The Transition
That Never HappenedAt Least Not The Way That Was Recommended
Interviews
Richard Rahn
In 1990 dr. Richard Rahn was a vice president and chief economist of the U.S. Chamber of Comerce, the world’s largest business federation, and executive vice president and board member of the National Chamber Foundation. Currently Richard is Senior Fellow of the Cato Institute and the Chairman of the Institute for Global Economic Growth.
Q: When and why did you come to Bulgaria and how did the project idea come about?
A: I had worked with a Hungarian transition team in 1988 and 1989 and shortly after the transition in Bulgaria, early 1990, I was invited to Bulgaria to give a speech on economic transition. During the few days we were there we had discussions about what Bulgaria needed to do and the Lukanov government asked me to put together a team, such as existed in Hungary and a number of other countries and I agreed to do so.
Q: Who were the sponsors of the project and how was it funded?
A: The National Chamber Foundation, a private U.S. foundation affiliated with the U.S. Chamber of Commerce, was the sponsoring entity, and Dr. Robert Krieble, world known entrepreneur, put up some of the original money along with the National Chamber Foundation, and that’s how it got started.
Q: How did you manage to organize the project?
A: My colleague Dr. Ronald Utt and I sat down and tried to figure out which were the key sectors of the economy we needed to look at. We looked at the experience in some other transition countries and what they were doing. From that we started building an outline and agenda to work with economists and others in Bulgaria to bring about the kind of a high-growth, pro-market transition they needed.
Q: So the initial report was delivered to Prime Minister Lukanov in October 1990. Were you involved in any Bulgarian reform ever after that?
A: Yes, extensively. The initial report was just our starting point. Many of our team members continued to work with our counterparts in Bulgaria. I particularly worked more on the financial side; money and banking. I had urged the Bulgarian side to introduce the currency board back in the original report and thereafter. I hadn’t made much progress. So I brought Dr. Beryl Sprinkel who had been President Reagan’s Chairman of the Council of Economic Advisors, Sir Alan Walters who had been Margaret Teacher’s chief economic advisor and Professor Steven Hanke, well known U.S. economist, to Bulgaria and tried to convince the leaders of the Central Bank and the government to establish a currency board. That was in early 1991. Unfortunately Bulgaria had to go through another hyperinflation before finally adopting the currency board in 1997. A number of our team members continued to work in areas of their specialty with people in the Bulgarian government and the private sector.
Q: When you first arrived in Bulgaria what was the situation you found, both politically and economically?
A: Economically it was a disaster. They were going through the first of the high inflations, the currency was almost worthless. I remember the very long lines of people trying to get basics like milk and bread. The black market was growing to meet basic needs that were not being met by the state stores. There was great deal of poverty, and it was really rather unpleasant. Now when I look at Bulgaria – there has been a remarkable transition. Bulgaria is now a normal European country. Almost the whole Black sea coast has been rebuilt. It is as modern as any area that you can find in the world. That wasn’t true 24 years ago.
Q: Did you receive any assistance from the Bulgarian government?
A: When we worked out our understanding about the transition project, the U.S. side (again, funding came from the private sector, - initially there was no U.S. government funding) covered the international transportation costs, and many out-of-pocket costs. The people who were involved from the U.S. side were all volunteers, who took time from their regular jobs.
For instance I continued to receive my salary from the U.S. Chamber of Commerce, and Dr. Utt received his salary from the National Chamber Foundation. But we didn’t receive any extra compensation. It was something that the U.S. private sector was interested in doing, so that is where we got our support. The Bulgarian side was not able to supply a cash contribution at that time, and we didn’t expect any. The Bulgarian government did, however, supply the local translators, facilities for our meetings, hotels and eventually including the Boyana Complex.
Q: How long did the project take?
A: It started in late spring in 1990. The original report was delivered in October 1990, but the work continued after the first report. There were many trips for some of the participants, for a number of years after 1990, depending on their area of involvement. For instance, Professor P.J. Hill, a U.S. agricultural economist, continued his work several years in the agricultural sector; Steve Hanke was involved for many years on monetary reform; Dr. Utt, Mark Bloomfield and others, including myself, continued the work. So we all had separate roles and, worked not merely as a team but also in our areas of specialty with our Bulgarian counterparts. For instance, Peter Wallison, who has been General Counsel of the U.S. Treasury and President Reagan’s Counsel at the White House, worked with us to do a proposal to set up a free market area or special economic zone near Varna, as a demonstration project. He wrote all the legislation for that proposed project. He did it totally as a volunteer (again for no compensation). It is still a wonderful piece of model legislation on how to establish a free zone. (A copy of his proposal is in the appendix on this report).
Q: Did the Bulgarian government implement any of your suggestions and proposals?
A; They implemented a few, at least in part - the land restitution, freeing markets by getting rid of most of the price controls, and abolishing many regulations. But in many other areas they were very laggard, particularly currency reform which was key. There was still too much corruption in the court system and that was a big disappointment to us that there wasn’t what was considered - an honest, objective judiciary. There was continuing corruption. But eventually things improved - for instance the currency board in 1997 (unfortunately the Bulgarians had to go through another 7 years of hyperinflation before we got the currency board in) which finally provided a very stable currency and very low inflation. That was one of the keys to having a sound economy.
Q: How do you rate the state of Bulgarian economy today?
A: In many ways it’s quite good. All economies have problems. I know there is a lot of dissatisfaction and unhappiness in Bulgaria, but compared to the way it was, it is night and day difference. Bulgaria now has the lowest debt-to-GDP ratio, along with Estonia, in all of Europe. Fiscally the country is in very good shape, having the flat tax -- and, again, the Institute of Market Economy really deserves a huge amount of credit for helping push that through. Over the long run I am very optimistic about Bulgaria.
Q: What was the role of the Bulgarian economists in your team?
A: We had agreed that we will have a Bulgarian counterpart team to the U.S. team. At that time there was great political discord in Bulgaria. So the Lukanov government had selected a number of people, and the opposition parties also selected a group of people. So we had three groups – two Bulgarian groups and a U.S. group. At that time there was a great deal of tension between the two Bulgarian groups, much more than with the U.S. group, and part of our time was trying to mediate between the Bulgarians to build a consensus report. Eventually we got there but it took a lot of discussions and give-and-take. For the most part our relationships with the Bulgarian teams were very good, and we developed strong friendships.