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The Last Round of Zhivkov Reforms

By 1982 economists and the party leadership admitted that the NEM had not led to the anticipated upturn in overall productivity and efficiency. Even upwardly skewed official statistics indicated that aggregate economic growth had dropped to its lowest postwar level. Under the NEM, enterprises could still get approval from state pricing authorities for price increases with marginal or nonexistent quality improvement--an important factor in evaluating official figures.

The differences between the Western concept of gross national product (GNP--see Glossary) and NMP make performance comparisons problematic. However, a Western economist who calculated growth rates for the Bulgarian economy according to the conventional GNP standard used in market economies determined the official Bulgarian growth rates between 1961 and 1980. The calculated rate for 1981-2 was 2.9 percent.

The Bulgarian response to declining growth rates under NEM was to initiate a second set of NEM reforms. Measures in 1982 and 1983 concentrated almost exclusively on financial incentives and prices. Net income was identified as the major basis for judging plan fulfillment. The only other targets were tax payments, domestic and imported input limits, and minimum export levels. The emphasis on self-supporting net income was extended downward to the brigade and upward to the associations. Guarantees of a minimum wage were removed for workers and all levels of management. Ministers themselves now were subject to salary reductions if their industrial association failed to meet the streamlined list of targets. Ministry access to budgetary subsidies for new investment was drastically cut and limited to a fixed term. Most investment capital outside net income had to be procured from the BNB. The bank's increasingly independent guidelines included the authorization to hold regional competitions for investment funds. Interest rates remained low however, ranging between 2.5 and 8 percent.

All these reforms did little to invigorate economic growth. In the Eighth Five-Year Plan (1981-5), the NMP growth rate dropped to 3.7 percent, its lowest postwar level. Officially, industry grew at a rate of 7 percent and construction at 5.4 percent, but agriculture declined by 3.9 percent per year.

In 1985 Mikhail S. Gorbachev visited Bulgaria and reportedly pressured Zhivkov to make the country more competitive economically. This led to a Bulgarian version of the Soviet perestroika program (see Glossary). New Regulations on Economic Activity took effect in January 1987. These directives, intended to stimulate "socialist competition," allowed enterprises to retain a much greater share of their profits and also required them to compete for investment capital from newly formed commercial banks. In June 1987, in response to widespread dissatisfaction and confusion over the measures, a decree on collective and individual labor activities made it possible for state economic organizations to lease small trading and catering facilities to private individuals by offering contracts at public auctions. The auctions were an abject failure, however, because of high taxes, high rents, restricted access to capital, uncertain supplies, the short duration of the contracts, and legal insecurity. The idea was quietly abandoned.

Finally, in January 1989, the party issued Decree Number 56. This decree established "firms" as the primary unit of economic management. Theoretically, four types of firm could be created: joint-stock firms, firms with limited responsibility, firms with unlimited responsibility, and citizens' firms. The differences among the first three types of firms were small. But citizens' firms offered the potential of individual, collective, and associative ownership arrangements. In a fundamental departure from the socialist prohibition of private citizens hiring labor, as many as ten people could now be hired permanently, and an unlimited number could be hired on temporary contracts. A wave of reorganizations produced new, larger firms, depriving numerous enterprises of their self-management status. Nonetheless, hundreds of private and cooperative firms were authorized by Decree Number 56.

Other elements of the decree allowed firms to issue shares and bonds and pay dividends, with a number of restrictions. Other clauses sought to encourage foreign investment in the country. State-owned enterprises that were transformed into joint-stock firms now could have foreign shareholders. Although tax incentives and legal guarantees were provided for joint ventures, little foreign investment was stimulated. In 1989 and 1990, only 117 joint ventures were consummated, totaling US$10 million in Western capital. In all probability, low labor costs were not enough to attract foreign investment given remaining organizational disadvantages, poor infrastructure, low political credibility, the nonconvertability of the lev, and close economic ties to the Soviet Union.

This last round of reforms by the Zhivkov regime confused rather than improved economic performance. Statistics on growth for 1986-88 indicated a 5.5 percent annual rate, up from the 3.7 percent rate achieved during the previous five-year plan. However, these statistics were internally inconsistent and widely disputed in the press. Expert observers speculated that they were the minimum growth the regime could tolerate given the 6 percent target rate in the five-year plan.

Ultimately, the reforms failed to radically change the economic conditions in the country. Public discontent increased and finally, emboldened by revolutions throughout Eastern Europe, a popular revolt ousted Todor Zhivkov in November 1989. By early 1990, the first attempts were being made to establish a market-based economy.

Data as of June 1992

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