The Path of Bulgarian Economic Reform
![handle is hein.journals/eeurcr10 and id is 296 raw text is: The Path of Bulgarian Economic Reform
Krassen Stanchev
T he history of economic reform in postcommu-
nist Bulgaria demonstrates that overused
analytical dichotomies-left/right, Keynesian/
Friedmanite, and the like-confuse rather than illumi-
nate the nature of actual policies. As a rule, the phrase
leftist policies is used to denote forms of intervention
best described by C.-E Bastiat: higher taxes, restricted
freedom of contract, granting more rights to labor, and
an increased role for government mediation. In
Bulgaria, however, both leftist and rightist governments
have displayed a preference for regulatory policies that
are hard to pinpoint on the left-right spectrum. For
Bulgarian politicians, as for politicians elsewhere in the
postcommunist region, the real choice in transition
policies was and still is to regulate or not to regulate,
what to regulate, and how. And the major lesson of the
Bulgarian economic transition is that the functioning of
networks of trust and the pursuit of rents in a concrete
institutional environment are factors whose significance
far outweighs the role of the ideologies allegedly
espoused by political actors.
Economic policy
The reforms in Bulgaria did not get under way until
February 1991. Their purported objectives were rather
typical in an East European context: financial stabiliza-
tion, reduced inflation, and control over money
aggregates and budget deficits; prompt privatization of
state-owned enterprises (SOEs); fostering promarket
behavior among economic actors; and effective and
coherent public governance.' The very words used to
characterize these policy objectives seem borrowed
from such distinguished reformers as Poland.2 At the
same time, though, the level of political support for
meaningful economic change was very different. In
Poland the reformist program figured prominently in
the agenda of political forces, while in Bulgaria it
remained an orphan; no political party was willing to
push for its implementation.
During the first eight years of Bulgaria's postcom-
munist transformation, the only approximate reform
success came in 1993-94, when the government-
which included some economic experts-managed to
reduce the foreign debt by 47 percent. A few months
later, however, this cabinet was forced to resign by the
former communists (now renamed the Bulgarian
Socialist Party [BSP]) who soon thereafter won the
general elections and formed a new government. The
backbone of their economic policy was the continued
subsidizing of the loss-making public sector. In 1995, 57
percent of SOEs were producing losses, representing 15
percent of the GDP; two-thirds of the total losses were
created by 60 enterprises with a combined employment
of 85,000. Since the government's ability to borrow was
extremely limited (the foreign debt ballooned to 130
percent of the GDP, the economy registered no growth,
the banking system was collapsing, and hard-currency
reserves were rapidly squandered), its options were
limited. Adamant about continuing their support for
the failing SOEs, the government embraced the only
solution that was available: printing more money and
then using price controls as a substitute for control of
money supply in order to channel funds in politically
desirable directions.
This strategy proved to be unsustainable; by the
end of 1996, Bulgaria's financial system had disinte-
grated, and monthly inflation had skyrocketed to
triple-digit values (242 percent in February 1997
alone). In 1997, there were two ways to stop the
hyperinflation: either to dollarize or to fix the
exchange rate and restrict the government's power to
issue currency by creating a currency board. No polit-
ical party supported the former but all the major ones
backed the latter. As a result, the country switched to
a currency-board regime in the summer of 1997.
The major proreform party, the Union of
Democratic Forces (UDF), was believed to be the true
champion of austerity measures. And its policies did,
56 EAST EUROPEAN CONSTITUTIONAL REVIEW](ViewImageLocal?handle=hein.journals/eeurcr10&div=36&collection=&method=preview&ext=.png&size=3)
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The Path of Bulgarian Economic Reform
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