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Price Reform and Pricing in the Transition to Market Economy, August 1994


As a result of factors, characteristic of centralized planned economy and particularly pronounced in Bulgaria due to the lack of a significant private sector as had been preserved in Poland, Hungary, GDR, and Czechoslovakia, the economic reform in Bulgaria began with a liberalization of prices and dismantling of the monopolistic structures in industry and the services. The shock liberalization of prices was the only way to a speedy overcoming of the huge disproportion between the supply and demand. It is our view that if the liberalization of prices had begun already in the first year of the reform - 1990, their rise might have been more moderate and would not have had such a strong negative impact on the standard of living of the population. Unfortunately, the liberalization of 40 per cent of the prices of goods and services included in the government's program was not introduced and that for purely political reasons, as the government of the ruling Communist Party was driven by populist considerations. In February 1991 the first government with the participation of ministers from outside the Communist Party undertook a liberalization of about 80 per cent of the prices of goods and services. Within a month following the liberalization of prices, inflation, measured through the consumer price index, reached 222.9 per cent. Only a group of 14 essential goods and services, among which fuels and electric power, as well as certain staple foods, remained under state control.

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