| The Vienna Institute for International Economic Studies - WIIW |
ABSTRACT
The paper analyses some of the factors that led to the transition crisis in Bulgaria in 1996. We show that the crisis was in fact a very complex phenomenon both in terms of its economic fundamentals and driving forces and in terms of its policy-related aspects.
As regards the historic foundations of the Bulgarian crisis, it is hypothesized that the fundamental imbalances that determined the persistent macroeconomic instability in Bulgaria during the first phase of transition were partly of the nature of a bubble inherited from the pre-transition period, implying deviations of current market prices from their long-term fundamental values.
As regards the economic interactions on the eve of and during the crisis, it is suggested that the Bulgarian crisis in essence was a 'triple-drain' crisis, featuring a combination of fiscal, banking and currency crises. The paper traces the chronology of events of each of these developments and attempts to assess the evolution and the escalation of the crisis in the framework of some theoretical models.
Finally the paper addresses the political economy of the Bulgarian crisis in the framework of some of the existing models of policy choice. It is shown that the policy choices which contributed to the crisis were restricted and partly determined by the nature of the needed reforms and the serious political constraints on the policy making process.
Keywords: transition failure, fiscal crisis, banking crisis, currency crisis, economic policy.
JEL classification: E65, O57, P52.