The next parliamentary elections , in December 1994 , resulted in a crippling defeat for the SDS and handed an absolute majority in the National Assembly to a rejuvenated BSP. Led by the young and popular Zhan Videnov, the BSP was by now an odd grouping of genuine social democrats, old-style Communists and out-and-out careerists, supported by industrial workers, pensioners and rural Bulgarians bewildered by the changes of the last few years. The BSP continued the cautious policies of the Berov government, indexing pensions and industrial wages to the rate of inflation and devaluing the lev in the hope of kickstarting Bulgaria's moribund economy with an export boom.

Privatization of Bulgaria's state-owned industries moved at a snail's pace, prompting the government's critics to claim that most big enterprises were being run down prior to being sold off cheaply to former Communist functionaries. Indeed, the relationship between Bulgaria's emerging business class and the old political elite raised a few eyebrows. Considerable popular resentment was directed towards members of the old regime who were able to build up sizeable reserves of hard currency in foreign bank acounts in the late 1980s, and then return to buy into the country's economy.

Ultimately, though, the Videnov administration was brought down by its own economic incompetence. Market reforms ground to a standstill, and all levels of the economy became infected with corruption - often with government connivance. BSP elder statesman Andrei Lukanov - who had himself become a byword for shady dealings - was gunned down by mystery assailants in October 1996 for threatening to blow the whistle on government corruption. As winter 1996 approached, foreign investors fled the country, the lev plummeted against the dollar, and food shortages re-emerged. With the government unable to meet its foreign debt repayments, and unwilling to introduce the economic austerity programme demanded of it by the IMF, Videnov resigned in December, ushering in a period of acute instability.

The BSP had already lost the initiative following the presidential elections of November 1996, when Zhelev had been replaced by the SDS lawyer Petâr Stoyanov . However they still tried to cling to parliamentary power, refusing to yield to opposition demands for fresh elections. With the economy getting worse, a wave of anti-government demonstrations swept the country, and with SDS-inspired crowds mounting an assault on parliament in mid-January 1997, the BSP finally threw in the towel. A caretaker administration under Stefan Sofianski (the popular SDS mayor of Sofia) took over, and a general election was called for the beginning of April. The SDS won by a landslide, with suave technocrat Ivan Kostov becoming prime minister.