BULGARIA: THE BIEA AND ECONOMIC REFORM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000302970001-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: January 28, 2010
• Sequence Number: 1
• Publication Date: June 11, 1985
• Content Type: REPORT

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Ccnlral Inlclli~;cncc rl~cny
DIRECTORATE OF INTELLIGENCE
11 June 1985
Bulgaria: The BIEA and Economic Reform
Summary
Sofia's New Economic Mechanism, a modest
reform program launched in response to stagnating
economic growth in the late 1970s, proposes
measured decentralization of enterprise
decisionmaking to improve economic efficiency.
Although concrete measures fall short of Bulgarian
rhetoric about reform, one significant step was
the creation in 1980 of the Bulgarian Industrial
Economic Association (BIEA) . The influence of the
BIEA's young, technocratic reformers apparently is
on the rise, despite footdragging by the sluggish
This memorandum was prepared by East European Division,
Offioe of Euro an Anal sis. cmments and questions are welcome and should be
addressed to Chief, East European Division, Office of
European Analysis,
State Dept. review completed
EURM85-10106
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Background to Reforms
Bulgaria enjoyed sol id economic growth in the late 1960s and
early 1970s, fueled by large increases in imports from the USSR
and the West and by the migration of workers from agriculture to
more productive jobs in industry. GNP grew at an average annual
rate of 4.7 percent in 1966-1970 and 4.5 percent in 1971-1975.
By the late 1970s, however, the sources of growth were
dwindling. The USSR began to slow increases in energy and raw
material deliveries. Financial pressures resulting from the
rapid buildup of debt to the West forced Sofia to limit imports
of Western capital goods and expand exports to generate hard
currency trade surpluses. Supply bottlenecks and a shortage of
skilled labor limited gains in output. With resource constraints
tightening, economic plans that emphasized quantitative output
targets over efficiency were increasingly inappropriate. Between
1976 and 1980, economic growth slowed to only 1.2 percent.
Emergence of the BIEA
The Zhiv kov regime responded with the New Economic Mechanism
(NEM), a program of gradual reforms beginning with agriculture in
1979 and extending into industry in 1982. At the heart of the
NEM (which the Bulgarians insist is uniquely Bulgarian, not a
copy of other East European reform programs) is the intention to
improve efficiency, productivity, and quality by giving more
authority to enterprise managers and by making the economy more
responsive to changing factor costs and domestic and
international market demand. The main elements of the NEM
include:
significant reduction of compulsory plan indexes,
leaving only broad indexes that are essential to "insure
national balances";
greater responsiveness to market forces through reduced
emphasis on quantitative production goals and the use of
prof stability as the primary performance indicator;
gradual reduction of state budget subsidies to
unprofitable enterprises;
greater managerial autonomy over enterprise decision-
making, including the distribution of prof its and
investment;
expanded use of contracts to regulate relations between
suppliers and buyers;
tying managerial and worker wages directly to enterprise
profitability as an incentive to improve productivity
and qual sty;
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These measures apparently have not been implemented on a
large scale, and the Bulgarian economy remains in most respects a
conventional centrally planned system. The means of production
remain under state ownership, and planners control most economic
activity through allocation of so-called deficit materials--
energy, raw materials, and capital. Probably the NEM's most
significant development was the establishment of the BIEA to
improve Bulgaria's foreign trade practices and to promote the
small enterprise program in industry.
The BIEA is officially described as a "voluntary
association" of manufacturing, trade, and engineering
enterprises; scientific institutes; research and development
centers; technical colleges; and banks. It apparently draws
talent from all these groups into one coordinating body with
authority to cut across traditional bureaucratic lines. The
organization is divided into four permanent offices that set and
implement policy: economic analysis, ind ustrial development,
organization and management studies, and international affairs.
According to the US Embassy in Sofia, BIER member organizations
account for about 75 percent of Bulgaria's industrial output.
Members apparently pay dues to support BIEA activities but
otherwise remain subordinate to their respective ministries.
The BIEA's mandate is to improve efficiency and business
performance largely by eliminating red tape. In the past, for
example, foreign businessmen and Bulgarian buyers were not
permitted to negotiate with one another. Government foreign
trade organizations acted as middlemen, which both frustrated the
foreigners and hindered Bulgarian industry's adjustment to
outside markets. The BIEA, by contrast, promotes direct contacts
with foreign businessmen. The association has established links
with financial consultants in London and New York and now advises
its members in joint venture negotiations under Bulgaria's
relatively liberal joint venture laws. In addition, the BIEA is
currently working to secure Japanese participation in the
d
evelopment of a quality control center.
The first chairman of the BIEA, Party Secretary and
Politburo member Ognyan Doynov, 49, is widely viewed as a key
proponent of economic reform and of increased reliance on Western
technology as a means of improving economic performance. Doynov
was appointed Minister of Machine Building and Electronics in
January 1984, suggesting that he and other architects of the NEM
were moved into positions of direct control over economic
activity. Following his appointment to the cabinet, Doynov
became honorary chairman of the BIEA, thereby maintaining his
i
fl
n
uence over the association's activities.
Aid to Small Businesses
The 1985 economic plan calls for the BIEA to oversee the
allocation of 5 percent of total investment to small, consumer-
oriented firms. According to one BIEA official, there are nearly
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200 small enterprises (50 employees or less) operating mainly in
food processing and light industry. BIEA officials are seeking
Western cooperation in the project, mainly through licensing
agreements. During the 1984 Plovdiv Industrial Fair, the BIER
sponsored a symposium on the small enterprise project and
emphasized that Western equipment, managerial skills, and
Sof is touts the small state-controlled enterprises as the
hope for overcoming systemic rigidity, and they probably are
being used to experiment with economic reform. A major goal of
the program is to improve responsiveness to consumer demand and
to strengthen links between producers and the domestic market.
