17
R i s e , F a l l a nd D i s i n t e g r at i on…
Stock breeding had great difficulties, too. All of this resulted in skyrocketing prices for
food in the country. The prices of milk and yoghurt increased five times; meat, cheese,
sugar, rice, and flour-based products followed suit. Bread beat all records by increasing
sevenfold. Fuel and heating also went up fivefold. Living standards fell by three fourths as
the attempt to go back to the “good old days” collapsed like a deck of cards, bringing the
country down with it.
The situation was not better for foreign investment. In 1996 Bulgaria ranked last among the
post-Communist countries in Eastern and Central Europe in foreign investments. The gov-
ernment had deliberately created an investment-hostile climate. Foreign individuals were
banned from owning land and, what was worse, BSP leaders openly expressed their hostility
towards selling “our precious soil to greedy foreigners.” This bleak future reduced the num-
ber of serious “green-field” investors who were so badly needed at that time. The Socialists
thought that in this way they could force investors to buy existing enterprises, but these were
inefficient and unattractive. There were changes in the investment legislation that specifical-
ly precluded expatriate Bulgarians from investing in the country. The ex-Communist party
had always disliked, for political reasons, Bulgarians who left the country and tried to harm
them economically. The immense bureaucracy the country inherited from Communism
had neither the expertise nor the incentive to develop a pro-investment policy. Several mul-
tinational companies, among them the Rover Group, had to pull their production facilities
out of the country. Negotiations with Russia’s gas giant Gazprom for the construction of oil
pipelines were stalled. This was an unpleasant surprise, since the government had believed
that the Russians would make some compromises in the name of the old political friendship
with fellow ex-Communists. Bulgaria was rapidly deteriorating from a promising develop-
ing market to a barren desert starved for foreign investment.
Nothing, however, compared with the disastrous collapse of the banking system and its
consequences. An enormous devaluation of the Bulgarian national currency (the
lev
) be-
gan almost at the same time as a crisis in the banking system began to develop. According
to economic commentators, political analysts and leaders of the opposition, most of the
“bad credit,” streaming out of state banks went directly into the coffers of the Socialists and
financed their election campaigns in 1994 and 1995.
By the spring of 1996, it was clear the banking system was tottering. Also, the government
failed to isolate the biggest loss-makers in the economy from additional credit. The budget col-
lapsed and had to be redrafted twice before the end of the year. No serious privatization deal
was agreed upon. Banks went down one after another, as the population engaged in several
mass runs on the
lev
, and the currency collapsed against the dollar by about nine tenths of its
value. Fifteen banks were ultimately put under special supervision. Millions of depositors and
hundreds of enterprises lost the right to operate with their own assets. Bulgarians went through
the bitter experience of hyperinflation, a phenomenon that was until then quite alien to the na-
tion. The overwhelming majority of the population was unable to take any kind of precaution-
ary measures, relying on a blind faith that sooner or later “the state will fix things.” The panic
and shock that followed were unprecedented in Bulgarian history.
Following months of public apathy – and as a result of the profound shock of seeing stan-
dards of living drop so dramatically – the nation took to the streets demanding elections
and rapid economic reform. On 3 January 1997, the first mass gathering took place in Sofia,
