Economy of Bulgaria - History

History

The economy declined dramatically during the 1990s with the collapse of the Council for Mutual Economic Assistance (COMECON) system and the loss of the Soviet market, to which the country had been closely tied. The standard of living fell by about 40%, and only regained pre-1989 levels by June 2004. In addition, UN sanctions against Serbia (1992–95) and Iraq took a heavy toll on the Bulgarian economy. The first signs of recovery emerged when GDP grew 1.4% in 1994 for the first time since 1988, and 2.5% in 1995. Inflation, which surged in 1994 to 122%, fell to 32.9% in 1995. During 1996, however, the economy collapsed due to an unstable and decentralised banking system, a wave of hyperinflation throughout several countries of Eastern Europe, and slow reforms, which led to an inflation rate of 311% and the collapse of the lev. When pro-reform forces came into power in the spring 1997, an ambitious economic reform package, including introduction of a currency board regime, was agreed to with the International Monetary Fund and the World Bank, and the economy began to stabilise. The 2000s (decade) saw a steady pace of growth and budget surpluses, but shaky inflation.

Successful foreign direct investment and successive governments have demonstrated a commitment to economic reforms and responsible fiscal planning have contributed greatly to the Bulgarian economy, with a historical growth rate average of 6% a year.

Corruption in the public administration and a weak judiciary have continued to be long-term problems, and the presence of organized crime remains very high.

A period of large trade deficits and improper real estate investment hit Bulgaria hard during the late-2000s recession, resulting in a 5.5% GDP decline in that period, a rise in unemployment, and spending at least five quarters in its worst recession since the early 1980s. However, this was not as severe compared to much of Europe. Future prospects are tied to the country's increasingly important integration with the European Union member states. However, the country came out of a recession in 2010, and stagnated for a short period of time. It has been recently predicted that the economy would grow modestly by 2011. The country is expected to join the Eurozone in 2013.

From the end of World War II until the widespread change of regime in Eastern Europe in November 1989, the Bulgarian Communist Party (BCP) exerted complete economic, social and political control in Bulgaria. The party's ascent to power in 1944 had marked the beginning of economic change towards planned economy in Bulgaria. After World War II, Bulgaria followed the Soviet model of economic development more closely than any other East Bloc country with becoming one of the first members of Comecon; the new regime shifted the economy from mainly agrarian type towards industrial economy and much of the labour force from the countryside to the city, providing workers for new large-scale industrial complexes. At the same time, the focus of Bulgarian international trade shifted from Central Europe to Eastern Europe and USSR.

These new policies resulted in impressive initial rates. Bulgarian economy closely resembled that of the Soviet Union. Soviet-style centralised planning in five-year blocks had more immediate benefits there than in the other European states where it was first applied in the early 1950s. Throughout the postwar period, economic progress also was assisted substantially by a level of internal and external political stability unseen in other East European countries during the same period, that was also a change in Bulgarian political scene was a lot of turbulence preceded the ascent to power of the BCP.

Nonetheless, beginning in the early 1960s low capital and labour productivity and expensive material inputs plagued the Bulgarian economy. With disappointing rates of growth came a high degree of economic experimentation. This experimentation took place within the socialist economic framework, however, and it never approached a market-based economy.

In the late 1980s, continuing poor economic performance brought new economic hardship. By that time, the misdirection and irrationality of BCP economic policies had become quite clear. Bulgaria's economy contracted dramatically after 1987 with the dissolution of the Comecon, with which the Bulgarian economy had integrated closely. Finally, on 10 November 1989, at the November plenum of BCP Todor Zhivkov was dismissed as a long-time party leader and head of state and the communist regime gave way to democratic elections and government. Unlike the communist parties in most other East European states, the BCP (changing its name to Bulgarian Socialist Party) retained majority power after the transition in Bulgaria by winning the first free national elections in June 1990. That was made possible by changes in party leadership, programme, reduction of its power base and other which permitted economic reorientation toward a market system. This difficult transition combined with political vagueness, unpreparedness of people for the social and economic changes led to seriously worsen economic conditions during early 1990s. The standard of living fell with nearly 40% and more and regain levels in the beginning of 2000's.