The program ostensibly offers managers and workers greater
authori ty in decisions on investment, innovation, and disposition
of profits--though to what degree is uncertain. Sofia apparently
hopes that reduced bureaucratic control will attract top quality
workers and foster technological and managerial innovation. It
probably calculates that increased availability of consumer
goods, coupled with a new system of wage incentives and bonuses,
will eventually help alleviate the apathy and low productivity
that plague find ustry. In its infancy, however, the small
enterprise progr am has not signi f icantly improved 1 fight
'
industry
s performance.
The small enterprise program, under the stewardship of the
BIER, is one of the most significant examples of economic reform
outside agriculture. In its current form, however, the program
falls short of Hungary's thriving "second economy" both in terms
of liberalization and economic impact. Several factors limit the
efficiency and innovation the program is supposed to foster:
-- In Bulgaria, the means of production in the small
enterprises remain socialized property, whereas
Hungarian entrepreneurs are allowed limited private
ownership.
Bulgaria's small enterprises are created to fill market
gaps, especially in the consumer sector; they do not
compete directly with larger state and cooperative
enterprises.
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-- In Bulgaria, financing of the small firms is state
controlled, unlike Hungary where an individual can get
bank financing for capital investment.
-- Only about 200 small enterprises are in operation in
Bulgaria, compared to more than 30,000 in Hungary. 0 25X1
Sofia may gradually experiment with more liberal measures if
the initial experience with small enterprises proves
successful. For the indefinite future, however, Bulgaria's small
enterprises will have a less significant impact on economic
performance and living standards than the Hungarian program. ~~ 25X1
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Technocrats Generate Controversy
The BIER has developed into the Bulgarian version of a think
tank whose innovative ideas have evoked criticism from orthodox
members of the leadership. The BIER staff of young technocrats
generally advocates decentralization and a restructuring of
industry toward such technology-intensive branches as robotics,
biotechnology, and computers. One BIEA official went so far as
to say that Bulgaria was not only backward but was producing the
wrong goods. Stressing the need to abandon raw material and
energy-intensive industries, he stated, "we should move into
computers....Software is where the money is."
ice for the release of more comprehensive economic data,
arguing that a more accurate picture of the economy is required
promotions, exhibitions, and fairs.
BIEA is "battling" with t e Central Statistical
The BIEA's foreign activity has strained its relations with
the traditional foreign trade organizations, the Ministry of
Foreign Trade (MFT) and the Bulgarian Chamber of Commerce and
Industry (BCCI). According to the US Embassy, an MFT official
admitted that there is much rivalry between the BIEA and the
MFT. The BIEA arouses BCCI ire by encroaching in trade
BIEA Chairman Doynov has complained that many managers are
implementing only those reforms they consider beneficial. In
response, the BIER is attempting to serve as a consultant to
enterprise managers, conducting management seminars on NEM
objectives and on problem solving. The US Embassy reports that
the BIER has discussed with Western academic groups holding
seminars on management, econometric modeling and forecasting, and
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Progress and Pros ects
BIEA efforts to improve Bulgaria's foreign trade practices
appear to be making headway but they have a long way to go.
ra a is comp icate y pressures for countertrade, protracted
negotiations, licensing procedures, and financing problems.
P4oreover, qual ity def iciencies continue to plague Bulgarian
Progress on economic reform also has been slow. Change to
date has consisted mainly of cautious decentralization of
enterprise management and some efforts to reduce bureaucratic
interference. Although the NEM targets the reduction of
government subs idies and the introduct ion of monetary incentives
for workers, it has not yet attempted to deal with major issues
like price reform, wage differentiation, bankruptcy, and bank
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Despite slow progress so far--Zhivkov privately concedes the
gap between reform rhetoric and reality--Bulgarian leaders stress
that they will not abandon the NEM. Regime attitudes toward the
small enterprise program will be an important barometer of its
commitment to real economic reform. The entrepreneural behavior
promoted by the program could contribute significantly to the
decentralization of enterprise management and to the reduction of
bureaucratic interference.
The Gorbachev succession, moreover, may encourage more
extensive Bulgarian reforms. Mixed signals from Moscow since the
early 1980s have undoubtedly contributed to Bulgaria's timidity
in pursuing needed reform. According to one senior BIEA
official, Gorbachev's ascension is a positive step, even though
anticipated reforms in the CEMA trading system might initially be
to Bulgaria's disadvantage. Most Bulgarian leaders appear to see
Gorbachev as an economic reformer sympathetic to their desires
for greater efficiency.
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Bulgaria: The BIEA and Economic Reform
DISTRIBUTION
1 - Roland Kuchel, Deputy Director, Bureau of East European
and Yugoslav Affairs, Department of State. Room 5220
2 - D/EURA
3 - C/EURA/EE
4 - NIO/Europe
5 - ANIO/Europe
6 - C/EURA/EE/SE
7 - DD I
8 - DDI Registry
9 - IMC/CB
10 - IMC/CB
11 - IMC/CB
12 - IMC /CB
13 - EUR/PS
14 -EUR/PS (sourced copy)
EURA/E
EU
18 - EURA EE/SE
E/CE
A/EE/NE
DDI/EURA/EE/SE (11 June 8 5)
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