The bankruptcies of the communist economy

Even today, the thesis continues to exist that Bulgaria's economy flourished in the period 1945-1990. And even that Todor Zhivkov's rule was positive, as a recent study indicates. In this article, we will examine some statistical, historical, and economic sources to see if this is the case.

The bankruptcy in 1960

Regarding the first bankruptcy of the communist government, it is worth quoting at length the investigative journalist Hristo Hristov, author of the website desebg.com.1 There we read:

"The economic situation in communist Bulgaria in the late 1950s was so bad that the country was brought to bankruptcy. Due to the systematic failure to implement annual plans and incompetent management, Zhivkov brought the country to insolvency. In 1960, the country's foreign debt reached an unbearable amount of almost 3 billion leva for that time. The government fell into a state that did not allow it to repay the loans received from the USSR, the largest creditor of the communist government at that time.

The issue of indebtedness to Soviet banks based in Paris and London, as well as to the State Bank in Moscow, became urgent. In April 1960, in a strictly confidential report, the Chairman of the Bulgarian National Bank, Kiril Nestorov, warned the top party leadership:

“The country’s liabilities in capitalist currency, from $115 million at the beginning of the year, reached $134 million at the end of March. Eurobank, Paris, and the Moscow People’s Bank, London, have informed us that they are unable to grant us new trade credits until we reduce the amount of those used so far. Any non-payment could expose the two friendly banks, as well as the State Bank of the USSR, to risk.”

The BNB also proposes ... measures, expressed in cuts and savings of foreign exchange. However, the bank concludes that even "they are not able to completely resolve the issue of our payments with capitalist countries this year."

In the archives ... about the economic catastrophe, a draft of a letter to the First Secretary of the Central Committee of the CPSU and Chairman of the Council of Ministers of the USSR Nikita Khrushchev from Zhivkov and Yugov has been preserved. It states: [a]:

"At the end of 1959, the total amount of our liabilities reached $115 million. Due to the lack of foreign exchange reserves, our liabilities at the end of the first quarter of 1960 reached $129 million, of which $44 million was due in the second quarter and $35 million in the third quarter of 1960."

The obligations are as follows:

Thus, as a result of the financial collapse of the People's Republic of Bulgaria, in 1960 the country's gold reserve, amounting to 24 tons, was exported and then sold. The amount that the People's Republic of Bulgaria received in exchange for its gold was $22,738,255. Not a cent of the transaction went to the treasury. Moreover: "The deal with the gold reserve saved Zhivkov, who understood that without the benefits of Soviet economic assistance he would not be able to govern and remain in power. This largely motivated his proposal in 1963 for the People's Republic of Bulgaria to "merge" with the USSR.

The semi-bankruptcy in 1977

We will again refer to desebg.com for the second, again little-known, bankruptcy of communism: "In 1977, when as a result of throwing huge funds into the development of heavy engineering and the rise in international oil prices, the People's Republic of Bulgaria again fell into a debt crisis with over 6 billion dollars in debts, including to Western banks.

The situation was saved thanks to the benevolent attitude of the then Soviet leader Leonid Brezhnev, who provided financial assistance to Zhivkov's government, but at the same time warned him that financial debts would sooner or later become a political problem."

We must make the important clarification that economically speaking, the country is in technical bankruptcy, which did not occur de facto by chance.

Photo 1: A report showing the failure to fulfill the foreign exchange revenue plan and the higher expenses with which Zhivkov maintains the illusion of the good life under socialism

Source: State Security.com

The bankruptcy of 1987-90

For the most recent bankruptcy of the economy by the Bulgarian Communist Party, we will quote Krasen Stanchev: "Bulgaria's bankruptcy of March 1990 was more severe also due to the collapse of the Council for Mutual Economic Assistance (CMEA) and the loss of a market for the "great Bulgarian industries." Comparing it to the Greek bankruptcy of the last few years, he continues: "Both the Greek and Bulgarian (1990) bankruptcies are before private creditors and are the same as a share of the gross domestic product (GDP). The other similarities are simply striking:

As a result of the bankruptcy in the late 1980s, "[t]he decline in GDP in 1990 was 9.1%, in 1991 – 11.7%, in 1992 – 7.3%, in 1996 – 9.4% and in 1997 – 5.6%"

The debt itself was accumulated in the period from 1976-1978 to 1988. Between 1984 and 1989 alone, the gross external debt increased more than three times, from 2.9 to 10.7 billion US dollars. In 1987, "the chairman of the Bulgarian National Bank, Vasil Kolarov, personally reported to Zhivkov that the servicing of the NRB's indebtedness to Western banks exceeded 100 percent of the country's total foreign exchange earnings." Hristo Hristov writes: "In 1987, Zhivkov did not decide to destroy the "tower of illusions" of socialism and continued to accumulate new debts, which in 1989 were already - external debt over 11 billion dollars and 26 billion leva internal debt, including the total indebtedness of agriculture, electronics and the military-industrial complex."

Naturally, these debts could not be serviced and the NRB became insolvent. This led Lukanov to declare a moratorium on payments. At the same time, the debt escalated to $13.889 billion in 1993, and payments on it continue to this day.

Here we will quote Krasen Stanchev again: "A careful reading of Todor Zhivkov's rule and the problems it created reveals a systematic creation of a false economy. Any economy in which people think they are getting rich, but quickly turn out to be actually getting poorer, is false. The common denominator of these years of economic underdevelopment is the criminalization of business, the state, and the economic imagination of politicians and citizens. This way of thinking about the economy, based on the principle of "what and how to steal", still dominates economic policy and its explanations."

Conclusion

Even without talking about the complete collapse of all branches of the economy, social security, agriculture, mass crimes against humanity and abuses of the local population, the colossal destruction of nature, etc., our assessment of the rule of Todor Zhivkov and the Bulgarian Communist Party as a whole is highly negative. In conclusion, we can say that the centrally planned economy of Bulgaria during communism was not only not stable and growing, but even the opposite. It was somehow forced to survive, from bankruptcy to bankruptcy, with part of the debts being paid off to this day. The rule of the paternally called "Dad" was not beneficial, but a complete disaster that affects our well-being even 25 years later.