The Transition
That Never HappenedAt Least Not The Way That Was Recommended
Interviews
Ventzislav Dimitrov
In 1990 Ventzislav Dimitrov was Member of the Grand National Assembly and Chairman of Budgetary Commission in the Parliament.
Bulgaria‘s economy in the late communist period was in deep crisis. The crisis had both political and economic reasons, some of which included the exodus of Bulgarian Turks in 1989 and the termination of commercial contracts with traditional partners such as the Arab countries.
Bulgaria had significant balance of payments difficulties coming from decreasing export and declining revenues in hard currency. This affected the whole economic situation of the country.
Some believe the Communists used the short transition period to rob the entire foreign exchange reserves of the country. I have to say that in the early nineties the hard currency reserve was already quite small compared to the four-five years before that time. Then the moratorium was announced but we didn’t have enough knowledge of the situation to determine whether it was justified or not.
The Communist Party was renamed to ‘Socialist’. For the opposition - the UDF - it was important to have a program for transition to market economy. Both sides were preparing this. But it’s debatable whether we were ready as a country. I think that the BSP had people who wanted to make this transition happen but the membership made it difficult for them. So Lukanov’s second term in 1990 selected during the Grand National Assembly ultimately failed to make this transition happen although it had the means to do it (in the form of the Rahn-Utt program).
On the question of the program Rahn-Utt and how it impacted the Bulgarian transition I can say the following: The program was made by American and Bulgarian economists - one I’d like to mention in particular is Professor Angelov. The Americans wanted to teach us about market economy and how to implement it.
Prior to this plan we had several other programs for transition that were integrated into the program of the UDF. The only thing that BSP ever presented, I think, was a program by Lukanov in October 1990 when he claimed the ideas in it were taken from the Rahn-Utt report which was not true.
Professor Angelov claimed they had a program that numbered forty-one pages and after the Rahn-Utt part was included it became sixty pages. In this program there were good things such as privatization, market economy, and so on. But there was actually no intention to implement it. There were no specific measures or terms; it was all talk from the BSP.
There are people who write blogs on the internet, probably not many but who do it often - people who form the so-called “hate phenomenon” which undoubtedly increases their influence. They believe that the program Rahn-Utt was created to destroy Bulgaria. This is utter nonsense.
Even if the program didn’t exist the outcome would have been the same. This program did not have any influence on the development of the country because it was never implemented. But at least it sparked conversation around what market economy actually is and how it should be used.
When Lukanov’s program came out, as they say, ‘decorated’ with the findings from Rahn-Utt the BSP didn’t really give it their full attention. This happened only the following year when the UDF and MRF took power and managed to pass a law that confiscated some of the Communists’ property.
What we underestimated in all the programs that surfaced during that time was the looting of Bulgaria. We knew that the BSP would do everything possible to save their own skin. But the advisors who’d visited us never warned us about the power of money; about possibilities for corruption, about any of these things.
If someone asked me now how to transition to market economy, I’d know what to tell him; I’d warn him about all the dangers we went through. It was unfortunately the case then that all the countries of Eastern Europe began the transition at the same time and could not exchange experiences; best practices and information.
The West was oblivious to our problems. When the former director of the IMF Camdessus came to Bulgaria he was embraced by Vasil Kolarov, the man who managed the BSP’s money and was chairman of the National Bank. How were we supposed to introduce market economy when the bank was in their hands? They didn’t want an independent bank.
Later we had an independent central bank but we didn’t realize that coexistence between the public and private sectors was extremely dangerous because it allowed for a huge transfer of assets, revenue and profits from the public sphere to the private.
The main controversy about so-called ‘shock therapy’ was whether prices would be released gradually or suddenly because it was not clear what would happen. I even remember that the government of Dimitar Popov introduced free prices and yet Ivan Kostov advised the mayor of Sofia, Karakachanov to issue coupons. And at some point in January 1991 coupons were indeed issued. As the Finance Minister, Ivan Kostov did not know when prices would be liberalized, so there was no need for coupons. He thought he would need them but they suddenly became worthless.
Privatization created discord even among the leaders in the UDF. How was privatization supposed to start? Should they begin with small or large-scale privatization? I remember we were gathered in the Economic Policy Committee with its chairman Asen Michkovski, Alex Djerov (who was chairman of the legal committee) and Joro Markov and we were arguing about how to make small-scale privatization - that was one of the first laws. Then Kostov and Ivan Pushkarov, one of the government ministers, arrived. Kostov said no to the return of property but to give them 30% of the cost instead as they do in Hungary. I said, “Ivan, you are a minister in the UDF and MRF cabinet. Open the program of the UDF and take a look at what it says. It says that we will return property. That’s the moral thing to do, when you promise something – you must do it.”.
In Bulgaria privatization started very slowly and hesitantly. There were things like “mass privatization” at the time of Zhan Videnov which was supported by Ivan Kostov and Alex Bozhkov and so-called worker-management privatization but it seemed to me that these were two major errors in the transition process.
We should have approached it in a different way. I had a proposal myself but it didn’t win any support, even from my fellow UDF members. I suggested that a portion of the proceeds from privatization should be transferred to the health and pension fund. It was clear that the so-called “compensatory papers” discussed at the time would enrich not the owners but the brokers and that’s exactly what happened. A similar situation unfolded with mass privatization.
You can’t force a man to be an owner. If you are not ready you will get rid of those pieces of paper quickly and for little profit. That’s exactly what happened. There were brokers who bought shares cheaply and started playing on the wholesale market. That was one of the problems of privatization; it plundered the Bulgarian economy. We never agreed with the concept of compensatory papers but they were nonetheless pushed through by a minister of the UDF called Louchnikov. He probably thought that was the best way forward.
In my opinion, the Rahn-Utt plan served as a valuable piece of information. Nothing more. A program can only be actioned when it serves the interests of a particular political party. This did not happen and the program thus never came into effect. Therefore, those who say that the program robbed Bulgaria have no ground to stand on because it was never implemented into the economy by any political party.