Bulgaria - Overview of economy

Until 1944, Bulgaria was a predominantly agricultural country. Under the socialist regime introduced after World War II, industry and infrastructure were nationalized and

operated in line with central government economic planning. Most farming was collectivized (organized into government-run units), and the development of heavy industry was made a priority. From the 1970s until 1989, Bulgaria enjoyed one of the most prosperous economies in Eastern Europe, with good health, education, and living standards. Considered by many to be the "Red Silicon Valley" (denoting its role as the communist equivalent of the U.S. technology breeding ground), it became the sixth nation to fly in space.

The socialist economy, however, was dependent on the imports of subsidized Soviet fuels (some re-exported to obtain hard currency ) and the extensive but straightforward Soviet (and other socialist) markets for most exports of machinery, computers and peripherals, clothing, tobacco, beverages, and food. With the disintegration of the Soviet Union in 1989, the Yugoslav wars of the 1990s, economic sanctions , and the Persian Gulf crisis of 1990-91, Bulgaria lost many of its markets, its cheap energy sources, and hard currency revenues. As a result, living standards declined significantly in the 1990s. Bulgaria has become a poor European country and, like most its neighbors and near-neighbors, except Poland and Slovenia, it is a long way from improving on its 1989 real level of output. The Yugoslav wars interrupted both road and river (the Danube) trade routes to Western Europe and hurt the economy, but the Stability Pact, a regional initiative for economic development, democratization, and security devised in the late 1990s and backed by the United States and the EU, should facilitate future recovery.

Despite these many problems, Bulgaria earned a reputation for economic and political stability during the 1990s. The government followed a slow but sure path towards a market economy and expanded its commercial ties with Western Europe and the United States. The European Union (EU) currently accounts for 52 percent of its exports and nearly half of its imports, and the United States is among the top foreign investors. Bulgaria aspires to join the North Atlantic Treaty Organization (NATO) in the first decade of the 21st century and is on course to join the EU.

In 1997, the government imposed tight monetary policies and strict financial discipline, stabilizing the banking system and cutting government spending. Triple-digit inflation gave way to moderate price increases, but growth and foreign investment have remained low. Ongoing market reforms include privatization or liquida tion of state-owned enterprises and liberalization of agriculture and the creation of a land market. Privatization is seen as the only efficient way to restructure the economy, create jobs, and introduce new technology. It is also crucial for attracting foreign investment, stopping the slide in output, increasing exports, and generating cash for current needs. But the government has been criticized for relying heavily on controversial management-employee buyouts for smaller enterprises. New social policy measures include reforming social insurance and addressing the issues of crime and corruption.

The external debt —estimated at over $10.4 billion in 2000 and accumulated as a result of foreign trade deficits throughout the 1980s—is considered high but not unduly so. Although the balance of payments situation had stabilized by 2000, the debt has caused a negative long-term impact on economic growth and living standards. Another problem arises from the depreciation of the euro (the common currency of the EU), since most revenue is measured in euros while the debt is calculated mostly in dollars. There are attempts to encourage debt-for- equity swaps (transforming bank debt into foreign direct investment ) which, along with the expected growth over the next few years, might alleviate the debt burden.