r?g 30 Transition Economics Division * PolicyResearch Department * TheWorld Bank World Bank Discussion on Second - Generatio:n Transition Issues Growth, Restructuring, Corruption T,- _ she World Bank's recent Annual fering initial conditions. And they have some are currently among the fast- Bank Conference on Develop- moved at different speeds.Their est-growing economies in Europe, T ment Economics (ABCDE) or- macroeconomic indicators differ, as do notably the Czech Republic, Poland, ganized a discussion on "second-gen- their institutions, political developments, and Slovenia. Yet even these coun- eration" trajnsition issues. The following and culture. One ofthe many challenges tries face problems, such as the com- are excerpts from the papers of the that will face the World Development position and endurance of their fiscal major discussants participating in the Report will be to distill some common and monetary balances, and the need meeting, which was moderated by lessons across countries. to introduce further tough structural Michael Bruno, Vice President (Devel- and regulatory measures. In many of opment Economics) and Chief Econo- About half of the countries in Central these countries markets are in a rather mist of the World Bank. and Eastern Europe have gone through chaotic state, particularly financial an initial macroeconomic shock, and markets. Michael Bruno: What Is Comrmon, What Is Different? What's inside As is customnary, our roundtable meet- Anticorruption Crackdownin China programit whichcouldejectHungarytoan As is customary, our roundtable meet- (page 3) orbit of sustainable growth. (page 12) ings are harbingers of the next year's World Development Report. In 1996 the CzechEconomy: MixedPicture (page6) The Capitalist Revolution in Eastern reportwill focus onthetransitionprocess Europe. In his latest book, Laszlo and it will be produced under the direc- QuotationoftheMonth:"Growingcrime Csaba opts for organic transformation. tion of Alan Gelb. The transition is now andCorruptionThreatenNotOnlyRus- (page 16) sia,buttheEntireWorld."ArielCohenof five years old, and there are lessons to be the Heritage Foundation urges interna- Milestones of Transition (page 17) learned, not only for those countries that tional efforts to check the fearsome Rus- have left central planning and are head- sian mafiya. (page 7) Russia: Stabilization at Last? (page 20) ing toward a market economy, but also for e os,throughoutthe word, that are Anatomyofthe Russianlnflation-Paula WorldBanktIMFAgenda(page2l) forthos,throughouttheworl,that are De Masi and Vincent Koen explain why readytoundertakeprofoundinstitutional Russia'sinflation couldstayhigherthanin Conference Diary (page 24) and economic reforms. WesternEuropeeveniftightfinancialpoli- cies were applied. (page 10) NewBooksandWorkingPapers There is a range of divergence across (page26) transition economies. They started from Hungarian Finance Minister Lajos Bokros Explains His Package. In an ex- Bibliography of Selected Articles a largely common system, but With dif- clusive interview Mr. Bokros outlines his (page 31) The World Bank/PRDTE Some early, so-called first-gener-ation corruption andorganizedcrime. Empiri- growing too. One important lesson of debates focused on the speed of stabi- cal evidence, however, is irregular and transition is that stabilization is good for lization and liberalization. Much has sporadic. Is corruption intrinsic in tran- growth. It can almost be said that no been said and discussed about big bang sition economies? Is it the transition it- transition country has begun to grow versus gradualism. There is no clear selfthat generates greater opportunities withoutfirst reducing inflationtothe low conclusion, and to a large extent, these for rent-seeking and increased corrup- single digit per month range. Romania is issues are behind us. But the interde- tion? Or is it the legacy of the old an exception, however, and did begin to pendence between liberalization, stabi- system, or the collapse of former re- grow while inflationwas high. Nonethe- lization, and growth, as well as the crite- straints? Is corruption caused by too less, there is a strong relationship be- ria of establishing sustainable rapid or too slow a transition? tweenstabilizationandgrowth-inboth macroeconomic policies, are still open directions. Countries that have stabi- questions. These three issues are separate but they lized have generally seen growth a year are not selected randomly. Macroeco- or two later. Fierce debates are waged onwhetherthe nomic policy is not sustainable without East European stabilization programs structural adjustment, and the relation- Evidence on these issues is convinc- have undermined economic growth. ship between property rights and ingly demonstrated in a paper by Alan Cumulativeresearchshowsthatinflation macroeconomic adjustment is equally Gelb, Martha de Melo, and Cevdet rates above 30 or 40 percent are very important. Corruption can destabilize and Denizer. It confirms the inverse rela- harmful to growth. So should a country even delegitimize the reform process, tionship between growth and lagged in- like Poland-which has a 30 percent because it can weaken the political cred- flation; the lower the inflation rate, the inflation rate, but is doing very well on ibility of and trust in the government. higher the growth rate a year later. [The growth-aim to achieve single-digit in- working paper, "From Plan to Mar- Stanley Fischer, Deputy Managing Director of the IMF: The Point of No Return There are at least two interpretations of the tite of this session on "second-gen- eration issues in transition." We could be asking what we can tell the second generation of reformners-probably in- cluding Cuba and North Korea-based on the experiences of the first genera- tion. Altemnatively, we could be asking what problems face transition econo- i1 mies that have come through the first flation before doing other things? This is phase of refonm and are now moving ket: The Patterns of Thransition, is our first topic. into the second stage of the transition forthcoming as a World Bank publi- Our second topic deals with sequenc- process. I'll address bothinterpretations. cation.] ing. Russia first privatized and is now in The truly important news in thinking The paper also shows that countries the process of what looks like macro- about the transition process is that, ac- that reform faster have a more rapid stabilization. The imnpact of mass priva- cording to official data, several transi- initial output declinethan thosethatdon't jiator iseWhonre troluin s anthefr mstat tion economies are already growing: reform. But within three to five years have bsseenpia. zd Who arerol the fren tal amnong them are the Baltic countries, the cumulative output loss proves to be owners? Why is it that firms once the Czech Republic, Hungary, Poland, lower than that of countries that have inwrestr ucturing Croatia, Slovenia, and Slovakia. If we beenslowtoreform.Countriesthathave privatized, lag behind also include the performance of the stabilizedtypicallyfindthemselveswith Our final topic is the rule of law, the very unrecorded economy, presumably these inflation rates withinthe moderate range existence of the state. We are all countries started growth at least a year of 15 to 30 percent, and now face the familiar with the alarming reports on earlier, and perhaps other countries are same moderate inflation dilemma that 2 May-June 1995 Transition Anticorruption Crackdown in China Delivering his annual report to the Na- and less widespread. A number of fac- to the northeastern province of tional People's Congress, Supreme tors explainthe high levels ofcorruption Liaoning. People's Court President Ren Jianxin since 1989: in late March stressed the importance Periodically,the CommunistParty car- of stamping out corruption. Like Prime *Deng's call for faster growth during his ries out corruption crackdowns. In the Minister Li Peng, he emphasized that visitto southern China in early 1992 was last major cleanup operation, in 1993, the abuse of power poses a genuine a signal that "getting rich" was to be government departments at all levels threatto CommunistParty dominance. encouraged after a three-year freeze on were askedto expose major corruption market reform. Government officials, cases and to bar cadres from business The focus on corruption follows the poorly paid but with monopolistic con- activities, including stocktransactions, arrest in February of Zhou Beifang, trol over scarce resources, face great as a way of preventing corruption. who is the chairman oftwo listed firms temptation to abuse their positions for Twenty government departments were in Hong Kong, the Shougang Concord personal gain. The most common forms thoroughly investigated. By the time International Enterprises and Shougang ofbureaucraticcorruptionarethemisap- the crackdown ended, a number of Concord Grand. Zhou is the son of propriation of public funds, price ma- prominent officials had been arrested. Zhou Guanwu, who heads the Beijing- nipulation, and kickbacks from business based Capital Iron and Steel Corp contracts. Attempts to control corruption are (Shougang). The father-and-son team not very effective for three major transformed the huge state-owned steel *The stock exchanges of Shenzhen and reasons: plant into a business empire with inter- Shanghai are prone to insider trading, ests