The problem of bad loans and enterprise indebtedness in Bulgaria

Conclusions The problem of bad enterprise and bank debts has developed into one of the most acute economic problems in PETs. The general delay in implementing comprehensive policy measures to combat this issue as well as mismanagement contributed to the snow-balling of bad loans. In the case of Bulgaria this led to a major financial crisis and the authorities had to undertake a large-scale rescue operation.The experience of the past three years or so indicates that there are no ideal definitive solutions to the bad-loan problem. All bad-loan management options discussed in the literature and experimented with in PETs have serious drawbacks and their inherent cost is usually quite high. So the bad-loan problem has turned into one of the many dilemmas that economic policy makers of the PETs have to face up to.The Bulgarian approach to the bad loans issue builds on ideas that have been debated in the literature and adds some new and original aspects. It is an attempt to link the process of cleaning up the bad loans to the recapitalization of commercial banks and to the process of privatizing SOEs. In this respect it can be regarded as an element of a broader policy aimed at speeding-up the process of economic transformation of the country. At the same time, the Bulgarian approach has a number of weak features that may have undesirable consequences.