Under the leadership of former 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. The currency board contained inflationary pressures and the three-digit inflation in 1997 was cut to only 1% in 1998. Following declines in GDP in both 1996 and 1997, the Bulgarian government delivered strong, steady GDP growth in real terms (4.0% in 1998, 2.3 % in 1999, 5.4% in 2000 and 4.0% in 2001).

In spite of the transition to a new government in July 2001, Bulgaria remained committed to the market reforms undertaken in 1997. Prime Minister Simeon Saxe-Coburgís economic team of young, Western-educated financiers continued to implement measures that helped sustain stable economic growth and curb unemployment. The government was expecting a record-high GDP growth of 5.8% in 2004, following GDP growth of 4.9% and 4.3% in 2002 and 2003, respectively. As a result of these moves, in October 2002 the European Commission declared Bulgaria had a "Functioning Market Economy." Measures introduced by the government were targeted at reducing corporate and individual taxes, curtailing corruption, and attracting foreign investment. The government also implemented a set of measures that helped restructure the countryís foreign debt and revive the local stock market. It also moved ahead with long-delayed privatization of some of the major state monopolies. But while macroeconomic data reveal private sector growth, a double-digit increase in exports and imports and higher foreign investment, incomes remain low. The new government of Prime Minister Stanishev will need to act on its pledge to secure higher living standards.