It must be said that the monetary and debt policy of socialist Bulgaria was one of the most closely guarded secrets of the state. Even the detailed and meticulously done study called “History of foreign debt of the country from 1878 to 1990” published in 2006 by the Bulgarian National Bank gave no evidence of how the debt materialized in the eighties. It nevertheless led to a crisis which ended with an announcement of moratorium on 29 March 1990.
The merger of political and economic party power was clearly demonstrated by the history of the accumulation of the aforementioned debt. Two powerful committees existed in Bulgaria under the Politburo of the Central Committee of the Communist Party which could dispose of the currency of the state in the economy: the Monetary Committee chaired from 1977 to 1988 by Todor Zhivkov, followed by Andrei Lukanov, and the State Committee for Scientific and Technical Policy of the Central Committee of the Communist Party, led by Ognyan Doinov.
The Monetary Committee was empowered to make decisions over the state currency plan. The committee controlled the implementation of the plan for exports and spending of available currency funds. Its decisions had a binding force upon all authorities and executive bodies in the country. It had 11members from the highest party leadership, ministers, and the president of the National Bank.
In 1986 a decision of the Bureau of Ministers established a new committee on currency issues subordinated to the Council of Ministers. This was a manifestation of change in the economic policy already mentioned which aimed to give more autonomy to the economy and distanced it from party leaders. The decision on this change coincided with the arrival of Gorbachev to power in the Soviet Union.
The State Committee on Scientific and Technical policy of the Central Committee of the Communist Party had a 26 senior-member staff comprising of Politburo and Central Committee secretaries, ministers, the Chairman of the Academy of Sciences, etc. This committee determined the funding currency of various industries and introduced organizational structures dependent on foreign income. Both of these committees of the Communist party however, failed to take control of the issue of dried-up foreign revenue streams despite efforts to increase income by creating companies in the West. Bulgaria’s gross liabilities in 1985 were about $4 billion. Four years later they rose almost three-fold and reached $11.4 billion.
The rise of debt began following the ceasing of additional quantities of crude oil coming from the Soviet Union which Bulgaria re-exported. Until then the revenue coming from re-exported Soviet oil in the country was over $1 billion per year. The situation got worse due to the rising cost of paying long-term and short-term loans. In 1984 liabilities were $1.2 billion and reached $2.5 billion a few years later. At the same time Bulgaria granted export credits to a large number of developing countries with socialist orientation. For the period of 1984-1989 they reached $700 million. The servicing of this debt to Bulgaria continued to decline and in 1989 it stopped altogether.
The Monetary Committee of the Politburo of the Communist Party and the Party-State Committee on Scientific and Technical Policy managed foreign exchange receipt very poorly during the period of 1985-1989. This led to losses and more external debt. Lending to several Arab countries in the late eighties grew reaching $3.8 billion. Economic affairs such as the oil concession in Libya or the concession for timber in Gabon (Balkanbank Commercial Bank signed a bank guarantee for 18 million DM in 1988 whereby Bulgaria would ‘acquire’ a concession to produce tropical wood from Gabon after a grant from the German Commerzbank which eventually trickled down to private pockets) led to the loss of hundreds of millions.
According to the Ministry of Foreign Economic Relations at the end of 1988 Bulgaria had handed out government loans to 28 developing countries. Most government loans in exchanged BG Lev benefited Iraq - 965 million, 344 million went to Libya, 303 million to Algeria, 79 million to Nigeria, 63 million to Angola, 56 million to PDR Yemen. The list continues. In 1989 these grants added nearly $2 billion to foreign debt. But this was only a slight proportion. The main chunk of foreign debt came from Bulgaria’s liabilities to COMECON. The problem was exacerbated by the decision for trade payments to be made in convertible currency. In terms of Bulgaria’s debt the figures grew rapidly from $2.1 billion in 1984 to nearly $9 billion in 1989.
