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The shipyards at Varna
Courtesy Sofia Press Agency
After 1960 Bulgaria's trade with the West increased, partly because Bulgaria needed Western machinery to supplement the outdated, overpriced manufacturing equipment supplied by Comecon. Between 1960 and 1975, the Western share of Bulgarian imports went from 13.6 percent to 23.6 percent. In the same period, however, exports dropped from 12.4 to 9.3 percent, creating an external debt problem with the West. Increased exports to Third World nations did little to help Bulgaria reduce this trade deficit because most Third World trade was not in convertible currencies.
Throughout the 1970s, Bulgarian trade balances alternated between solvency and high deficits. Although the trade deficit was eliminated in 1975, many short-term debts to West European banks remained. By 1976 Bulgarian debt was 13 percent of estimated GNP-- the highest ratio in Eastern Europe at the time. Bulgaria greatly diminished this debt by reexporting Soviet oil to Western buyers in the late 1970s.
From that point, Bulgaria maintained trade surpluses in hard currency until 1985, when emergency imports of grain and coal created a deficit of US$200 million. A series of poor harvests, high machinery imports in the investment push of the Ninth FiveYear Plan (1986-90), and sharply dropping oil prices deprived Bulgaria of hard currency and created a major new trade deficit. Libya and Iraq, the main Third World customers with which a surplus had been accumulated, also reduced their purchase of Bulgarian goods at this time.
The resulting trade deficits were financed by credits from Western banks. After the overthrow of Zhivkov, the government announced that the gross hard currency debt had reached US$10.6 billion by the end of 1989. Net indebtedness was somewhat lower at US$7.7 billion, but much of the hard currency export credits that Bulgaria granted were to Libya and Iraq, who were likely to default on many of their deals. Bulgaria had arranged for Iraq to repay these loans with oil, but in 1991 the trade embargo and ensuing Persian Gulf War negated that agreement. In March 1990, the incoming Bulgarian government announced unilateral suspension of principal payments on outstanding debt, and later interest payments were suspended as well. Western lines of credit immediately were frozen and Bulgarian hard currency holdings dropped to the minimal level of US$200 million in May 1990.
Bulgaria's main Western trading partners were the Federal Republic of Germany (West Germany) before German unification in 1990, Switzerland, and Italy. Exports to these countries were relatively minor, accounting for between 1 and 0.7 percent of total exports. Imports from West Germany were 4.9 percent of the total, while Switzerland accounted for 1.4 percent of imports, and Italy 1.1 percent. Trade with the developed, Western economies resembled trade between an undeveloped country and an industrialized one. Bulgaria imported mostly machinery from those countries and sold them raw and semifinished materials and agricultural products.
The most important Third World trading partners, Iraq and Libya, purchased 2.8 and 2.3 percent of Bulgarian exports, respectively. These exports consisted mainly of major construction projects and agricultural goods. The overthrow of the Zhivkov regime revived talk of establishing a Black Sea Trading Zone that also would include Turkey and Greece and perhaps Romania. In establishing its new trade policy in 1991, Bulgaria faced a choice of expanding its traditional commercial ties with Germany and Germany's partners in the EEC or cultivating new ties with closer markets such as Turkey. In 1991 Turkey offered to invest US$13 billion in Bulgaria's economy. An independent Union for Cooperation between Bulgaria and Turkey was founded to foster direct cooperation between enterprises of the two countries, and transportation links were solidified by ministerial agreements in 1991. Talks with the EEC early in 1991 yielded assurance of shortterm EEC financial support through the PHARE program (Economic Reconstruction Aid for Poland and Hungary) and closer future ties, assuming that Bulgaria continued to make progress in its political and economic reform programs.
Data as of June 1992