Assoc. Prof. Martin Ivanov
Bulgarian Academy of Sciences and
Bulgarian National Archive
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20 years after 1989: communist nostalgia:
 It is human to romanticize the past (Plato)
 Emotional youthful memories (even with
traumatic experiences as military service)
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Selective memory of 2000s & 2010s: “cheap
bread” and “unemployment free society”
This paper will try to present a more complex
picture of Bulgarian centrally planned
economy through the lenses of the foreign
debt

Since mid-1950s Bulgaria intensified its
trade with the West
 For investment purposes (industrialisation)
 For consumption purposes (Malenkov’s drive
towards consumption)

Within 5 years (1955-9) Bulgaria incurred
a 1 b. leva ( $ 150 m.) deficit on its current
account (half of which in 1959)
 Backwardness, CPE:  poor quality export
 The deficit was funded mainly
through short-term credits from
 Banque commerciale pour l’Europe de Nord
(Oerobank)
 Moscow Narodny Bank
 The debt grew from $ 45 m. in 1954 to
$ 200 m. in 1963
200
150
100
50
0
1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963
This was the first debt crisis for the communist
regime in Bulgaria: no tradition in debt
reconciliation
1. Bulgaria played the ‘brotherhood card’
approaching its ‘western’ creditors. They,
however, were reluctant to forgive BG debts.
2. Short-term bridging credits were received from
the Soviet and the Czechoslovak National Banks
3. Funds of marginal size came also from Belgian, W.
German, Swedish and Danish banks ($ 10 m.) in
1960-1
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Moscow unwilling to act as LOLR  selling of gold
reserve seemed as the only available option
1962-63 Bulgaria had to sell almost its entire gold
reserve of 5.9 metric tons of gold
Operation brought $ 45 m. and the outstanding
debt was agreed to be paid in kind with additional
export of:
 100,000 tons of sugar; 1,000 tons of zinc; 3,000
tons of frozen chicken; 500 tons of cheese; 20 m.
eggs
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Yom Kippur War, 1973 and the oil shock (OPEC
embargo)
Oil shock led to price increase by 70 percent and
deep recession
The Soviet oil-price umbrella
 Until 1974 no change
 Until 1978 prices still under wmp

Instead of reorganisation, BG economy continued
to be 20-25 percent more energy consuming than
the other industrialized countries
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Bulgarian overstretch: $ 700 m BoP deficit in
1974 reaching $ 1.3 b. in 1975
To finance it Bulgaria had either to slash
growth (investments) or consumption
Instead Sofia opted for a growth-cum-debt
solution
 Between 1973 and 1978 foreign debt
increased 5 times: from USD 1.3 to 6.1 b.
7000
5000
3000
1000
1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980
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By late 1976 it became apparent that
Bulgarian economy is unable to productively
invest these funds.
Foreign banks: reluctant to lend new money
Possible solutions were again:
 Slash investment (arrest import, economic
reforms)
 Slash consumption
 LOLR (Moscow)
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Sofia attempted modest economic reforms and
slightly reduced the growth rates
Soviet by-pass: during the traditional meeting
with Brezhnev at his Crimean residence Zhivkov
managed extract crucial promise for support:
 $ 400 m. annual subsidies to Bulgarian agriculture
 New credits
 Additional quantities of Soviet petrol earmarked
for re-export to the West

Thanks to this generous Soviet support within 6
years Bulgaria was able to reduced its debt from
$ 6 to just 1.5 b.
Triggered by exogenous shock but with deep
systematic roots
1. US depreciation ( $ 1 = 3 DM to $ 1 = 1.90 DM)
worsening of TOT
 Most of Bulgarian trade with the West was in DM
which effectively meant that export became 38
percent cheaper and import 38 percent more
expensive
 Bulgarian foreign reserve of $ 1.4 b. also depreciated
by 38 percent
2. Oil prices collapse by 60 percent and the re-export of
Soviet oil became far less lucrative. BG incurred losses
of $ 300-500 m. annually according to BNB governor
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3.
Dollar depreciation put most of the oil
exporting countries on their knees.
 Many of them had recently contracted
large credits for rearmament from
Bulgaria (Iraq, Libya, Nigeria).
 Total Bulgarian exposure to the Arab
world was $ 2.5 b.
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Available options:
1. Slash investment
2. Slash consumption
3. LOLR
Soviet debt-umbrella was not available any more.
 Instead Moscow call off its claims and Sofia had to
transfer $ 650 m. annually in 1988 and 1989
 Generous oil shipments from USSR were a history 
re-export was impossible
 When Kremlin refused to be LOLR Sofia approached
the western banks.
 Most of them extended short-term credits at high
interest rates
 Bulgaria started building up a debt of $ 1.5 b. annually
  Debt overhang: in 1988-90 Bulgarian export was
approx. $ 3 b. and the debt transfer was $ 2.5-3 b.
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Furthermore, new funds were misused:
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1984-9 debt grew by a factor of 3.6
GDP grew by a factor of 1.1
Fixed investments grew by a factor of 1.3
Foreign reserves were the last line of defense:
within 18 month (1987-88) reserves were
depleted by 50 percent ($ 1.2 to 0.6 b.)
 Forced migration of Bulgarian Turks in the
summer of 1989 only aggravated the grim
situation
 The Economist wrote about the “disintegrating
Bulgarian economy”
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By late 1988 Bulgarian communist
were facing only 2 options:
 Consumption squeeze (Chauchesku) 
risking social unrest and possibly
revolution
 Debt default (declared in March 1990)
10000.0
8000.0
6000.0
4000.0
2000.0
1980
1981
1982
1983
1984 1985 1986
1987
1988 1989
Chronic trade deficit problems were only
aggravated by external shocks
 Christina Zloch-Christy: “deep systemic roots”
 Endogenous economic imbalances of the
centrally planned economies were stemming
from the need:

1. To finance the chronic trade deficit with the
West
2. To import consumption goods
3. Ineffective investment of the foreign credits

‘Import hunger’ (Kornai, 1981) of growth oriented
CPEs
 due to the ‘economy of the deficit’: many products
were simply not produced or produced in insufficient
quantity and quality
 to sustain their growth strategies CPEs had to import
technologies and materials from the West
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Export impotence:
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poor quality,
low technology,
inelastic price structure
missing incentives on micro level
 Heavy industry was always the
beloved child of east-block countries
at the expense of the squeezed
consumption
 ‘Consumption revolution’ from 1960s
made economic structure obsolete
 CPEs industries could not carter this
new trend towards mass consumption
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Heavy Engineering Complex at Radomir
 Soviet experts proved its ineffectiveness
 Despite Soviet warnings Zhivkov gave it a go
 Expensive equipment stayed misused for
years
 Total investment bill: 1.4 b. leva
“Soft budget constraints” and subsidies
instead of competition and bankruptcy law