I t is important t o stress a t the very beginning that due t o the critical level of industrial de- velopment and a number of other reasons Bulgaria often used external credits in its past and this is not the first time it bears the burden of these debts. I t would be enough t o point out the great difficulties from the debts accumulated in the period after the liberation from Turkish domination until the global economic crisis 1929-1933 when, together with a number of other European countries, it became bankrupt
.
T h e Bulgarian economy was quite shattered and very backward immediately after the Sec- ond World War. In order t o restart its economic development and t o restructure the national economy, Bulgaria had to attract additional financial resources from other countries. Being un- able t o receive considerable external credits from the West in the first postwar decades, Bulgaria directed its efforts in obtainiilg credits from the USSR and some East European countries, and in this way they played a positive ]-ole in our ecoilomic development a t that stage. T h e credits were given a t favorable terms and were used al~llost esclusively for investment purposes. They were not sufficient, however, and some of the projects created with their assistance were not on a good technological level. The result of this was that in spite of the accelerated development of the p r o d u c t i o ~ ~ forces, ecoilonlic efficieilcy was coilsiderably lo~v. R'ith full employment of
the whole labor force, the raising of the standard of living went quite slowly, especially in the last two decades. In spite of this., the credits (v:hich were repaid) helped in the creation of considerable production facilities.
Only as late as the 1960s and especially in the 1970s did some opportunities t o use credits from Western countries emerge, though they were not always offered a t favorable conditions (this refers particularly t o the very short, repayment periods). Bulgaria began t o receive loans from its Western partners, but unfortunately did not work out a clear and scientific concept for the policy t o be applied in order t o use them efficiently. Loans could be received without a requirement for a maximum efficiency in the investment of the money for building up modern production facilities which match the global standards in the key sectors. Nor was there any consistent structural policy for economic development.
As a result of these circumstances, the loans obtained were used mainly t o cover the short- ages and the imbalances in the economy created by the centralized administrative system and the unbalanced, in some cases voluntaristic planning. In spite of the large, for the scale of the country, foreign debt, the latter did not create highly efficient and globally competitive produc- tion in any of the branches. A significant portion of the loans was used for the construction of prestigious, but not efficient production facilities like the plants for heavy machine building, metallurgy and other large plants. Another part of the loans was used for the import of goods needed t o fill the gaps that appeared as a result of the imbalances, the poor planning and the incompetent centralized management of the national economy. Even in the last couple of years Bulgaria became a regular importer of agricultural products, mainly cereals and fodder. Other goods are also imported which could be produced locally if the economy was better structured and the producers were properly stimulated. Unfortunately, it can be concluded, t h a t a part of the resources obtained through loans from other countries were invested in the building-up and equipment of projects which were designed t o serve the needs of a limited number of people.
Though their amount is not very big, this was lavishness that we should not have afforded.
According t o official data, more than 80% of tlie external loan:, were not used for the creation of production facilities, but for personal and productive consumption. Two thirds of them were directed t o productive consun~ption-import of raw materials, auxiliary materials and spare parts. The personal consumption includes the import of consumer goods, fodder, herbicides, raw materials and intermediate products for the production of consumer goods.
Only about 20% of the loans were used for importing equipment and machinery for pro- duction innovation. This amount includes also the 600 million dollars for the financing of our participation in the building up of the "Yamburg-\Vestern USSR border" gas-pipeline which guaranteed the delivery of considerable quantities of gas until the year 2010.
As a result of the inconsistent credit policy, the esternal loans did not contribute t o the creation of modern production facilities which could help the satisfaction of the domestic demand and the increase of esports. This would have increased the hard currency revenues and would have assisted the repayment of the loans and even the formation of small hard currency reserves.
T h e loans were only used for temporarily overcoming the accumulating effect of the negative economic factors and phenomena, but not for their elimination. Thus the negative factors in the economic life, though hidden temporarily, were accumulating all the time. Economic achievements and high rates were widely demonstrated. Statistics did not perform its role either. It used t o announce that unlike Poland, the USSR, and other countries, the Bulgarian economy was developing successfully. This was done t o show a false level of success by the totalitarian leadership and the administrative system.
This self-deception prevented us from drawing realistic conclusions of the real conditions of the country even in the 19SOs, when we could already learn from the lessons of Poland, Romania, Yugoslavia, and other countries in connection with their problems of external debt and the inefficient use of loans.
One of the theoretical justifications of the almost uncontrolled use of tlie external loans was the presence of inflation of the currencies in which the loans were received. There was an
understanding that it is profitable to receive credits which will be paid later with devaluated dolla.rs, DMs, pounds, etc. The theoretically sound principle that inflation is favorable for the debtors and unfavorable for the creditors was a.pplied to draw a wrong political conclusion. The policy of actively drawing loans was justified in this way, without giving sufficient attention to the effect from each particular loan.
