The road to economic disaster in Bulgaria

Abstract

(1) The country's economic decline had already hit rock bottom. In spite of a number of controversial and frequently adjusted statistical data, economic growth in 1994, for the first time since 1989, had finally registered a positive rate of 1.8%. The overall drop in GDP for the years 1989-93 had come to 27.7% and in the mid-1990s the business cycle had started to bottom out. (2) Removing restrictions on trade with the countries of former Yugoslavia had provided a favourable environment for an upsurge of economic activities. The embargo was lifted by a decree of the Ministerial Council of 28 November 1995, i.e. almost at the end of the year, but trade had been going on through visible and invisible channels throughout the year. Thus, according to the official data, Bulgaria's exports to Macedonia totalled 29.3 billion BGL in 1995-slightly less than those to Russia (36.1 billion BGL) and nearly as much as exports to Germany (30.8 billion BGL) and Italy (29.3 billion BGL).1 (3) Following a series of difficult and prolonged talks, the agreement with the foreign creditors of the London Club had been signed. Restructuring and rescheduling the country's external obligations towards some 300 commercial banks were successfully completed on 28 July 1994. The total worth of the rescheduled foreign debt amounted to US$8273 million, with US$1027 million bought back by Bulgaria at 25 cents for one dollar. The Bulgarian economy had started looking more attractive to foreign investors, which seemed to hold a promising future.2 Relations with the IMF looked favourable too. In 1995 Bulgaria enjoyed the highest IMF lending per capita of all the countries in Central and Eastern Europe (Figure 1) and the signing of a new stand-by agreement seemed highly probable (the fourth in succession). This situation created an atmosphere of confidence and was a prerequisite for renewed development of the economy.