4 terms of the scores of the EBRD, measuring progress in transition, Bulgaria reached levels comparable to that of Poland in 1990, i.e., the year of implementation of stabilization-cum-transformation program (see Table 1 below). However, in 1996, dynamic similarities in macroeconomic performance between Bulgaria and other early reformers disappeared. While in Hungary or Poland inflation continued falling to low double digit-levels, in Bulgaria inflation turned into hyperinflation. The GDP fell in 1996; inflation and government debt spiraled out of control; financial markets and banking sector collapsed; and foreign exchange reserves almost disappeared. Bulgaria became then the only European transition economy ”... that has first achieved respectable economic performance, but later seen that performance deteriorate into full-blown hyperinflation and strongly negative growth of domestic product” (Wyzan 1998:6).

Faced with hyperinflation, Bulgaria had to implement a stabilization package and considerably expand on measures introduced back in 1991 and subsequently aborted. Bulgaria thus began its second transition to competitive markets, characterized by strong commitment to macroeconomic stability and implementation of structural reforms, under much more demanding conditions than in 1991.

Some interesting comparative insights can be gleaned from the examination of EBRD transition indicators of progress in liberalization of prices, small-scale privatization, and foreign trade and exchange rate regimes normalized for the purpose of this analysis.<sup>1</sup> Indeed, much lower scope of initial liberalization in Bulgaria following the implementation of the stabilization-cum-transformation program than in Poland is clearly visible. While Poland scored 57 percent in its first year of the program in 1990, the value of Bulgaria’s index of aggregate progress in first generation reforms was only 38 percent. Bulgaria’s reached the level of dismantling central price controls, state ownership of small firms and foreign trade and foreign exchange rate regime that Poland had already in 1990 only in 1994 and stayed at this level until 1996. Bulgaria reached in 1998 the level of progress in first stage liberalization reforms achieved by former Czechoslovakia in 1992, i.e., during the second year of the transformation program, Poland in 1993 and Estonia in 1994. Bulgaria’s performance was in stark contrast to Estonia—both countries began their transition from the same level in terms of state micromanagement (Table 1). While Estonia moved rapidly in dismantling vestiges of central planning, Bulgaria was falling behind fast reformers.

**Table 1:** _Progress in first generation reforms as revealed in values of EBRD-based aggregate index in 19902004 in selected transition economies (in percent)_

||1990<br>|1991<br>|1992|1993|1994|1995|1996|1997|1998|1999|2000|2001|2002|2003|2004|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Bulgaria|9.5|38.1|38.1|44.5|**57.1**|**57.1**|**57.1**|66.7|**76.2**|82.5|85.7|88.9|<br>88.9|<br>88.9|88.9|
|Poland|**57.1**|57.1|66.7|**76.2**|76.2|76.2|82.5|82.5|95.1|95.1|95.1|95.1|<br>95.1|<br>95.1|95.1|
|Estonia|9.5|19.0|38.1|57.1|**76.2**|76.2|79.3|79.3|92.0|92.0|95.1|95.1|<br>95.1|<br>95.1|95.1|
|Romania|0.0|9.5|38.1|47.6|60.3|63.5|57.1|69.8|85.6|88.9|88.9|88.9|<br>88.9|<br>88.9|88.9|
|Memorand|um: me|dian valu|ein|||||||||||||
|SEE-4|47.6|47.6|36.5|38.1|33.3|47.6|47.6|52.4|66.7|66.7|68.2|73.0|<br>74.6|<br>76.2|76.2|
|CEEC-8|9.5|52.4|57.1|71.4|76.2|76.2|80.9|80.9|92.0|92.0|95.1|95.1|<br>95.1|<br>95.1|95.1|

Notes: (1) the aggregate is the average of scores ranging between 1 (no liberalization) and 4.5 (liberalization at the levels of highly developed market economies) for prices, foreign trade and exchange rate regime and small privatization. It has been normalized with 1=0 and 4.5=100; (2) SEE-4 include Albania, Bosnia and Herzegovina, Macedonia and Serbia and Montenegro. Source: own calculations based on data from EBRD Annual Transition Reports.

The second transition shares more similarities with the initial path of the radical Central European reformers than Bulgaria’s first, failed transition. In some respects, it progressed faster, as aggregate output rebounded in the next year after the implementation of the stabilization program, and inflation was brought under control in the second year of the program. In some others, it progressed slower. While it would be tempting to take the value of the EBRD-based first-generation reform index that Poland reached in the first year of its stabilization-cum-transformation program in 1990 as a frame of reference, this would be 1 These three policy areas constitute the core of first generation reforms. Scores for each area ranging between 1 for no reforms and 4.5 for reaching the average conditions in highly developed economies have been normalized with 1 equal 0 and 4.5 equal 100. The average of these three indicators amounts to the achieved progress in first generation reforms.