in suchfields as shipping, construc- pricemanipulation, and other irregulari- *There is no independent watchdog to tion, and electronics. In 1992 Zhou ties. Acts of corruption are also thought fight corruption. The party relies on BeifangmovedthecompanyintoHong to occur when Chinese firms acquire traditional Maoist-style political cam- Kong, buying five small listed firms listed companies overseas and transfer paigns to "educate" the public about there and injecting Shougang assets state assets tothem. With limited disclo- corruption, using slogans, study ses- into them. sureofinformation, little is knownabout sions, and mass meetings to impart its how firms spend the large amounts of message. Corruption cases are settled Zhou is accused of committing "seri- money they have raised from the stock internally, notin open courts. The party ous economic crimes," allegedly for market. forbids the media from exposing cor- the purchase in 1992 of an iron ore rupt officials, except in a few cases. mine in Peru. He reportedly paid $120 *In the context ofprivatization, the divi- The party has also consistently re- million for it, or twice what other bid- sion between private and public assets jected proposals to set up a nonparty ders were offering. Zhou's downfall remains murky. Many state enterprises body to fight corruption for fear of has sent shockwaves throughthe Hang have beentumed into stockholding com- undermining its monopoly on power. Seng (the Hong Kong stock exchange), panies. However, with limited supervi- where many Chinese firms with simi- sionfromBeijing,thereis littletostopthe *Sentences meted out to senior bu- lar backgrounds are listed. bureaucrats inchargefromunderstating reaucrats convicted of corruption are the value ofthe state assets and dividing usually lightand arbitrary. Most ofthose As a consequence of rapid economic the spoils between themselves. Beijing found guilty are given "administrative liberalization, corruption is endemic estimates that at least I billion renminbi punishments," such as a temporary in China: ($118.6 million) is lost in this way each demotion. The party fears that a thor- year. ough shake-up of its bureaucracy could *In the first 11 months of 1994, the result in a political backlash. central government received 1.36 mil- Two groups in particular have been lion complaints about corruption. accused of abusing their positions: *It is very difficult to catch serious offenders. This is particularly the case *The March annual report from the *Children of officials, who use their po- at the local level because of the exten- Supreme People's Court reported that litical connections to further their busi- sive web of connections powerful po- over 20,000 peoplewerejailedlastyear ness interests. litical figures have built in their prov- for corruption. Cases ofgraftexceeded inces or counties. Only when their 30,000, upalmost70 percentfrom 1993. *Military and police personnel who are political backers are out of favor can believedto extortmoney fromgangsters, offenders be brought to justice. *In Beijing alone, 4,172 residents were and to smuggle computer equipment, convicted of embezzling public funds electronic appliances, and other luxury Based on reports of OxfordAnalyti ca, or taking bribes in 1994. goods. In July 1993, 43 army units in- the Oxford (U.K.)-based research volving 300 military officials were found group. In the early days of the open-door to be smuggling cars from South Korea policy, corruption was more discreet Volume 6, Number 5-6 3 The World Bank/PRDTE countries such as Colombia, Chile, or several transition countries, such as leaving it to the new owners to initiate Israel have faced in the past. Moderate Croatia and Kyrgyzhstan, have stabi- changes in product lines, export mar- inflation gives way to tight lized their economies without pegging kets, company assets, and manufactur- macroeconomic policy, supported by the exchange rate. In general, I still ing technologies, and to stimulate wage restraint and the use of an ex- would look to a temporary exchange changes in attitudes and behavior. change rate anchor. But the last part of rate anchor intryingtobring down infla- thejourneyto industrialized-country in- tion quickly. The Mexican experience So far, three countries have done re- flation rates is difficult. Policymakers has led many to believe this approach is markably well in terms of speed and have to be sure to take advantage of very dangerous, but this is true only if scope of mass privatization: the Czech every favorable price shock to try to the anchor is never moved. In Poland lock in inflation reductions and make the initial peg was held for a year, in continuingprogresstowardstabilization. Israel for a little longer. But it becomes necessary at some point to adjust the A key second-generation issue for those rate, and perhaps also the exchange who have already embarked on transi- rate regime. tion is reform of the fiscal system. The decline in government revenue during Finally, letmementionthemost amazing transitionis dramatic, and somegovern- phenomenon of transition. A few years ments have been able to maintain back everyone was afraid of reversals macroeconomic balance only by hold- in the postsocialist world: "If we don't ing back budget funds (sequestering) or support the Russians, the communists by building up arrears. The unintended will come back, or if not the commu- consequence is credit creation through nists, then other extremists, and they the central bank or arrears creation in will gain the upper hand all over Eastern Republic, Eastern Germany, and Rus- the private sector. Rebuilding the fiscal Europe." Five years later, despite the sia. In the Czech Republic, in 1989, just system on both the expenditure and tax fact that output declines have been far 1.2 percent of labor and 2 to 4 percent sides is a high priority. Specifically for greater than anyone expected, and de- of registered assets belonged to the pri- taxes, this means moving away from spitealltheotherdifficultiesoftransition, vate sector, which had a mere 1 percent enterprisetaxation to indirecttaxes such the notion of returning to the previous share in GDP. At present, 80 percent of as the value added tax (VAT), customs, system seems to be far from anyone's assets are privately owned, accounting and tariffs, and later perhaps to direct mind-except perhaps in some smaller, for over 56 percent of GDP in 1994. No taxes. On the expenditure side, it means less-developed former Soviet econo- particular groups of investors were fa- the creation of a modern system of ex- mies. That is the most remarkable fea- vored or restricted in the privatization pendituremanagementandprioritization. ture of what we have seen in this first process. Privatization proceeded generation of reforms: the political smoothly,thankstoitstransparency,good Another critical second-generation pri- maturity of the public has ensured that organization, and popular support. In- ority for those already in transition is the economic reform process has con- vestors or companies were able to reform ofthe financial system. The banks tinued despite the difficulties they have choose among various methods ofpriva- are not yet playing much of a role in experienced. tization; nonetheless, voucher privatiza- financing investment inmost ofthe tran- tion attracted most of the attention. sitioneconomies. Unfortunately, there is Jana Matesova, Director of Re- arealchicken-and-eggproblemhere:the search Programs at the Czech Nearly 80 percent of the adult popula- banks will not be sound if they lend to Management Center: Company tion became shareholders in enterprises companies that are not sound, but the Restructuring Moves Ahead-A and banks. Insiders (managers, work- companies cannot develop without ex- Review. ers) ended up with less than 10 percent ternal finance. New bank-restructuring of the shares in a typical Czech com- programs are needed to get that process Doesprivatization, andinparticularmass pany; still, privatization did not create off the ground. privatization, spurrestructuring? Unlike overly dispersed ownership structures. most Western governments in the past, Alargemajorityofvoucherswerebought Once, stabilizationwasunthinkablewith- East European governments often up by investment privatization funds out an exchange rate anchor. But lately, privatize firms ahead of restructuring, (IPFs). Thus, in more than half of the 4 May-June 1995 Transition privatizedcompanies, three orfour large ofboard directors (in many cases former levels-provides incentives for payoffs institutional investors own the qualified state officials) who are tempted to trade as a way to allocate scarce goods and majority of 66.7 percent. lenient monitoring for higher fees and services. In such systems, transactions better perks. that would be open and legal in market As restructuring of enterprises may take economies become illegal as bribes are 10 years oreven more, ayearortwo after The number of mergers, acquisitions, taken and payoffs are exacted. Excess mass privatization is much too early to and takeovers and the sale of fixed as- demand for goods at official prices en- assess results. But it is reasonably clear sets have surged in recent months. courages those in command of scarce whether the process is heading in the Privatized Czech firms undergo major supplies-in addition to selling goods right direction. ownership