Bulgaria - Foreign Trade

New Trade Conditions, 1990

The end of central planning opened the Bulgarian economy to world competition and began a wrenching transition for which it was ill-equipped in finance, industrial diversity, agricultural infrastructure, and available natural resources. The transition was made doubly difficult because the long years of privileged access to energy had fostered inefficient energy use in the Bulgarian economy.

Under the new economic conditions, imports would be purchased only in hard currency; although Western firms and governments offered some credits and aid in 1991, Western investors preferred Poland, Hungary, and Czechoslovakia to Bulgaria. Those countries were more familiar to Westerners, and they had had relatively advanced market economies before World War II. For these reasons, in the early 1990s they received the lion's share of a rather meager Western investment in Eastern Europe.

Bulgaria in Comecon

The most important event in postwar Bulgarian international economic relations occurred in 1949 when it became a founding member of Comecon. Comecon was an attempt by the socialist economies to simplify the planning process by synchronizing the five-year plans of member countries and (more importantly), by achieving what Marxists called an international division of labor. Countries within Comecon would specialize in the products they made most efficiently and export the surplus. Products that a country could not produce efficiently would be available from one or more of its Comecon partners. This design was intended to eliminate some redundancies inherent in the Soviet economic model where each country produced goods of all categories. Although the concept achieved isolated successes such as Bulgarian forklift trucks, broad growth was blocked by the uniform socialist preoccupation with heavy industry and the lack of a single convertible currency. The currency issue in particular made intra-Comecon trade a cumbersome process requiring negotiation of annual bilateral trade agreements for all member nations.

In the 1980s, exports to the Soviet Union consisted primarily of machinery, electronic components, and agricultural goods. These included forklift trucks, electric engines, telephones, tobacco, fresh fruits and vegetables, and wine. Imports from the Soviet Union were mainly energy and raw materials, including oil, natural gas, iron ore, ferrous metals, and cotton. In 1988 Bulgaria still relied almost entirely on Soviet oil and natural gas. East Germany and Czechoslovakia were the next most important Comecon trading partners, accounting for 5.2 and 4.6 percent of exports, respectively, and 5.9 and 5.4 percent of imports, respectively. Exchanges of goods between Bulgaria and these countries emphasized both exports and imports of machinery and the export of agricultural products.

In the initial years of Bulgaria's Comecon membership, the country benefited from energy prices below world levels, especially for oil, in two ways. The cost of developing otherwise inefficient industries was lower, and reexport of crude and refined oil for hard currency bought Western technology to upgrade the industrial infrastructure. Comecon members paid for their imports through bilateral clearing agreements, with no exchange of hard currency. In the initial stages of Comecon, Bulgaria exported mainly food, the price of which was lower in Comecon than on the world market. Later, however, Bulgaria paid for imported Soviet raw materials largely with machinery that was priced higher than on the world market.

Beginning in 1974, Soviet energy exports were based on a floating five-year average of world prices that rarely matched market prices at a given time. Even when Comecon prices were above the world level, Bulgaria benefited from the lack of currency exchange in the Comecon system. But dependence on Comecon trade, especially Soviet energy exports, damaged Bulgaria tremendously when economic reform swept through the Soviet sphere in 1989 and 1990. Of Bulgarian exports, 62.5 percent still went to the Soviet Union in 1988, and 53.5 percent of imports came from that country. The new trade system established after reforms required trade accounts to be cleared in hard currency at current world prices as of January 1, 1991. (Bilateral protocols for this procedure had not been signed by that time, however; Bulgaria still owed Hungary 87 million transferable rubles in 1991.)

After the political reforms in Eastern Europe, the Soviet Union announced cutbacks in energy exports to Eastern Europe. This caused energy and raw materials shortages. In 1990 Bulgarian industry was forced to curtail production sharply; meanwhile, consumers endured severe shortages of gasoline as fuel prices doubled. A new set of export and import regulations adopted in mid-1991 removed import taxes from 200 types of raw materials and consumer goods in critically short supply. The same regulations set export price minimums to eliminate pricing below world market levels; export of crude oil, metals, grains, and textile raw materials was banned.

Postwar Trade Policy

The adoption of the Soviet economic model had direct and indirect impact on Bulgarian international trade after World War II. Among direct results was the decision to reduce dependency on prewar Western trade partners. This meant strong promotion of import substitution policies to bolster domestic production of goods previously imported. In 1960 Bulgaria's total foreign trade (exports plus imports) was 31 percent of NMP, quite low for a country with a small internal market and few natural resources. By the 1980s, however, this figure had risen to over 90 percent. Before World War II, Germany was well-established as Bulgaria's top trading partner. Postwar economic policy diverted trade from Central Europe to Eastern Europe, and primarily to the Soviet Union. The new domestic economic priorities dictated a revised foreign trade structure. The policy of promoting heavy industry, for example, required huge imports of machinery and raw materials. Beginning in the mid-1950s, imports of machinery accounted for approximately half the value of total imports, while fuels, metals, and minerals made up more than a quarter of this value. Lower postwar investment in agriculture eventually lessened the share of foodstuffs in total exports.

The state monopoly of foreign trade also changed the way decisions were reached on international allocation of goods. Trade decisions were reached administratively by planning authorities or negotiated with other members of Comecon. Overall control of foreign trade was shared among the Ministry of Foreign Trade, the Ministry of Finance, and the Bulgarian Foreign Trade Bank.

Import and export operations were conducted by foreign trade enterprises, most of which were affiliated with one or more associations but retained a legal identity outside the associations. Although reform measures by the Zhivkov regime gave associations some profit incentives in international trade, the producing enterprises themselves were completely isolated from the foreign customer. This meant that world quality standards had no influence on Bulgarian producers.

Trade with the West and the Third World

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.

Foreign trade

Membership in Comecon tied Bulgarian trade policy closely to the Soviet economic sphere following World War II. By 1991, however, trade policy was on the verge of significant diversification. With the trade protection of Comecon no longer available, Bulgaria aggressively sought new markets in the West while seeking to retain the most advantageous commercial relations with its former Comecon partners.

Bulgaria Trade Portal - government.bg
Foreign Trade | National statistical institute
Bulgaria - Department of Foreign Affairs and Trade
Foreign investment in Bulgaria - Santandertrade.com
Bulgaria - Law on Control of Foreign Trade - opcw.org