Academic journal article East European Quarterly

Privatization in Bulgaria

Academic journal article East European Quarterly

Privatization in Bulgaria

Article excerpt

Introduction

The change in the percent of GDP accounted for by the private sector in Bulgaria has increased about the same as that of Poland (from less that 5% in 1989 to just over 30% by late 1995, compared to the rise in Poland from about 30% to over 60% during the same period [National Statistical Institute 1995b)]. However, while Poland's private sector has been the primary contributing factor to the nation's rapid growth since 1994 the increased importance of Bulgaria's private sector has coincided with a prolonged recession. Compared to other Central and East European (CEE) nations, the performance of the Bulgarian economy since 1990 has been poor as indicated by negative rates of GDP growth, rising budget deficits as a percentage of GDP, hyper-inflation, high unemployment, and a country risk rating that is among the highest in the region. In addition, the pace and extent of systemic change has been modest at best, and the same also has been true in the area of privatization.

This paper will focus on the Bulgarian privatization experience. The first section will discuss the historical legacy and context of the privatization program that was introduced in 1992. The privatization law, goals, and methods will be presented in the next section, followed by an analysis of the progress of actual privatization of enterprises. The goals and methods of the 1995 privatization program are included in the fourth section, followed by a summary and conclusions.

Historical Background

The Bulgarian economy typified the orthodox Soviet model in theory and reality from the late 1940s until 1990. Of the 4.9% of GDP contributed by private sector as of 1989, nearly all came from agriculture, trade and services, especially tourism. All "New Economic Mechanism" reforms implemented in the 1980s, ostensibly for the purpose of establishing "market principles and competition," were introduced, in fact, to preserve and improve the Bulgarian "socialist" economy. There was no debate regarding private property or open discussion pertaining to changing substantively the economy's principal institutions or working rules. Unlike the debates in Hungary and the former Yugoslavia, there was no discussion of "market socialism" as the philosophical basis adhered to by Bulgarian authorities held to the belief that market socialism was a "betrayal" of orthodox theory and reality.

With the change in political regime November 10, 1989, political reform began as the General Secretary and President were removed from office through a coup from within. However, the first economic reforms were not implemented until February, 1991. Due to its large foreign debt, Bulgarian authorities began talks with IMF and World Bank officials during the second half of 1990. Rather than focusing on systemic transformation, the early transformation efforts emphasized achieving macroeconomic stabilization. IMF and World Bank officials helped to prepare the stabilization program with the Union of Democratic Forces government (elected in October, 1991) with Ivan Kostov, the Minister of Finance, who was the Bulgarian counterpart to the architect of Poland's "shock therapy" policies -- Leszek Balcerowicz.

When economic reforms were introduced in February, 1991 there was no clear idea about system transformation and privatization. Since Bulgaria was unprepared to implement a coherent transformation program, especially one that included privatization, emphasis was placed on ownership transformation through restitution. In 1991-1992 three restitution laws were passed to "regulate the restitution of confiscated factories, warehouses, apartment houses, buildings, shops, etc. if they exist in their former shape. However, such cases are said to be rare" [Frydman, Rapaczynski, Earle, et al. (1993)]. The intent was to facilitate the return of property socialized after the end of World War Two to the previous owners or their heirs. …

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