Indeed the devaluation of the foreign currencies can be favorable for the debtors, but only if the loans are used efficiently and-what is very important-if a t the same time as the devaluation there is an increase in the prices of our exported products. At the present moment, however, the quickest changes take place in the prices of new products which embody technical progress, but we export very few of them. For that reason in the majority of cases, Bulgaria is not able to sell at high prices on foreign markets. The debts are paid with currencies received from the exports of goods a t prices which increase very slowly.and even remain unaltered for a long time.
In the case of imports the situation is reverse. Importing advanced machinery, equipment and technologies, Bulgaria has t o pay rising prices that grow even quicker than the inflation rate. when the economic conditions are deteriorating, make it still more difficult for Bulgaria to service its debts.
Because for a long time the external debt was kept secret, no full analyses have been published about the terms of our esternal loans-sources, utilization, interest, due times, structure, etc.
No information is availa.ble either rega.rding their efficiency. The official statement was that the external debt is about 10,4 billion dollars. It was also announced that the main part of the external debt was accumula.ted in the period 1985-1989.
According to information from some external sources and from our pl.ess during the last couple of months, Bulgaria's external debt in hard currency has increased since 1970 as shown in Table 1.
Obviously, the debt increa.sed considera.bl y in 1975-1979, then in 1980-84 it fell considerably, a.nd in 1985-89 it strongly increased again. The last sweep upwards is due to the attempts of the totalitarian regime to hide, with the assista~ice ofexter~ial loans, the acceleration with which Bulgaria was moving to a serious crisis. Tlie gross debt in 1981 was 2,l billion dollars and the net debt was only 700 niillio~i dollars, which wa.s not so bad. The debt was also rather normal in 1985. Only three and a half yea.rs later it grew by 7 billion and thus became an enormous burden to the economy. It might be enough to point out that in 1985-89 the hard currency expenditures of Bulgaria were 23 billion dollars and tlie revenues were only 15,7 billion dollars.
According t o international practice, the acceptable normal level of a foreign debt is when its servicing requires 20-25% of the current receipts of the country. The main source for hard currency for Bulgaria is the export t o the developed countries and to some of the developing countries. The exports to industrially developed countries was about 1 billion dollars annually (in the period 1986-89), with a declining tendency in recent years. The exports t o developing countries in the same period was around 1,5 billion dollars annually, and a part of it was delivered on credit or paid according to clearing, barter, and other bilateral agreements. In this situation the real annual receipts from exports in hard currency are no more than 2 billion dollars. Even if we accept the criterion for debt servicing with 25% of the hard currency receipts, Bulgaria has about 500 millioii dollars available ior this purpose.
Given the situation o i tlie internatioiial fiiialicial ma.rkets, it is possible to assume that the a.verage interest on the Bulgarian esternal debt is about ;-a% annually. This means that Bulgaria has to pa.y 700-800 million leva. interest each gear, whicli is about one-third of its total receipts in hard currency. According to our esti~nates, in the period 1970-1990 the total amount of the interest calculated 011 its foreign loans is allnost equal to the current debt.
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..- .-... . . .-.-Years Gross Debt ...-.- Net Debt
1970 0.7 0.6
1971 0.8 0.7
1972 1 .O 0.9
1973 1.1 1 .O
1974 1.8 1.4
1975 2.7 2.3
1976 3.3 2.9
1977 3.8 3.3
1978 4.4 3.8
1979 4.6 3.9
1980 3.6 2.9
1981 3.2 2.4
1982 2.8 1.9
1983 2.4 1.2
1983 2.1 0.7
1955 3.5 1.4
19S6 6.2 4.8
19S8 8.0 -
1989 10.0 -
1990 10.4 -
Source: ECE, 1987-88, N 7, p.3. (0. The data for 1989 and 1990 are from the Bul- garian press.)
Together with the interest, the country must also meet the coming maturities. If we accept the most optimistic version, namely that the average term of pa.yment for the loans is 5 years, then each yea.r we have t o meet maturities a.mounting t o about 2 billion dollars. This is an amount equal to the tot,al sum of the average annual receipts from exports of the country in hard currency. T h e amount paya.ble in 1990 a.s per March 31, 1990 (before payments were frozen) was 3,4 billion dollars and the amount payable in 1991 is 1,8 billion dollars. Analysis shows that the receipts in ha.rd currency, from exports and from other activities, are not sufficient for servicing the debt. These circumstances forced the government t o make a decision in April 1990 t o stop paymeilts on tlie principal of our external debts and t o concentrate efforts on the payment of the interest only. T h e Bulgarian Foreign Trade Bank stopped payments of maturities of all kinds of credits-short-term, import credits, credits for financing of investment projects, and also medium and long-term financial credits. This was a step which undoubtedly shook the reputation of the country as a reliable partner. Problems with imports, and severe difficulties in obtaining new external loans emerged.
T h e receivables of Bulgaria as per June 30, 1990 from credits given t o other countries ac- counted t o 2,2 billion dollars. These are credits t o some developing countries, among which Iraq ranks first. T h e major part of these amounts are not payable.
Bulgaria's main creditors are the FRG, Japan, Austria, the UK, and France.