changes through the private and services to those offering the high- placements of company shares. Invest- est bribes-to create additional bottle- Aggregate data on the Czech economy, ment funds buy and sell huge blocks of necks as a way of extracting even more up to 1995, do notyettellus much about shares, mainly to consolidate their payoffs. Such systems arenot only rigid, bankruptcies, increasing unemployJment, overdiversified portfolio and get rid of but arbitrary; consequently, inthe former mergers and acquisitions, or typical their holdings in companies where rival centrally planned economies, the re- forms of restructuring. But trade statis- institutional investors dominate. Also, quirements and irrationalities of these tics are enlightening. While the former new spin-offs had been set up from the systems turned almost everyone into a Comecon markets' share in Czech (and best and most profitable assets of other- lawbreaker. Slovak) republic exports dropped from wise nonviable companies. And in some more than 60 percent in 1989 to less cases, parent companies have beentrans- Once authoritarian systems or centrally than 20 percent by 1994, that of the formed into financial holdings with their planned economies collapsed, one would European Union countries increased to assets channeled to newly formed sub- have expected that illegal payoffs and 46 percent (even though the share of sidiaries. The wide range of organiza- other corruption would have declined low-value-added products in total ex- tional changes prepares the field for and that legal, free market practices ports increased slightly in the past five more efficient restructuring. would have prevailed. This is not what years). happened. Corruption appears to be a Susan Rose-Ackerman, Professor common problem in the newly demo- Although in the Czech Republic the un- at the Law School and Department cratic states in Eastern Europe and the employmentrateis extremelylow(itwas of Political Science at Yale Univer- former SovietUnion. Why? Somewould only 3.6 percent in March), there has sity: Bribe Prevention arguethatrampantcorruptionisjustone been a significantincrease in labormobil- ofthe growing pains oftransition. But if ity among companies, industries, and Corruptionthrivesinrigidsystemswhere corruption becomes rampant, it could sectors. According to a survey we con- monopoly power rests within the gov- destroy the transition itself. ducted among 50 manufacturing com- emient and multiple bottlenecks im- panies, between 1991 and 1993, two- pede the free flow of goods and ser- If pockets of state control remain, they thirds of the firms downsized labor by may be the loci of payoffs and other less than 50 percent, and 22 percent by inside dealings. Indeed, the privatization more than 50 percent. Most firms, how- process, although it ultimately reduces ever, do not yet see labor as an imnpor- corruption by lessening state involve- tant cost factor. j ment in the economy, may initially give rise to large payoffs as investors jockey Investment funds have improved the V for position. As the state is stripped of financial and reporting discipline of en- any clear lines of authority, the effec- terprises.Eventhoughmostfundsdonot tiveness of its legal system becomes get actively involved in restructuring, questionable. And the people, trying to they still control enterprise managers operate within new structures and to more effectively than the government find a measure of certainty in their deal- would do in a state-owned company. ings, may try to achieve some control by Managers can benefit from the often paying offofficials, declining to play by conflicting interests ofmajorinstitutional vices. A planned economy-where ambiguous rules. What the briber can- shareholders and from the limited skill many prices are below market-clearing not know is whether other officials, ob- Volume 6, Number 5-6 5 The World Bank/PRDTE serving the payoff, will create new liberalizing their economies and reduc- exchanges of favors between officials bottlenecks that require further kick- ingpossibilitiesforrent-seekingbyelinii- and private individuals-a web of rela- backs. In the worst-case scenario, people nating or reducing subsidies, trade re- tionships and transactions that effec- opt out ofthe first economy, and instead strictions, and preferential treatment in tively blurs the line between public and rely on organized crime to provide pro- governmentpurchases-inotherwords, private, furtherdestabilizingthe system. tection from the state or anyone else transition countriesmustderegulatetheir A clear remedy for this is a well-estab- who seeks to interfere. In this scenario economies as much as possible. Bribes lished legal system that reduces corrup- the state is not just weakened; it be- will become irrelevant once legal pric- tion by curtailing the discretion of offi- comes irrelevant. ing mechanisms take their place. cials. The rule of law can be supported by outside checks on the actions of pub- Transition countries should try to estab- A danger is that less overt bribes maybe lic officials, including an independent lish the rule of law, without recreating paid for benefits to be delivered in the prosecutorial andjudicial system, a free the rigidities of the former state-con- future. Corruption could take the subtle press, and a dense network of nongov- trolled system. Doing so will require form of cozy personal relationships and ernmental organizations. Czech Firms: A Mixed Picture of Restructuring Hundreds of investment privatization saybank-controlledfundsare too often rep- providedthatthedeficit intrade continues funds (IPFs) that underwrote the success- resented on companyboards by members of to be offset by a surplus on the capital fulcouponprivatizationprogramareemerg- the banking arm rather than the fund man- account and high revenues from tourism. ing as the key institutions that will shape agementarm. the Czech Republic's corporate culture. The widening trade deficit suggests that They control about 29 percent of all out- Therelationshipbetweenbanks and indus- the competitiveness of Czechproducers is standing Czech shares, as against the try is close and is one that neither side ap- being eroded, which is reflected in the al- National Property Fund's 40 percent and pears willing to end. Hence, decisions that most unchanged level of exports. This the industrial and portfolio investors' own maybe in a company's and its shareholders' loss of competitiveness has occurred de- 25 percent-but the IPFs are the most in- interest but not in the banks' can be voted spiteaninflation-adjustedriseinlaborpro- fluential of the shareholders. These IPFs down. Inpractice, this often means compa- ductivity of 10.4 percentbetween January include Harvard (which does not have a nies are forced to borrowfor investment, or 1994 and January 1995. Wages, however, financialbacker); Prvnilnvesticni(PIAS), to undertake bond issues often handled by grewby8.3 percentin real termsinthefirst run by Investicni a Postovni Bank; theirhousebank. Thebank's ownlPFs some- quarterofl995 ascomparedwith the same Expandia; ZB Trust, runby Zivnostenska timestakeupthe lion's share ofthese issues, period lastyear. To a considerable extent, Bank; KIS, run by Komercni Bank; thus increasing bank influence on compa- this offsets efforts to streamline produc- Creditanstalt Investment Co.; and funds nies. tion and raise productivity. Competitive- run by the Czech Insurance Co. They are ness has also been undermined by a hid- helping to wrest power away from com- Many IPFs are afraid to weaken their hold- den revaluation of the koruna, caused by panyexecutivesinfavorofcompanyown- ings in companies, leading to paralysis in thegapbetween Czechinflation (currently ers. the stock market and to a reluctance to con- running at around 10 percent) and lower sider new equity issues. Moves are under inflation in its principal trading partners Itis a slow process. Even thebest-run IPFs way to force IFPs to become eitherportfolio against a backdrop of nominal exchange have limited resources of finance and per- managers or strategic, long-term investors. rate stability. The real effective exchange sonnel topolice allthe companiesinwhich rate of the koruna has appreciated by they have stakes (some have stakes in as Inthemeantime,gradualrealappreciationof roughlyone-thirdsince 1990. many as 200 companies). High manage- thekorunaandrapidrealwagegrowthhave ment fees also have persuaded some fund undermined the competitiveness of Czech Apart from concerns raised by the trade managers simply to sit tight and collect firms. Between January and April of 1995, deficit, overall prospects for the Czech easy money. Two main hurdles block fur- thetradedeficitshotupto29.6bilionkoruna, economy are good. GDP growth in 1995 ther progress, find managers say. comparedwith a 14.6bilhionkorunasurplus should exceed 4 percent. Unemployment inthecorrespondingperiodofl994. Whereas remains very low-at the end of April, it *The law governing IPFs limitsto20 per- imports roseby 38.2 percent overthe same was2.9percent, downfrom3. 