Zhan Videnov - Crisis

Crisis

During the second year of Videnov's term, Bulgaria experienced a severe economic crisis and declining quality of living standard. One element of this was the grain crisis. In mid 1996, the first reports appeared that the country's grain reserves were near complete depletion due to excessive exports, and bread did actually become scarce for some time in the winter of 1996-1997. At the same time, the postponement of the payment of interest on Bulgaria's foreign debt, which had been negotiated by the Filip Dimitrov government (Union of Democratic Forces, UDF) in 1992, ran out and no further postponement was granted despite Bulgaria' continuing inability to pay. The government also failed to negotiate a loan to relieve the situation. This decreased the country's credit rating and initiated the destabilization of the finance system. In a short period of time, more than half of Bulgaria's commercial banks went bankrupt, with hundreds of thousands of people losing their savings, while the so-called "credit millionaires" profited enormously from the situation because their immense debts to the banks were reduced to nothing. Simultaneously, inflation skyrocketed, with the lev's value plummeting from 70:1 USD in early 1996 to 3,000:1 in early 1997, causing a sharp decline in purchasing power. According to the Bulgaria-based Institute for Market Economics and the near-general consensus in Bulgarian politics, the hyperinflation was caused by the government's inept finance policy. Videnov himself blamed the Bulgarian National Bank's incompetent actions, and abuses committed during the previous coalition government headed by Lyuben Berov. Despite its initial refusal in order to save its reputation during the presidential elections campaign in 1996, the government was forced by the crisis to accept eventually the currency board proposed by the International Monetary Fund, a decision that was officially implemented by the next government in July 1997.