Bulgarian Foreign Debt 1944 - 1989
Books and Collections
The Bankruptcy of the Communist Economy
Authors: Daniel Vachkov, Martin Ivanov
Published by the Institute for Studies of the Recent Past, Open Society Institute and Ciela Publishers
This book is result of the extensive research of Daniel Vachkov and Martin Ivanov conducted as part of the Communism Research Project.
- Introduction (Daniel Vatchkov)
- Chapter 1. Settlement of War Debts and the Default of 1948 (Daniel Vatchkov)
- Chapter 2. Bulgarian Debt at the Time of Stalinist Industrialisation 1947–1953 (Daniel Vatchkov)
- Chapter 3. Zhivkov Coming to Power 1953–1956 (Daniel Vatchkov)
- Chapter 4. The First Debt Crisis 1956–1964 (Daniel Vatchkov)
- Chapter 5. Bulgarian Debt and the Changes in the Socialist Community 1964–1973 (Daniel Vatchkov)
- Chapter 6. The Second Debt Crisis 1973–1977 (Daniel Vatchkov)
- Chapter 7. Surmounting the Debt Crisis and Temporary Balance-of-Payment’s Improvement 1978–1984 (Daniel Vatchkov and Martin Ivanov)
- Chapter 8. The Terminal Debt Crisis 1984–1990 (Martin Ivanov)
- Conclusion (Daniel Vatchkov)
Bulgaria was destined to fall under communist rule after the end of the WW-II. Imposed Stalinist model led to sharp curtail of the economic and financial contacts with the free world behind the Iron Curtain. Despite the signed in 1948 agreement with its prewar creditors Bulgaria was fast in openly defaulting on its foreign debt. It was not before the death of Stalin when it timidly began to normalize its relations with the West. In 1950s and 1960s the several agreements was signed with France, Switzerland, the Netherlands, Austria and Greece liquidating Bulgarian debt to their nationals by considerable discount the amount due. In most case Sofia was to transfer only 5 to 7 % of the outstanding debt. The UK, the USA and Canada restrained from joining the scheme and their claims were liquidated after painstaking negotiations in 1980s. This turned to be a good strategy as far as British and American creditors managed to extract nearly 40 % payment.
The gradual normalization of political relations and the increased trade with the OECD countries soon resulted in mounting foreign debt. Ineffective and irrational Bulgarian communist economy was unable to finance the growing export from the West which led to chronically balance-of-payments deficit and a series of debt crisis. The first wave deluged the economy in early 1960s and created serious troubles for the communist regime. The crisis was overcome only when the Bulgaria sold its gold reserves. Less than a decade was enough to accumulate new economic problems which were aggravated by the Oil Crisis in 1973. This time debt problems were far more serious and Bulgaria appealed to Moscow to bailout Bulgarian economy. Brezhnev granted new credits to Sofia and introduced a scheme for subsiding Bulgarian agriculture and tourist industry. It was however the accelerated export of petrol with the permission to re-export it to the West which really helped the communist regime to avoid the default. After four relatively tranquil years in 1985 the foreign debt started growing again. Within two year it nearly doubled and continued to increase by nearly 1 b. USD per annum. This time the debt was far larger than in 1960s and the international reserves were far from enough to rescue the economy. They were seriously depleted in 1987 and 1988 without any practical result. Soviet assistance was also not coming either. Facing serious problems at home Gorbachev was less willing to transfer recourses for bailing out its best client. In contrast with Brezhnev he insisted on Bulgarian payment of its commercial debt which Sofia had to liquidate exactly when the recourses were desperately needed for continuing the debt payment to the Western banks. The ‘Soviet debt umbrella’ leaked and Bulgaria could not escape the default. In March 1990 Bulgarian government led by the former communist Lukanov ceased the debt payments without any warning. The default triggered a new spiral of economic disturbances which were not tackle before the introduction of the Currency Board in early 1998.