. The new Finance minister, 35-year-old Milen Velchev, has more experience in present-day Bulgaria: he was a specialist in restructuring external debt for Merrill Lynch in London before being hired by the previous government to organize a Eurobond issue for Bulgaria. Simeon's own son, Kyril, a debt specialist at Lazard, may also soon join his father's team in Sofia. Another star is 31-year-old Lubka Katchakova, an accountant for PricewaterhouseCoopers in Brussels who won a parliamentary seat against former prime minister Ivan Kostov. "We know what efficiency is. We know what a deadline is," Katchakova says, rejecting a common criticism that the team is too young and inexperienced for the job. "We don't have experience working with corrupt people," he says.

The young reformers at least have promise. Despite the tremors that coursed through such other emerging markets as Argentina and Turkey earlier this month, Western bankers have been flooding into Sofia since Simeon's election--all eager to sniff out big upcoming privatization deals. The new government has pledged to sell off Bulgaria's state-owned telephone monopoly, electricity and gas utilities, the sprawling tobacco industry and one of the country's largest banks. "The markets are making positive judgments," says Paul Sacks, president of Multinational Strategies in New York. "People want to do business with this government."

Part of Simeon's appeal is that he's a pragmatist. His goal, he says simply, is for Bulgaria to become "a prosperous European country." His background enables him to preach hardheaded free-market reforms, while projecting the paternalistic image that won support among Bulgaria's have-nots. He's brought socialists into his government, and the outgoing Union of Democratic Forces has pledged to be in "constructive opposition." Simeon's large reserve of personal popularity and a comfortable majority in Parliament should give the new cabinet enough political capital to weather the pain of the first wave of reforms, and Bulgarians seem ready--for now--to give him a chance. They really have no alternative. The choice is either a great leap into the unknown, with Simeon, in hopes of finding a place in Europe--or to slide further into impoverished oblivion.

Simeon's grand experiment will be closely watched, not only in the West but by Bulgaria's neighbors, notably Romania, Moldova and even Ukraine. Already Romanian expatriate professionals in London and elsewhere in Europe are sending flurries of e-mail to each other, wondering whether they could try the same in their country. That, in fact, may ultimately be Simeon's biggest contribution. If it begins to look like he'll succeed, others left behind in the new Europe may follow his example.