After the so-called grain crisis broke out in 1995, in 1996 the lev began its dramatic devaluation and inflation soared. As the economy took a plunge, on 23 September 1996, the Bulgarian National Bank declared it was placing nine commercial banks under receivership. “It should be borne in mind that the institutions which are functioning are in good shape and we shall support them,” the Bulgarian National Bank governing council declared.

Yet, the nine banks under receivership were allowed to go under and with them the savings of Bulgarians went up in smoke - to the tune of billions. Years later, in his capacity of witness in a bank failure lawsuit Zhan Videnov explained the bank hurricane that swept the country in his time as prime minister with the words: “The problems in the banking sector in 1995-1996 were caused by several factors – at the end of 1994 we resumed foreign debt payments, some banks got involved in election campaigns and general discontent with the banking system soared. State-owned banks and enterprises were our priority. Commercial banks were in the domain of the Bulgarian National Bank.” Videnov conveniently forgot one more factor that had triggered the banking crisis – his cabinet’s economic policy, cynically formulated by Kliment Vuchev, then minister of industry who openly urged state-owned enterprises not to pay back their bank credits.

How many banks were in danger of going under in the spring of 1996? The answer from financier Emil Hursev:

“Any financial institution is constantly in danger of going under when the financial balance of the country is seriously breached. The answer to this question would very much depend on factors like the central bank policy of refinancing and stabilization of the banking system. Non-bank financial institutions are in much greater jeopardy because a spreading panic results in a bank run.”

As the prime minister and the cabinet were unable to bridle the crisis in the banking sector, the galloping inflation and the acute shortage of basic products – a reminder of the “hungry Lukanov winter” (the winter of 1990-1991 during the second Andrey Lukanov cabinet), more and more voices were being raised, including inside the socialist party itself, demanding the cabinet’s resignation. On 4 November 1996, 19 members of the Bulgarian Socialist Party’s senior leadership wrote an open letter demanding that the Prime Minister step down and at an extraordinary congress of the party on 21 December Zhan Videnov submitted his resignation. One week later, on 28 December, the National Assembly put an end to the functioning of his cabinet.

Even though waves of protest were sweeping across the country, the Bulgarian Socialist Party persisted that it must form a new cabinet. On 8 January 1997 Nikolay Dobrev was nominated prime minister. Ten days before handing the post over to his successor Petar Stoyanov, President Zhelyu Zhelev refused to offer the BSP a mandate to form a new government even though under the constitution he was obligated to do so. The opposition declared a national strike and organized a protest march in front of the National Assembly. The building was surrounded and the police broke up the demonstration. This was the atmosphere in which on 28 January 1997, newly-elected President Petar Stoyanov formally offered the BSP a mandate to form a new government but in his first address to the nation, urged the socialist party to waive this right:

“Ladies and gentlemen, countrymen, I had imagined my first address to be different – more solemn, more optimistic. But you all know – the country is now in the grips of a severe political crisis. Worse – hyperinflation is at our door. What we need is political and financial stabilization and we need it now if we want to survive and broach urgent reforms. That is why I am offering the political forces and the citizens of Bulgaria a way out of the crisis that is deadly to the Bulgarian nation. The United Democratic Forces must show understanding and temporarily return to parliament. The MPs from the left must also cover their part of the road but before that, in the name of national accord they must waive the mandate they shall receive from me.”

On 4 February 1997 common sense prevailed and the Bulgarian Socialist Party handed back the mandate for forming a government because it was clear to one and all that if the socialists continued at the helm of the country, social peace would be shattered. With the mediation of Petar Stoyanov the political forces signed an agreement for holding early elections in April.

This enabled the president to appoint a caretaker government with Prime Minister Stefan Sofianski to pave the way to elections, reveal to the public the real scope of the economic catastrophe and stop the pillaging of the country. One of the first decisions of the new cabinet was to introduce a currency board in the country. Its term of office was seen as a step towards the next, legitimate government, so the International Monetary Fund agreed to conduct negotiations with it. On 1 July 1997 by force of a special decree the lev was pegged to the Deutsche Mark. Parallel with this the government launched a programme for the country’s accession to NATO and negotiated USD 40 million for buying the grain, seeds and medicines Bulgaria needed from Poland.

Though its term of office was but brief, the caretaker cabinet did a great deal to allay and normalize the situation in Bulgaria.

The April 1997 general elections won by the United Democratic Forces put an end to one of the most volatile periods in the country’s modern political history, turning the country towards Euro-Atlantic values.

As to the bank failures of 1996, even though many lawsuits ensued, there have been no convictions to this very day.

English version: Milena Daynova