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Bulgaria: The New Economic Model
Country Study > Chapter 3 > The Economy > Economic Policy and Performance > The Era of Experimentation and Reform > The New Economic Model

THE NEW ECONOMIC MODEL


Initiated in 1981, the next program of reforms was designated the New Economic Madel (NEM). This program involved both agricultural complexes and industrial enterprises. Goals of the NEM included updating the technical infrastructure of Bulgarian industry and improving the quality of Bulgarian exports to raise hard-currency income. Centralized planning now was relegated to setting gross profits and overseeing the national scientific program. In 1978-79 and 1982-83, the NEM's principal instruments were financial incentives and accounting regulations aimed at all levels of management, but especially at the smallest unit of labor, the brigade. Brigades, each containing thirty to fifty workers, now would set labor and material input levels and dispose of finished products. In an effort to remedy the chronic distribution problems of the central economy, higher economic institutions became financially accountable for damage inflicted by their decisions on subordinate levels.

Several important initiatives were launched in 1978. The longstanding limits on enterprise investment were lifted. In their place, a new investment plan was based on the enterprises' contractual obligations and credits with the BNB. The bank monitored the cash balance of enterprise contracts with customers and suppliers, granting credits only when required. Three separate reinvestment funds received first claim on the net income of the enterprise. Although budgetary subsidies were not eliminated, the NEM directives assigned responsibility for financial losses to all levels of enterprises. Self-financing became the watchword for all economic organizations.

Another major change eliminated the automatic first claim of salaries and wages on gross enterprise income. This meant that wages could rise only after an increase in labor productivity, and then only by 50 percent of that increase. Moreover, management salaries could be cut by as much as 20 percent if the complex or enterprise failed to meet its norms for production and productivity. The formula for sanctions against management salaries changed several times. Finally, binding performance criteria were limited to five financial indicators for agricultural complexes and industrial associations, and to four for individual enterprises. Profit criteria were set only for the complexes or associations. Complexes or associations were given explicit freedom to sign their own contracts with suppliers and customers at home and abroad.

The BNB was granted some flexibility in restricting its terms of lending and in charging interest rates above the nominal 2 percent. These measures were designed to bestow greater rewards for efficiency and to reduce the number of unfinished or unprofitable new projects. The latter accounted for 57 percent of all Bulgarian investment as late as 1976. A provision for joint ventures with foreign firms met little enthusiasm from abroad.

Data as of June 1992




Last Updated: June 1992


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for Bulgaria was first published in 1992. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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