BULGARIA'S experience with economic transition has been one of repeated false starts. Bulgaria had eight governments between 1990 and 1999, and only three of these enjoyed majority support in the parliament. Every government announced its allegiance to some vision of economic reform, and most signed agreements with the IMF. Several managed to engineer at least a short-lived improvement in macroeconomic policy, but competing priorities and political instability soon undermined the commitment to tight budgets, and structural reform remained a mirage. None of the IMF-supported programs was successfully implemented during the first six years of the transition. However, in 1997 Bulgaria executed a dramatic about-face. Economic mismanagement had led to a run on the currency, rampant inflation, and the collapse of the banking sector. Popular unrest compelled the government to step down and call new elections, which returned a solid right-wing majority to the parliament. The new government implemented a currency board, supported by the Fund, and rapidly restored confidence in the Bulgarian economy. Corruption continues to be ubiquitous, but Bulgaria has become a showcase of successful exchange rate-based stabilization.
The case of Bulgaria shows several important commonalities with the other cases in this study that support features of the model, and one significant difference from Russia and Ukraine that underlines the importance of the variable sizes of states. First, as in the other countries in this study, Bulgarian governments clearly faced variable levels of temptation to defect from IMF agreements. During their initial months in office, new governments were generally willing to accept and implement painful adjustment measures, but, as time went on, they became less willing to pay the political costs of adjustment. Second, international capital markets played a key role in leveraging the influence of the IMF. At several key turning points—March 1994, April 1995, and December 1996—sharp capital movements and dramatic increases of the exchange rate pushed governments to accept IMF conditions they had previously rejected as unacceptable. Third, the Bulgarian case supports the model's expectation that the size and strategic importance of the recipient