The sharp reduction in poverty inBulgaria since the 1997 crisis highlights the role ofeffective economic stabilization policies and the socialsafety nets in improving the living conditions of thepopulation. The nature of poverty in Bulgaria has changedsince 1997, when poverty for many households was a transientphenomenon resulting from the immediate shock ofhyperinflation and sharply increasing unemployment. Povertyin 2001 is more entrenched, concentrated among clearlydefined groups. Most strikingly, poverty is highest amongethnic minorities, which comprise 60 percent of the poor.Roma are overrepresented among this group. this trendhighlights the need for Bulgaria's poverty reductionstrategy to focus on measures to address inclusion of ethnicminorities within society. Despite the improvements since1997, there are indications of underlying fault lines whichthreaten the trend of rising living standards. Inparticular, if the high level of unemployment is maintained,or continued to increase, poverty will go up. Whileunemployed households have managed to stay out of poverty byrelying on the safety net and private coping strategies, theclose link between poverty and unemployment indicates thatthese trends are not sustainable. Similarly, the importanceof the skills gap suggests that declining access toeducation will contribute to poverty over the long-term. Thepriority for the Government is to maintain its reform pathand sustain the growth levels of the past five years. Acombination of policies which address the underlying causesof unemployment, expand opportunities through building humancapital, and protect the poor through well-targeted programsare the pillars of an effective anti-poverty strategy.Improvements in poverty monitoring and communication withthe public are also key. Despite the improvements in livingconditions since 1997, opinion surveys indicate that nearlythree-quarters of the population think that they live inpoverty. Addressing these perceptions and expectations iscritical to maintain public trust in government institutionsand the reform process.