1 percentin cent the stake a fund can own in a com- period of 1994, export growth was only 1.2 March-but this is widely reckoned to be pany. Thmspreventsthegreaterconcentra- percent. Trade and Industry Minister an indication that restructuring still has a tion of ownership that would aid VladimirDlouhyhaspredictedthatthetrade long way to go in many enterprises. This restructuring and help refine corporate deficitcouldgrowtoasmuchas6O-8obillion trend will probably be reversed over the governance. koruna this year. next two years, when the unemployment -There is a potential conflict of interest rate is expected to rise to 5-6 percent. between the banks that manage invest- AccordingtoDlouhy, however, atradedefi- (Basedon recentpress reportsandanaly- ment funds and those banks' own corpo- cit of this magnitude need not be a major sis of the OxfordAnalytica international rate lending arms. Some fund managers macroeconomic problem for the country, 6 May-June 1995 Transition Quotation of the Month "Growing Crime and Corruption Threaten Not Only Russia, but the Entire World." Ariel Cohen of the Heritage Foundation Takes the Russian Mafiya Head-on A tidal wave of crime and cor- eign and domestic criminal organiza- manufactured and sold synthetic drugs ruption is sweeping Eurasia, tions to launder and hide illegal profits. using Russian military labs. lk threatening to bury the nascent and fragile democratic institutions in The RussianInterior Ministry estimates The Russian Connection Russia and other countries in the region. that oil smuggling grew by 50 percent Russia alone is under attack from over from 1992 to 1993. The ministry be- The Russian mafiya landed inthe United 5,000 gangs, 3,000 hardened criminals, lieves that around 20,000 metric tons of States in the 1970s. Since then it has 300mobbosses,and 150legalorganiza- metals, over 100,000 metric tons of oil become involved in gasoline tax and tions with international connections. products, and more than 200,000 cubic medical insurance fraud in New York Some 40,000 Russian business and in- yards of timber were smuggled abroad and California. Ithascooperatedwiththe dustrial enterprises are controlled by from Russia in 1993, with up to a train- Sicilian mob in transporting heroin and organizedcrime. Their combined output loadadaypassingthroughLithuaniaand with Colombian cartels in shipping co- is higher than the gross national product into the Port of Kaliningrad. caine. One metric ton of cocaine was of many members of the United Na- seized in St. Petersburg's Pulkovo air- tions. The Russian mafiya (a generic Russianofficialschargeupto$80,000to port en route to Antwerp in 1994. While term for all organized crimeintheformer register a bank and up to 15 percent of not yet as powerful as the Colombians, Soviet Union) is estimated to be worth an oil deal's value to issue a license to the Chinese Triads, or La Cosa Nostra, $10 billion. More Russians died ofcrimi- export. Managers of government- the Russians are anup-and-coming force nal violence in 1993 than were killed owned industrial enterprises often bill in the increasingly globalized world of during nine years of war in Afghanistan. international customers only 10 percent crime. Russian mafiya operations in the In 1994 criminals took 118 people hos- of the price of exported commodities, United States are thought to be headed tage in Moscow alone. The situation in with the difference between the con- byVyacheslav ('Yaponchik,""LittleJapa- other Newly Independent States (NIS) tract price and the world market price nese") Ivankov, known as "the father of oftheformer SovietUnionisevenworse, deposited into their offshore bank ac- Sovietextortion." with criminal gangs even controlling the counts. Until early 1994, the Central value of some national currencies. Bank of Russia issued credits to com- [Ivankov, the reputed top Russian mob mercial banks and state-owned enter- boss, now 55, was arrested in the United Growing crime and corruption threaten prises at rates much lower than infla- States by FBI agents on June 8 for alleg- not only Russia, but the entire 'world. tion. The banks and enterprises then edly mastermiinding a $3.5 million extor- Russian contract killers have murdered lent the money at higher market rates. tion scheme. He spent a decade in a in, London, Los Angeles, andNewYork. Central Bank officials reportedly re- Siberian prison for crimes ranging from Former KGB "specialists" in assassina- ceived 13 percent of the loan as bribes. robbery to drug trafficking, and slipped tion are available to the highest bidder. into the United States on a doctored Corrupt officials and criminal organiza- Sovietmilitary officers allegedly soldoff passport three years ago. The mobster tions are involved in a variety of black the military's strategic supply of fuel to came to Brooklyn's "Little Odessa" to market activities that generate multi- blackmarketeers inWesternEurope from oversee Russian organized crime activi- million-dollar profits. The illegal export 1990 to 1994. There were several million ties in America, and became the target of of oil, ferrous and nonferrous metals, tons ofoil inthe strategic reserves, enough an unprecedentedjoint effort by the FBI timber, and diamonds is the most lucra- tofuelplannedRussianoccupationforces and Russian authorities. Eight others tive, followed closely by illegal drug pro- in Westem Europe until the year 2006. are charged with him in the extortion duction and distribution. The illicit sale Russiangeneralsusedmilitaryaircraftto plot. FBI Assistant Director Jim of armns and nuclear materials and tech- fly Volvos andotherEuropean cars home Kallstrom called Ivankov's capture the nologies represents the greatest threat for sale. The top brass illegally traded in most important arrest ever made in the to Russia's neighbors and to the West. MIG fighters, armnored vehicles, and sto- war against Russian organized crime in Privatized property is bought up by for- len Gernan cars. They even illegally the United States.] Volume 6, Number 5-6 7 The World BanklPRDTE The Russian mafiya is fast developing Russia is also becoming a transit point U.S .S.R. There were no forums for an international network. Mobsters laun- for heroin coming from the Golden Tri- corporate dispute resolution. Since ev- der their ill-gotten gains by investing in angle of the Far East (the Burma-Thai- erything belonged to the state, nobody gambling, luxury car dealerships in Eu- land-China border region). The Russian really cared whether contracts were ropean cities like Budapest, and banks, mafiya has established a foothold in honored. Parties to conflicts and their marinas, and resorts in the Caribbean Bangkok, Hong Kong, and Singapore, counsel had no personal or business Basin. They also work with top-flight where it cooperates with the Chinese interest in the outcome of the proceed- international attorneys in Frankfurt and Triads. Moreover, Russiangangs inNew ings. Zurich to learn money-laundering tech- York, workingwiththe Mafia's Gambino niques perfected by Colombian drug family,areshippingheroinintotheUnited The Dangers of Corruption lords and Sicilian mobsters. The main States. technique is to move money electroni- The implications of such widespread cally among dozens of companies so The Roots of Crime corruption are potentially devastating: that eventually it finds its way into re- spectable investment portfolios in the The problem of crime in Russia and the * Corruption discredits free markets. West. NIS has many roots. The criminal code Lacking a legal system capable of but- of Russia andotherformersocialiststates tressingthe market economy, Russiaand Russian and other Eurasian criminals cannot always deal with the freedom otherNIS societies have losthundreds of also are becoming more involved in the unleashed by the collapse of commu- millions of dollars to fraud. Legal au- international drug trade. The opium nism. During Soviettimes, such innocent thorities do notprotect investors or con- poppy and cannabis (marijuana and hash- practices as buying and selling for profit sumers fromthievery, extortion, or fraud. ish) have grown naturally in Eurasia for or dealing in securities or foreign cur- For example, in 1993 a company called rnillennia, from the Ukrainian steppes to rency were criminalized. Meanwhile, Independent Oil Concern stole millions the plateaus of Kyrgyzstan. With the such simplejudicialtoolsaslaws against ofdollars from investors andtransferred collapse of strict police controls, drug aconspiracyto commit crime were lack- the money abroad. The Russian cultivation in Eurasia has reached an all- ing. Soviet law was ideological and arbi- prosecutor's office did not even investi- time high. Three million acres of opium trary, allowing Communist Party gate the matter. poppiesarecontrolledbyorganizedcrime apparatchiks to decide the legality of in Central Asia, primarilyinKyrgyzstan, economic transactions. Another example was the 1993-94 Tajikistan, and Uzbekistan. There is no MMM (named for the initials of the fuel or spare parts for the aircraft that Legally,therewasnoprivateproperty,so partners) stock market disaster caused were once used to police these areas. the legal system did not contain provi- by Moscow entrepreneur Sergei Besides, in many instances the police sions for conflict ofinterest. This legacy Mavrodi. This was a massively adver- are "on the take" from drug dealers, and has been carried over into the new Rus- tised pyramid scheme in whichthe value the porous borders in Eurasia allow ille- sian Federation. Even today, there is no ofthe shares was driven sky-high by the gal drugs to pass from Central Asia into adequate definition of corruption in the influx of millions of new buyers. In