Credit for Agriculture During the Transition

Abstract

Since the beginning of the economic reform in Bulgaria, flows of credit to agriculture have decreased. As the farm credit issue has an extremely high profile in the public debate about the crisis in agriculture, the government finds itself under extreme pressure to assist in financing the sector. Some of the difficulties in the credit market for agriculture have the characteristics of market failures. On this basis the case for government intervention is assessed. The conclusion is that government policy measures which have been implemented are not well suited to solving the problems; rather, they deal somewhat haphazardly with the symptoms. Resolution of the problems requires government intervention in the following forms: in the short run, resolution of held-over bad loans and provision of collateral guarantees; in the medium run, significant progress on the restitution of land titles, provision of information and extension services, including financial consultancies for the farmers, and training for bank officials dealing with agricultural lending; and in the long run, creating more competition in both input and output markets.