Monetary policy, macroeconomic adjustment and currency speculation under floating exchange rates: the case of Bulgaria

Abstract

This paper deals with the Bulgarian experience with exchange rate policy and the related macroeconomic adjustment in the transition period. It is argued that in the context of the Bulgarian macroeconomic environment, the exchange rate regime and the exchange rate policy (or the lack of such) did play a crucial role in determining the patterns of macroeconomic adjustment in this period. A simple general equilibrium model is suggested that provides some insights into the stylized performance of an economy under certain assumptions, similar to those characterizing the transitional state of the Bulgarian economy. Finally, some aspects of Bulgarian macroeconomic performance in recent years are analysed on the basis of the available empirical information and using the framework of the theoretical model. The paper concludes with the policy lessons of this experience. Copyright 1996 The European Bank for Reconstruction and Development.

Bulgaria's Integration Into The Pan-European Economy And Industrial Restructuring

“…; Developments in trade in goods andservices in 1992-2003 (in millions of current US dollars) ........................ Table 2: The collapse of output and dependence on "socialist trade "............................................................................ Table 3: Share of Bulgaria's exports of goods in total exports of regional groupings: CEEC-11, CEEC-3 andStability Pact economies in 1996-2004 (in percent andmillions of US dollars) .................................................................. Table 4: Total trade turnover, exports and imports: EU-15 andRest of World in 1992-2003 (in millions of US dollars andpercent) ........................................................................................................................................................... Table 5: Two statistical images of Bulgarian exports: total,Belarus and CIS together with Baltic States (in millions of US dollars and percent) .................................................................................................................. Table 6: Share of the EU-15 in Bulgaria's total exports andRomania's total exports in 1993-2003............................. Table 7: Direction and dynamics of Bulgaria's exports in 1996& 1999-2003. Table 8: Direction and dynamics of Bulgaria's imports in 1996Bulgaria's imports in & 1999Bulgaria's imports in -2003 (in millions of US dollars and percent) Table 9: Share of Bulgaria, CEEC-8 and SEE-5 in EU-15 external imports in 1993, 1996-97, 2000and 2003.. Table 10: Bulgaria's imports by end-use product categories: total pan-European partners and ROW in 1996--2003: "Technology content" of Bulgaria's manufactured imports from Pan-European area in 1996-2003 (in millions of US dollars andpercent) ......................................................................................…”

“…Table 8: Direction and dynamics of Bulgaria's imports in 1996Bulgaria's imports in & 1999Bulgaria's imports in -2003 (in millions of US dollars and percent) Table 9: Share of Bulgaria, CEEC-8 and SEE-5 in EU-15 external imports in 1993, 1996-97, 2000and 2003.. Table 10: Bulgaria's imports by end-use product categories: total pan-European partners and ROW in 1996--2003: "Technology content" of Bulgaria's manufactured imports from Pan-European area in 1996-2003 (in millions of US dollars andpercent) ....................................................................................................................... Table 12: Exports of end-use products in terms of their imports in 1996-2003(in percent)........................................... Table 13: EU-oriented exports by end-use product categories in 1996-2003: Share of the EU-15 andpan-European partners in Bulgaria's exports in 1996-2003 (in percent) ................ Table 15: EU-oriented exports of manufactures by the type of technology involved in their production in 1996-2003 (in percent) .................................................................................................................................................................. Table 16: Top twenty four-digit SITC exporters to the EU in 2003EU in and their rankings in 1996EU in , 1999EU in and 2002 Table 18: Ten four-digit SITC sectors with the highest growth in exports in 2000-03.................................................... Table 19: Top four export performers in electro-engineering products in EU markets in 1996-2003.. Table 20: Bulgaria's endowments in comparative perspective: The differences between Bulgaria's exports and other CEEC-and SEE-economies in terms of factor intensities in 1996…”

“…In 1999, when the GDP registered healthy growth after two years of contraction, total trade-due to the decline in the value of exports-contracted in terms of their share in the GDP. Table 1; Developments in trade in goods and services in 1992-2003(in millions of current US dollars) 199119921993199419951996199920012003 of which: services 400 1,070 1,172 1,257 1,771 1,919 2,202 1,788 1,788 2,175 2,426 2,594 3,115 Imports of goods (fob) and services 4,255 5,334 5,841 5,198 6,636 6,152 5,845 5,989 6,562 7,670 8,575 9,287 12,151 Yet, in retrospect, the contraction in exports of goods in 1999, triggered by long delayed industrial restructuring, set the stage for a strong recovery phase that began a year later. An indication of restructuring was the growth in imports of machinery.…”

“…Bulgaria has succeeded, however, to expand at the same pace as other countries of the Balkan Stability Pact (see notes to Table 3). CEEC-11, CEEC-3 and Stability Pact economies in 1996(in percent and millions of US dollars) Index, 1999Index, 2003199619971999200120022003 In all, the grand failure of not staying the reform course following the introduction of the stabilization-cum-transformation program in 1991 seems to explain why Bulgaria's export performance in the 1990s is reminiscent of developments in CIS economies rather than of CEEC-10 economies including Romania. Economic mismanagement of transition until the 1996 crisis has exacted a huge toll on the Bulgarian economy.…”

“…While Romanian exporters moved quickly to EU markets, this did not happen in Bulgaria until 1998 (Table 6). Romania's total exports in 1993-2003199319941995199619971999200120022003 Yet, had it not been for exports to the EU, the overall picture would have been bleaker, albeit exclusively during the 1997-99 crisis and the recovery phase that began in 2000. The fall in non-EU directed exports in 1997-99 was spectacular.…”