the Western Europe. Russian criminal code. Nor are there end, the bubble burst and multi-billion- adequate civil service ethics regulations. ruble losses ensued. Central and Eastern Europe, Russia, It is no wonder that Russia and other and Eurasia are becoming major transit Newly Independent States have some of The negative impact of all this criminal points for drugs manufactured in Af- the most corrupt bureaucracies in the activity on the image of business and ghanistan, Iran, and Pakistan. Uzbek world. Their legal systems are inca- markets is tremendous. The crime and andTajiktribes inhabitAfghanistanand pable of preventing corruption. corruption of today are reviving preju- have close connections in Central Asian dices left over from the days of Soviet govermments; the Central Asians inturn Soviet-trainedjudges have apoorunder- conmmunism, giving the old charge that are plugged into the Moscow power standing of private property. They have business is "dirty" anew meaning. Wide- structure. Azeris, Armenians, Russians, not been trained in the Western legal spread crime and corruption are deter- Georgians, and Central AsianTurks play practices of settling property and ringhonest, industriouspeoplefromjoin- an important role in maintaining the transactional disputes between private ing the ranks of entrepreneurs and are bridge between the drug manufacturers individuals. Before 1992, there was only engendering a hostile political climate in Asia and markets in Western Europe. one state-run arbitration system in the toward free market reforms. 8 May-June 1995 Transition Corruption weakens the rule of law. liferation of dual-use nuclear weapon *Amend criminal codes to better define Democracy and free markets cannot components). organized crime. In particular, a con- survive without the rule of law. How- flict-of-interest doctrine must be incor- ever, precious little has been achieved in Nuclear facilities are located in such porated into post-Soviet legal systems. establishing a firm legal basis for a civil potentially unsafe and unstable areas as *Establishawitnessrelocationprogram. society based on democratic principles. Kazakhstan, Kyrgyzstan, Tajikistan, and Protecting witnesses in organized crime There is hardly any state-run or private Uzbekistan. Tajikistan is in the midst of trials is crucial to successful prosecu- enforcement service-with the excep- a civil war, while nuclear security in the tion. tion of organized crime. In 1994 dlozens other republics can be very lax. There are *Recruit and train anew judiciary. With of senior police officers were fired for unguarded nuclear components in re- weak courts and incompetentjudges, the cooperating with the mafiya, while oth- searchfacilitiessuchasDneprodzerzhinsk legal systems of these countries cannot ers were killed by criminals for refusing in Ukraine and nuclear laboratories in function. to cooperate. GeorgiaandArmenia. Ex-Sovietnuclear *Upgrade the civil courts to handle pri- scientists are working on secret and ille- vate sector disputes. Right now many *Corruption impedes Western invest- galnuclearweaponsprograms inAlgeria, private disagreements are settled at ment. Western businessmen increas- China, India, Iran, Iraq, Libya, andNorth gunpoint by the mafiya. ingly are harassed by Russian mob- Korea, in violation of the Nuclear Non- *Improve security, inventory manage- sters. American managers in Moscow Proliferation Treaty. ment, and accountability at nuclear pro- told the author that they have received duction and storage facilities. anonymous phone calls more than once Radioactive components for nuclear *Ease bureaucratic regulation of the aday inquiringabouttheirsalesvolume. weapons can be bought in Russia and economy. Bureaucrats who work to- Such routine intelligencegathering helps other parts ofthe NIS. Since 1990 there gether with mobsters are the major criminals to determine which foreign has been clear evidence thaturanium and source of corruption in the post-Soviet firms can be targeted for extortion. To plutonium are being smuggled out ofthe states. cope withthe danger, foreign businesses former SovietUnion. Several smugglers *Reduce the tax burden. High tax rates must bear the steep costs of additional died orbecame severely ill frommishan- andcorruptintemal revenue services are security for themselves, their families, dling the materials, which have been left endemic in Central Europe and the NIS. and their property. Faced with these inrailway stations andairportsinAustria, Low taxes applied uniformly would not costs, which can absorb as much as 30 Germany, and Lithuania. More than 100 only increase the tax base and bolster percent of foreign profits, many firms people have been arrested by German, government revenues; it would reduce refuse to invest in Russia and the NIS. Czech, and other Central European se- the rampanttax evasion that fuels crime curityservices since 1991. RussianKGB and corruption. Corruption spreads the dangers of and military officers have been caught nuclearproliferationandterrorism. The supplyingnuclearmachineryandweap- Western Cooperation deterioration of central controls since the ons systems to Italian mafiosi, who were collapse of the Soviet Union in 1991 has reselling them to Libyans. Transship-. SincecrimeandcorruptioninEurasiaare ledtothehair-raisingpossibilityofunau- ment of nuclear materials were made to spilling over into other countries, some thorized sales of nuclear components Austria, Italy, Sweden, and Switzerland, degree of cooperation with the West andmaterialtoterrorists andother crimi- but the direct route is even easier. will be required to solve the problem. nals. By 1993 Germany had arrested Thus, Western countries should: more than 100 people involved in smug- Responding to a Global Threat gling nuclear components from the *Share computerizeddatabases oncrimi- former Soviet Union. Ukraine, with its Coordinated action is required by the nal activity. diversenuclearestablishment,wasamajor entire international community. If the *Identify trustworthy and reliable law source of nuclear-relateddual-usemate- wave of crime and corruption in Eurasia enforcement personnel inthe East. West- rials, including heavy water, zirconium, is to be halted, Russia, other NIS coun- em law enforcement services need all the and hafnium, from its Dneprodzerzhinsk tries, and the Central and East Euro- support they can get from local police production complex. These materials pean states should: establishments. are all on the Nuclear Suppliers Group *Use legal expertise to help Central and restricted list (the NSG is an interna- *Create new, clearly independent crimi- East European and Eurasian countries tional regime aimed at stopping the pro- nal investigation agencies. draft laws and train legal personnel. Volume 6, Number 5-6 9 The World Bank/PRDTE *Expand the International Criminal In- *Track and penetrate Russian and NIS Based on the Heritage Foundation vestigativeTrainingAssistanceProgramn criminal rings dealing in nuclear materi- background paper, "Crime and Cor- and other FBI-sponsored programs to als and narcotics. ruption in Eurasia: A Threat to De- all countries ofthe former Soviet Union *Monitor East-West financial transac- mocracy and international Security, " and Central and Eastern Europe. tions better. A significant percentage of by Ariel Cohen, Salvatori Fellow in the money coming out of Russia repre- Russian and Eurasian Studies. To There are at leasttwo actions the United sents the proceeds of such criminal ac- order: The Heritage Foundanon, 214 States and its allies can take on their tivity as extortion and drug trafficking. Massachusetts Avenue, N.E., Wash- own to curb crime and corruption in To battle Russian and Eurasian crime ington, D.C. 200042-4999, USA, tel. Eurasia: successfully, NIS deposits in Western (202) 546-4400. banks should be screened and tracked more carefully. Anatomy of the Russian Inflation by Paula De Masi and Vincent Koen A fter the many decades of So- prices started to adjust at different shoot up, and by late 1994 reached a viet rule, high open inflation ap speeds, which brought major shifts in level that exceeded five times the De- peared in Russia in 1991, fol- relative prices. By late 1992 most rela- cember 1990 level. In part, this reflects lowing the introduction in April 1991 of tive price changes had taken place, es- the commercialization of a number of partial price reforms and the de facto pecially for nonfood items. Individual services such as child and health care, loosening of price controls. A compre- foodprices,however,keptchangingrela- previously provided for a nominal fee. hensive price liberalization followed in tive to each other, even during 1993, as Also, prices had to be increased from a January 1992, andmonthly inflationrates food subsidies were adjusted. very low base to catch up with costs. In remained in the double digits for most of 4 the case of housing, for example, rents the next three years. By the end of 1994 Another way to look at relative price rose by almost 500 times between late consumer prices had increased nearly changes is to contrast the price behavior 1992 and late 1994 (compared with a 2,000 times compared to December of goods versus services. In April 1991 30-fold increase inthe overall consumer 1990. Such a huge price increase raises and January 1992 service prices rose price index). A similar "U-curve" pat- a number of interrelated questions: much less than goods prices (see figure tern has been observed in many other -To what extent have relative prices 1), but then service prices started to countries of the former Soviet Union. shifted during the transition? -Are prices moving more in lockstep as Figure 1 the Russian public learns to live with high inflation? Evolution of Relative Prices -Have geographical price differences become wider or narrower? or -Have prices overall moved closer to I A W J.., I levels in the industrialized countries? &f@. PV4 4 0 'What are the policy implications offur- ther convergence of Russian and West- ern price levels? . Fon-loed / These questions have thus far received . .