Transition of the Bulgarian Economy: 1990-1997

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Transition of the Bulgarian Economy: 1990-1997 The immense political and economic changes in Central and Eastern Europe have created a variety of unique transition economies. Each country controlling its own development without fully understanding the implications of the monetary and fiscal macroeconomic policies it yields. Bulgaria in particular has had mixed results. A 1992 OECD Economic Assessment of Bulgaria described “shock therapeitic” reform programs that included the abolition of central planning, the liberalization of most prices, and opening more markets to foreign trade. While the survey concluded that “much has been achieved in extremely difficult circumstances,” by 1997, economic stability had not been realized. Since 1989, several governments have presided, the banking system has virtually collapsed, GDP has significantly declined along with the lev, inflation is rampant, and economic policies fail to generate confidence. However, Bulgaria’s economic performance is decidedly “middle of the road” when compared to other transitioning economies. Declines in output and average real income are much greater and unemployment and inflation much higher than the Visegrad group and Baltic Republics though often better than Ukraine, Belarus, and the Russian Republics. Many of Bulgaria’s current economic problems can be traced to economic conditions at the start of its transition. Heavy reliance on CMEA markets devastated the country , more so than any other country. Compared to GDP, over 60% of its imports and exports were orientated to the CMEA market. COMECON’s collapsed devastated Bulgaria, causing large initial declines in GDP and increases in unemployment. This event necessitated the complete restructuring of the modes of production. The complete upheaval of the Bulgarian economy forced a suspension of payments to foreign debts making it practically impossible to attract foreign/western investment to restructure the economy. Current economic instability is due to the lack of decisive economic policy from the seven successive governments following the fall of Todor Zhivkiv the former Communist Party leader in 1989. While each succeeding government has remained committed to economic transition, their policies have lacked cohesion over important controversies such as privatization, subsidies, co-operation with IFIs, and foreign investment. The result of the different policies have resulted in much change but little progress with measures dealing with “soft budget” enterprises and banks, privitisation of state assets, and attraction of foreign investment. Ripples from the discontinuity of Bulgarian economic policy are evident in the rapidly accumulating domestic debt, payment arrears, and the continual refinancing of inefficiently run commercial banks.

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