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. Last Updated: 07/27/2016

From Party to Party: Eastern Europe's Newly Affluent

VELIKO TURNAVO, Bulgaria -- As a primer on the ways of a new class in Eastern Europe, the gaudy 40th birthday party of Kostadin Vassilev in the basement of the Riverside Hotel here encapsulates a strange new world born from the chaos of the revolutions of 1989. Gathered around the buffet table laden with mayonnaise-rich comestibles and ringed with Christmas lights, Vassilev's business partners jawbone about their deals -- from Warsaw to Almaty to Malta, Kiev to Moscow, Sofia to Vienna. Behind them, exotic dancers sporting pink dreadlocks gyrate suggestively to computerized music. Vassilev, a large man with a neatly trimmed goatee, wears a white tuxedo and looks a bit like a maitre d'. The consummate host, he saunters from table to table, wielding a bottle of 40-year-old Armenian cognac to toast the important day. What is significant about this affair, which resembles an ill-attended Balkan version of the opening scene of "The Godfather," is that all of the well-heeled guests used to be members of Communist parties throughout the East Bloc: A Ukrainian businesswoman with a floor-scraping sequined gown, a pugnacious Russian from Kazakhstan in a shiny brown suit and the point man for many of Vassilev's transactions, a mysterious Czech based in Vienna. All of them unabashedly acknowledge their Communist pasts. There is little talk of democracy, only oblique references to kickbacks, payoffs and profit. Five years after revolution swept through Eastern Europe, economic power remains largely in the hands of people such as Vassilev and his associates, who were supposed to have been pushed aside by the tide of history. Capitalizing on a network of trading companies, state-run firms and personal affiliations in the communist and capitalist worlds, people like Vassilev have moved seamlessly from dominating politics to controlling substantial wealth. Their resilience in the face of crumbling walls and collapsing trade blocs is part of the reason for the political resurgence of former Communists in countries such as Lithuania, Poland, Bulgaria and Hungary. This resilience also has touched off an important debate in Eastern Europe. One side argues that these people, despite their ties to the old regime, its security services and inevitable corruption, occupy a necessary position because -- like the robber barons in 19th-century America -- the capital they are accumulating will stoke a new engine for growth. The other side still calls for blood, begrudging this new class its riches and hoping to banish the Communist past from businesses and ministries. "People who made it in the old regime are going to make it in the new one too," said Alison Flint, an analyst specializing in Eastern Europe at the Economist Intelligence Unit in Vienna. "A 'holier-than-thou' attitude can get in the way of development." The story of Vassilev's rise appears to begin in Warsaw, where he was posted in the early 1980s to Bulgaria's embassy as, in his words, "someone who wasn't a diplomat." During those years, Vassilev was one drop in a wave of Bulgarian "businessmen" who used Communist Party capital to establish trading companies in the West as part of a scheme by the Bulgarian Communist Party to get hard currency for the cash-strapped state. Some firms, such as the Bulgarian trucking giant SOMAT, were set up in the West, according to Western diplomats, to divert Western technology through Bulgaria to the Soviet Union. Others were formed to provide the Communist version of golden parachutes for senior party members. To hear Vassilev tell it, his success in this communist/capitalist netherworld was modest. "We were longing for freedom," he said, adjusting his diamond-studded watch. With the revolution of 1989 came the collapse of the Comecon trading bloc. Huge shortages resulted, and it was then, while longtime dissidents began to seize political power, that longtime Communists became rich. Vassilev's first post-communist deal was his sweetest. Comecon's fall precipitated a shortage of sugar in Bulgaria, but a surplus of wine; in Poland, the market was flush with sugar, but short of spirits. Vassilev contacted managers of several Bulgarian wine companies who were facing closure unless they got a sugar delivery, and a deal was arranged. "They sent 120 trucks of wine to Poland. With the help of some friends, we sold it all, bought sugar and shipped it back to Bulgaria," Vassilev recalled. Vassilev secured permission to import and export without customs duties. Employing contacts in ex-communist trading companies, he found a market niche. In three months, he had cleared a $100,000 in "pure profit," Vassilev said. Today he is one of the larger exporters of wine to Poland. "We've taught the Poles to love Bulgarian red," he boasted. "That's quite a feat in a country with good vodka." In the last five years, Vassilev has expanded to Ukraine, Kazakhstan and Russia. In 1991 he began shipping Polish wheat, in surplus there, to Ukraine, where there was a shortage. He contracted with several state alcohol producers and turned the wheat into 96 percent grain alcohol, trading it in Bulgaria for wine that he then shipped to Poland. Last year, Vassilev added another wrinkle: Shipping the Ukrainian grain alcohol to Moscow, where he sold more than 1,000 tons of it at $2 a bottle. It costs 50 cents a bottle to make. Along the way, Vassilev got the license from Stolichnaya to produce vodka in Ukraine. "This is a bottle of genuine Russian vodka," reads the label of Vassilev's product, ending somewhat sheepishly, "imported from Ukraine."