- . . ....... . little attention, notwithstandingtheir im- 't * *~100 portant policy consequences. so so Process of Realignment As Russia's old, distorted system ofcon- A30 JA D1 JI - r M A M A 3 e t DJ iAYJIA50O trolledprices was liberalized, individual uo I. tu 10 May-June 1995 Transition Exchange Rate Watch indicates how closely the exchange rate pared for example, with Canada, which, is now followed: "Only about half an amongtheindustrialized countries comes Relative price movements can also be hour will pass after the beginning of closest to matching Russia's climate and measured by comparing inflation rates tenders and thousands of pagers will distances (see table below). for a large number of individual goods. beep and thousands of telephones will (Figure 2 shows how the variability of ring announcing the news about the new relative prices-measured as a weighted exchange rate ofthe dollar. A little more varianceofitemspecificinflationrates- time will pass and the money-changing Geographical Price Dispersion evolved, and relates this to overall infla- offices will post new figures on their in Russia, 1992-94 tion.) Relativeprice variability remained doors and the announcers on practically (average coefficient of variation, very high throughout 1992-93 in com- all the television and radio stations will in percent) parisonwithmarketeconomies (in 1993, interrupt in order to expressively read on average, it exceeded more than 20 a couple of four-digit figures ...... . Perio.Foodst" Nonfood times the variability in the United States Period Foodstuffs goods and France). But, by 1993 it had sub- Regional Differences Narrow March 1992 37 28 stantially declined compared with 1992, July1993 25 25 indicating that most changes in relative Prices and nominal incomes have tradi- June1994 17 17 prices had occurred by that time, and tionally varied widely in Russia's differ- Tocompare 13 price setting became increasingly syn- ent regions. (The country is vast, and its .. chronized for individual goods, as pro- climate is harsh, making for consider- _I ducers and consumers learned to live able distribution costs.) But as uncer- Russian Prices Catching Up with chronic high inflation. tainty about new relative prices waned, and local subsidies and other local price In general, prices are typically lower in Relative price variability and inflation controls measures lost their earlier im- poor countries, particularly for clearly moved in tandem in 1992-93.In portance, the geographical price differ- nontradable services (such as haircuts). the longer run, however, the relationship ences for both food and nonfood goods Given the very low dollar wage levels between the two may weaken, as price narrowed-a sign of market integra- prevailing in Russia, prices in Russia are setters increasingly coordinate price tion. (The disparity was initially larger supposed to be well below those in com- adjustments based on some visible and for food than for nonfood goods, prob- parable market economies. To what ex- unambiguous signal such as the ruble ably because of extensive food subsidi- tent have domestic prices converged to exchange rate. An excerpt from a re- zation and internal trade barriers in ag- international levels after price liberal- cent article in the Moscow-based riculture.) Nonetheless, the degree of ization? In a comparison of Russia and Kommersant Daily (February 3, 1995) regionalpricedispersionis still high, com- France (figure 3), it appears that overall consumer prices in Russia rose from Figure 2 about 6-7 percent of the French level in Relative Price Variability July 1992 (immediately following ex- and Inflation for ioods change rate unification) to 20-22 per- cent in July 1994, with prices of services 1200 35 lagging behind goods. It is likely results 1000 30 would be similar in comparisons with 1000. Infltion other market economies. Thus, the gap U. <(right scale) 25 between domestic prices in Russia and goo \ I /~\ foreignpriceshas remainedwide, though 20 it narrowed rapidly between 1992 and 600 ~~~~~~~~~~~~~~~~~~~1994. 15 \m / Ar10 As part of Russia's structural transfor- \> / \ Voriability mation, the relative price of services 200 - / \ cQl) 5 can be expected to rise significantly in the years ahead, since cost-recovery 0 1~~~~~~~~~~~~~~~~~0 O i N' A N J J A O N D J r N A 1 J J A - a N 0 ratiosarestilllowformanyofthem.An Volume 6, Number 5-6 11 The World Bank/PRDTE important policy implication of the re- Figure 3 maining large gap between Russian and international price levels is that, even if Consumer Prices in Russia tightfmancialpolicies andforeign com- in Percent of French Prices petition were to contain price increases 30 30 in the tradable goods sector, inflation F: at French weights F could stay persistently higher in Russia 25 R. at Russian weights Goods 25 than in Western Europe. R 20 -20 This article is based on the authors' 15 15 paper, "Relative Price Convergence F in Russia, " IMF Working Paper, May 10 1/ 1995. The views expressed here are Goods F Services andR the authors' and do not necessarily S services . . R represent those of the Fund. ..::::: .....-- July 1992 July 1993 July 1994 Hungarian Finance Minister Lajos Bokros Explains His Package "Garnering Public Support Is Indispensable" Hun ngarian Finance Minister would you assess the outcome of World Bank resources could be useful Lajos Bokros could not be de- these meetings? to help consolidate and privatize scribed as the most popular Hungary's financial sector, as well as to politician in the present-day Hungary. A. World Bank President Wolfensohn streamline the overextended public sec- His austerity program, announced on seemed extremely interested in learning tor. The World Bank loans are closely "Black Sunday, " March 12, attacked the details of Hungary's economic pro- linked to the outcome of our negotia- head-on the thankless job of dismantling gram, especially our initiatives to accel- tionswiththe IMF over apossible standby the socialist welfare state, radically erate privatization, to extend itto public credit. At present, no accord has been downsizing the public sector, cutting ex- utilities and the oil, gas, and electric reached, but that may come in October, penditures, and increasing revenues. The once we agree on some key figures in aim is to stop the dangerous slide into the 1996 budget. The Fund wants to deeper foreign debt and an ever-widen- contain the budget deficit at 3 percent of ing budget gap, after long years of de- . GDP; but we foresee a deficit of 3.5 to lays. But the public considers the wel- , 4.0 percent. The numbers are not that fare system as part of their national - a far apart; much depends on how the heritage. Transition editor Richard . calculations are made. We expect a Hirschler asked the minister, who ac- $2.5-3.0 billion current account deficit, companied Prime Minister Gyula Horn and the IMF would like us to match it to the United States, about the visit and with a corresponding amount of direct the economic challenges facing the Hun- capital inflow, to prevent a further deep- garian leadership. ening of the foreign debt. That is fine; but again there are grey areas: how, for Q. In Washington, the Hungarian A example, should we consider the asset delegation was received by both transfers of multinationals to their Hun- World Bank President James power industries, and to complete the garian subsidiaries? We see these trans- Wolfensohn and IMF Managing process by 1997. He voiced support for fers as part of capital inflow, but the Director Michael Camdessus. How our stabilization package and hinted that 12 May-June 1995 Transition IMF thinks otherwise. So both parties Q. What are the major changes in ternity payments will depend on indi- are now working on compromises. social policy? vidual income and wealth, even though effectively, for some 80 percent of fami- Q. How would you summarize the A. A country as indebted as Hungary lies, family allowance and child-care economic dilemmas facing Hungary, cannot afford to spend the equivalent of assistance. and the basic thrust of the austerity 27 percent of annual GDP on welfare package, popularly called the and social services. It cannot afford Q. And how will you modernize and "Bokros Program"? universal child-care benefits, two years streamline the state administration? of maternity pay, and free higher educa- A. During the past 25 years Htmgary tion for all. The universal entitlement A. Hungary's million public sector em- has been unable to achieve economic will have to go. We have to limit social ployees put a heavy burden on a country growth without increasing the balance assistance to those in need-about 3 ofjust 10 million people. As part of our ofpayments