Module 1 - Bulgaria: Adjustment Lending in a Transitional Economy

Bulgaria has a diversified agriculture, with fertile soils and favorable climatic conditions. By the end of the communist period in 1989, 90 percent of the land was in large cooperatives or agroindustrial complexes averaging 24,000 hectares. Input use was intensive and livestock production was highly subsidized. 

 

After 1990, priority was given to dismantling large production complexes and to distributing land and nonland assets, including livestock, to former owners. Most input prices were decontrolled. However, new owners often were ill-equipped to manage their new assets, and price controls (together with export controls and taxes) were maintained on outputs to keep food prices low for the urban population. This practice led to large illegal exports and shortages, especially in grains. There was great instability in the trade regime, and import tariffs for fertilizer, a key input, were high. Fertilizer use declined by 75 percent. In 1997, agricultural production was only 45 percent of the 1989 level. State intervention in cereal marketing and credit continued. By the mid-1990s, both macroeconomic imbalances and lack of structural reform caused a financial crisis.

 

A new government was elected in 1997 with a strong commitment to market reform. The government eliminated export bans and controls on agriculture and food profit margins, eliminated most import quotas and duties on cereals, liberalized markets, and abolished subsidized agricultural credit.

 

Project Objectives and Description

The ASALs I and II sought to promote efficiency in agriculture, help generate rural employment, improve living standards, and provide more consumer choices by:

• Developing an active land market.
  
  
• Developing a grain market by privatizing the grain marketing agency and limiting the operations of State Grain Reserves.
  
  
• Privatizing agroindustrial and processing firms, including grain mills, seed, and food industries.
  
  
• Privatizing irrigation systems by decentralizing operations management and maintenance to water user associations.
  
  
• Improving agricultural financing to rural areas by private providers.
  
  
• Liberalizing trade, improving market regulations, and increasing competitiveness of tradable commodities.
  
  
• Improving forest legislation and increasing community-based participation in forest management.
  
  
• Supporting Bulgaria’s accession to the EU.