And yet another factor contributed to the rise in Bulgarian foreign debt during the eighties. After 1985 a rapid trend of deterioration in the trade balance began. Deficit grew from $85 million in 1984 to $1.3 billion in 1989 due to decreased production and exports and a steady increase in imports, especially of agricultural produce and basic foods. In 1980 Bulgaria had imported agricultural products for less than $200 million. In 1985 however imports exceeded $350 million and in 1988 this figure rose to $496 million. During those years Bulgaria imported feed, molasses, sugar, rice, meat, milk, and butter among others. Interestingly, these imports were mainly from Western, not socialist countries. It is true that during the same period Bulgaria still had a high export of fresh and processed fruit and vegetables, tobacco and cigarettes, and meat products but this was not sufficient to ensure the required imports of oil, natural gas, cotton, cellulose, and other key raw materials for industry. In 1988 foreign exchange receipts (according to data from the Ministry of Foreign Economic Relations) of agricultural exports decreased about two times in comparison to 1984.
The situation was not much better for the manufacture of food and clothing too. Between 1985 and 1989 expenditure in foreign currency grew by $600 million [*] of export earnings in food and clothing. Similarly, in regard to the heavy industry for various reasons during the period of 1984-1988 some goods that previously provided large currency inflows were completely dropped from the export list. These included ships, cement, and electricity.
All these changes led to general economic and financial difficulties that resulted in a decrease in total industrial production. The result was a decline in exports of manufactured goods virtually in all industries. Statistics for those years showed a notable reduction in the quantity of ferrous metals, machinery, forklifts, cranes, tractors, and pumps - until then traditionally Bulgarian exports. Other traditional exports that declined included fertilizers, urea, and chemical fibers. Production of industrial and consumer goods such as refrigerators and other home appliances also declined.
Ultimately, the figures were quite clear. A reduction in exports of agricultural commodities and foods along with a drop in merchandise light industry exports led to reduced foreign exchange earnings of about $1 billion.
In the early eighties the country had a positive trade balance of about $1 billion but by 1985 the balance turned negative - again by about $1 billion - maintaining that level until 1989.
If one looks at the structure of Bulgarian exports for that period he would see that the highest foreign revenue came from two sectors - weapons and “special” equipment and re-export of processed oil. Over 50% of foreign exchange earnings for the country in the second half of the eighties came from these two sources. As previously mentioned the changes in exports of crude and refined oil occurred after Gorbachev’s coming to power in the USSR. No better was the fate of the so-called “special” products the proceeds of which began to decline sharply in the second half of the eighties. In fact the aforementioned loans to third world countries Bulgaria granted were related to the supply of weapons and equipment and were never repaid.
By the end of that decade Bulgaria entered into a crisis associated not only with currency but commodity shortfalls. This naturally led to growing inflation. At the same time the practice of paying wages in declining output and idle capacity in the industry grew. A sharply deteriorating labor discipline subsequently led to an increase in production of low quality products. During these years almost all production costs paradoxically grew and communist political leadership increasingly covered the budgetary deficit by printing money. Estimated figures at the end of the decade showed the country had accumulated stocks of around 4 billion BG Lev and cash only in population over 6 times more - about 25 billion BG Lev (this sentence is very unclear and needs to be rewritten). What could be a better environment for uncontrolled price increase? As a result a serious economic, political, and social crisis in the socialist system emerged in the late eighties. This forced Todor Zhivkov to launch the largest economic reform the country had seen. In 1987 the so-called “July Concept” was adopted. It attempted to preserve the political system but at the same time transform central planning to market economy, including the denial of the monopoly of state ownership.
In fact all far-reaching economic reforms failed in the face of economic crisis, rising debt and a deteriorating international situation. Domestically and internationally, however, the general consensus was that the time for reforms had passed and it was then time for radical change – one that would replace the Soviet system for good. This, however, would mark the time of painful new beginnings – a 180-degree turn to economic principles of capitalism - a system from which Eastern Europe was completely alienated following the Second World War.