deficitandthenationad debt. million Hungarians live under or at the downsizing, before the end of this year This is because the public sector is too subsistence level. From now on, family various ministries and central budgetary large and inefficient; if there is eco- allowances, child-care benefits, andma- agencies will see 19,000 positions cut nomic growth, the public consumption expands even faster. Thus, the budget Unwrapping the Bokros Package deficit soars, and the current account balance deteriorates. Restrictive mea- *The National Bank of Hungary (NB) de- year, meaning anaveragereal wagecut of sures are required, but they constrain valued the forintby9 percent as ofMarch 10percent) Govenunentemployment, in- economic growth. Last year the 13, andpronisedfiurthermonthlydevalu- cluding such public employees as teach- ec ydid get offthe ground, though ations of 1.9 percentinMay and June, and ers, anddoctors willbe reduced. Rules on economy did get offthe ground, of 1.3 percent in July; a general import severance payments and bonuses will be slowly, but once again the external bal- duty surcharge of 8 percent came into tightened.Itislikelythatthecentralbud- ance deteriorated. In 1993 and 1994, effect on March 20 and will remain in getcontributiontolocalgovernmentsnext annual exports increased by just 5 per- place until mid-1997. (The import duty year will be reduced by 20 percent. Fifty cent while imports grew by more than surcharge alone will generate an extra 56 percent ofsurplus revenues accrued from 35 percent. The 1994 current account billion forints in revenue, with a further the basic activities of public sector insti- .~..4L4A1. . 25 billion forints coming from higher tutionswillbeallocatedtothecentralbud- deficit shot up to a record $3.9 billion. import prices and exchange rates.) Hun- get. Most extrabudgetary funds will be Over the past two years, gross debt garian companies will no longer be abolished, support for specific projects grew by $7.5 billion, while foreign. direct obliged to exchange their hard-currency will come from the central budget instead investment reached $3.8 billion. export revenuesfor forints, althoughthey of from state funds. A unified financing Hungary's $29 billion gross foreign debt will still have to repatriate their revenues systemwillbesetupasofJanuay 1, 1996, remains the highest, per person, in Cen- tral and Eastern Europe. In the first -The family allowance will no longer be -The tax system will be modified as of three months of 1995, the budget deficit universal and automatic. But automatic January 1, 1996. Corporate tax will not soared to 150 billion forints ($1.2 bil- eligibility will be maintainedforfamilies be reduced, but companies will pay only lion). Only one-third ofthat amount could with three children or more and for those 40 percent of social security contribu- with a net per capita monthly income of tions on income, down from 44 percent. be covered from domestic savings. Fi- less than 15,000 forints. Others will be Employees'share will increase to contri- nancing the budget deficit crowded out means and assets tested. Child-care as- butionson l2percentoftheirpay,upfrom investment and hindered the develop- sistance is to be reduced to cover only 10percent. Severalexemptionshavebeen ment of business and industry. So we those entitled to the family allowance. eliminated. (Contributionswillberequired have to cut public spending and domes- From now on, employers, rather than the on sick pay; and author fees, honoraria, social security organizations, will have andotherintellectualproducts willbelev- tic consumption, and put the country on to fund sick pay for the first 20 days. iedatarateof44percent.)Thetax-collec- a path of sustainable, exports-led eco- Beginning this fall, tuition fees will be tionagency(APEH)andthecustomsand nomie growth. The austerity package- introduced at universities and colleges. excise collection authority (VPOP) will which Parliament approved on May 23, haveacommondatabaseandinformation amending no fewer than 21 laws-will -Wages are to be held down in govern- system. According to plans, a single au- ment administration and state-owned thority will collect customs duties, taxes, have the immediate effect of cutting this companies. (The gross average monthly stamp duty, and social security contribu- year's budgetdeficitto 156 billion forints wage in 1994 was 33,000 forints, and tions, and will introduce atax filing sys- ($1.2 billion) fromthe originallyplanned despite the expected 28 percent inflation tem, based on both income and property. 282billion. rate, will not riseabove 40,000forints this Volume 6, Number 5-6 13 The World Bank/PRDTE fromthetotal 105,000 civil servicejobs. nev regulations in local-central govern- Q. What is your privatization The cuts will notyield savings this year; ment relations, since local governments agenda? in fact, 2 billion forints have been put operate most schools and hospitals, but aside for severance payments. In the the funding comes for the most part Without touching on every detail, here second stage of downsizing, we will use from the central budget. As for our tax are some of the major points: performance criteria to make a 15 per- policy, we want to ease the burden on * Hopefully, privatization of the "big cent cut in a wider group of public em- entrepreneurs, increasethe overall num- fish,"-the gas, oil and electric power ployees, including teachers and doctors. ber of taxpayers, reduce the level of industries and the connected utilities, This is expected to start in the fall. Also, social security contributions, and clamp the Hungarian Telecommunications underutilized schools and hospitals will down on tax evaders. Company (MATAV; second tranche of have to be closed. But that will require privatization), and two major banks (the Privatizing Hungary's Energy TheHungarangovermmenthasformulated world levels and to cover production and sues as control of Hungarian oil and gas plans to privatize the energy sector over modernization costs. The latestprice rises fields; whether the state should keep a the next three years: were accompanied by a 9 billion forint (73 majoritystakeinMineralimpex,thewhole- *The government will sell 30 to 35 per- milliondollar)compensationpackage, and sale oil andgastrader, inordertoregulate cent of MOL, the state oil and gas com- current political debate suggests that the thewholesale markets; andwhetherornot pany, to strategic investors and reduce govermnent will wish to see household Mineralimpex should be combined with the state share to 25 percent plus one prices remain low. the state oil and gas company. vote. The rest is to be sold off to institu- tional investors or left in the hands of Many customers are unable to afford do- Other unresolved issues include: local authorities and compensation funds. mestic heating bills despite the compensa- (MOL closed last year with an after-tax tion package. The Budapest Electricity *When and inwhat order to sell offdiffer- loss of 1.2 billion forints on its prelimi- Works has announced that 10,000 families ent parts of the highly monopolized en- nary balance sheet, due to losses on the in the capital currently risk having their ergy sector. wholesale natural gas market and higher- electricity supply switched off because of than-expected mining royalties.) unpaid bills. Last year, consumers owed *The percentage of shares to be set aside *MVM, the state electricity company, is the Works 1.2 billion forints. The Works is for employees or to be released for priva- to sell off 50 percent minus one vote of now trying to recoup its debts, but, for tization coupon holders. its national distribution center, but will politicalandsocialreasons,companies have retain full control of the Paks nuclear until now been reluctant to disconnect *Thekindofcapitalinjectionthatisneeded. plant and the national grid. The govern- customers. ment also plans to sell 100 percent, less *The criteria for determining the type of one golden share, of the regional elec- 2. Which elements of the energy sector investor to be preferred (such as strategic tricity companies and the non-nuclear shouldremaininstateownership,andwho or portfolio investors) and the rights that power stations (both of which are under should represent the state's interests? should be accorded investors. MVM), with 50 percent plus one share going to strategic investors. The power sector unions want the state to *The regional gas supply companies are retain a majority holding in MVM, which Projected Revenues from also to be sold off almost completely would retain control over its subsidiaries Privatization (100 percent less one golden share), with (i.e., the regional electricity companies (billions offorints) 50 percent plus one share to go to strate- and non-nuclear power plants). This pro- gic investors. posal would give foreign investors portfo- Enterprise Amount Ho rather than controlling stakes and thus Electricityworksand But two key questions will need to be representsaradicaldeparturefromlastyear's supply companies 75 answered before privatization starts: plan. Therearenowtwoenergysectorunion Gas supply companies 15 leaders on the MVM supervisory board, MOL, the state oil and gas 1. How will the state keep household raisingfearsthattheymayexertundueinflu- company 39 energy prices (which have been heavily ence over the privatization process. The Pharmaceutical manufacturers 10 subsidized for years) under control af- union leaders have been pressing for em- National SavingBank (OTP) 8 ter privatization? ployment guarantees, shares for employ- Other 5 ees, and consultation rights with new own- Total 152 Gas and electricity prices rose by over 50 ersafterprivatization. percent at the beginning of this year, but it is estimated thatafurther rise of around The debate on the state's role in a partially 100 percent is needed to bring them to privatized utility sector centers on such is- 14 May-June 1995 Transition National Savings Bank and Budapest $1.5 billion current account deficit, and outlook, reflecting concerns about the Bank)-together with a number of a 15.5 percent inflation rate. direction economic policy was taking, agrobusinesses and other manufactur- privatization, the high budget deficit and ing companies, can start in July. The Q. You said earlier in an interview low domestic savings. We couldn't wait first tender documents should be com- that as minister of finance half of any longer; we didn't have enough time pleted by midyear, with tenders an- your job is marketing: selling eco- to work out all the details, let alone nounced, in order for the deals to be nomic policies to the public. A re- consult the public or discuss possible concluded before the end of the year. cent opinion poll by Szonda Ipsos alternatives. Infact, there were even That would help realize our plan to col- found that two-thirds of Hungarians some government members who were lect roughly 150 billion forints as priva- were outraged at the reform pack- unaware of the package. Two ministers tization revenue. [See table on privati- age, while a mere 4 percent believed resigned immediately when the program zation revenues.] the reforms would improve the became known. Besides, we didn't want *The boards of the two privatization country's finances in a big way .... any leaks aboutthe planned devaluation agencies, AVU (SPA, State Privatiza- and import surcharge, to prevent specu- tion Agency) and AVRt (State Asset A. True, the program seemed to most lation. Now we have a different situa- Holding), will merge. Thetwo organiza- Hungarians to come like a bolt of light- tion. To further fine-tune our economic tions will function for a while side by ening out of a clear blue sky. But we had policy, public debate is absolutely nec- side, and then the SPA will privatize no other choice. The economic situation essary, including regular television dis- itselfout ofbusiness, as its last firms are was deteriorating and (Forexample,just cussions. We are opento criticism, ready sold off. The AVRt will remain the hours before the prime minister ap- to listen to policy alternatives, and will- gatekeeper of public assets, and will pointed me and my good friend, Gyorgy ingto integrate sound proposals into our play akey roleincoordinatingthe sale of Suranyi [Suranyi is president ofthe na- strategy. We are aware that without energy sector companies. tional bank], Standard and Poor had large-scale public support our program *Hungarianpension and insurance com- revised its rating outlook for Hungary's simplywill notfly. Garnering public sup- panies will be encouraged to enter the foreign debt downward, fromBB+, with port is indispensable. stock market in order to increase the a stable outlook, to BB+, withanegative volume of domestic shareholdings and the stability of the market. Camdessus: The March Measures Are Fine, but ... Q. What are you expecting in 1996 and in the following years? MichelCamdessus, ManagingDirectorof *A significant reduction in inflation and the International Monetary Fund, who on maintenance of international competitive- A. In 1996, without adoubt,therewillbe June 5 met with a top-brass delegation ness,throughwageandmonetarypolicies further belt-tightening. This is the price from Hungary led by the prime minister, (applicationofthecrawling-peg exchange we have topyfroiiwelcomed the Hungarian government's rate). we have to pay for containing the bud- Marchstabilizationpackage,callingit"cou- *Structural reform of the public sector- get and the current account deficit. We rageous and substantive" inanMF News that is, improved fiscal control mecha- expect foreign direct investment to ac- Brief, dated June 6. At the same time he nisms, more efficient public administra- celerate as privatization resumes and considers it onlyafirstphase inaprogram tion, broadening of revenue bases to foreign investors regain confidence. If "aimed at achieving a noninflationary reduce distortions in the tax system, and this happens, we . could meet our target growthpathwithexternalviability." Start- adjustments in the social security system this happens, we could meet our target ingwithavisittoBudapestinlateJune, the to safeguard its viability while providing of $1.5 billion in foreign investment for IMF staffwill work closely with the Hun- adequate assistance to those in need. the year. (Editor's note: foreign direct garianauthoritiesonthenextphaseofthis *Structural reform of enterprises and investmentwas $1.1-$1.2billionin 1994, program, tobeformulatedinthecontextof banks to curtail the role of the state and down from $2.4 billion inl1993 and$1.6 the preparation ofthe 1996 budget. Man- increase the responsiveness of the bownionin 1992, Som illionfinowe3and . 1. aging Director Camdessus is prepared to economy to market signals-this will re- bllon in 1992. Some $200mli1ionflowed recommend to the Executive Board that quire, renewedprivatization efforts. into the country in the first quarter. The the IMF give financial supportto the pro- *Anextemalcurrentaccountbalance, con- government also received $500 mnillion gram,provideditrealizesthefollowingob- sistentwithhaltingtheincreaseinforeign from the sale of MATAV.) Our three- jectives: debt, but without relying on exceptional year economic program foresees a 4.2 *A substantial reduction in the govern- inflows associatedwith privatization. percent economic growth by 1998, a ment deficit. Volume 6, Number 5-6 15 The World Bank/PRDTE Laszlo Csaba: Capitalist Revolution in Eastern Europe by Martin Schrenk Scholars living inthe once socialist, now theories and translating them into policy egy could not, but also need not, afford postsocialist, countries are intimately fa- advice, advisers and decisiomnakers theluxuryofa single digitinflation. " But miliarwiththe history and functioningof should pay more attention, warns the if the transition countries' fiscal imbal- their economic system. That empirical author. The problem is not an overdose ances will be eliminated only in the me- evidence is extensively used in Laszlo of sound macroeconomic policies, he dium to long run, and if moderate infla- Csaba's new book, The CapitalistRevo- continues, but thatpoorly digested, con- tionisthereto stay, astable exchange rate lution in Eastern Europe: A Contribu- testable, orfullyuntestedmacroeconomic foralengthyperiodisnotsustainable, he tion to the Economic Theory ofSystemic theories were combined with total disre- asserts. Change. spect for the peculiar qualities of trans- forming economies. No wonder that The author rejects the notionthatuniver- Taking a "second-generation" perspec- these countries' first encounter with sal privatization at maximum speed is tive on transition, the author abandons mainstream economics brought only self-evidently the most desirable ap- any illusion that by following a reason- meager results, he concludes. proach. As long as the institutional able scenario, reforms can be accom- prerequisites arenotavailable, suchas an plished quickly, and at predictable social He also makes clear that it is not the efficient financial market and effective and economic costs. He disagrees with mainstream economics that should be corporategovernanceunderprivateown- any radical masterplans-"grand de- blamed for the mistakes: "Mainstream ership, full-speed privatization is not signs"-thatlackhistoricalandsystemic economics does not call for confusing tempting, argues Csaba. He views insight. He also decries inappropriate stabilizationwith institutional reform. It voucher privatization as "populist" and comparisons, such as equating the does not call for disregarding the envi- suggests "equally cheap but fairer ways "transformation" of postsocialist coun- ronment in which it is applied, since it is of paying one's electorate." Csaba dis- tries with "reform" in semi-industrial- not concerned with application at all." putestheassertionthatmanagersofstate- ized capitalist countries. While in the But Csaba also rejects "pragmatism" as owned enterprises are inherently ineptto latter, efforts focus on improving the an alternative approach. In his view, it run their firms efficiently. He sees anec- prevailing system, in order to preserve lacks a "compass" with which to orient dotalevidencethatmanymanagers, once it, "transformation" implies much more; the countries as they move from one they accept hard budget constraints as it is, rather, a "modernization" that im- economic system to another. definitive, and recognize that privatiza- plies the destruction of the traditional tion offers them long-run opportunities, economic and political order, and its re- Csaba argues that in the transformation do make the necessary adjustment. Con- placement with multiparty democracy, process-which even in the most ad- sequently, he only mildly disapproves a new set of coordination mechanisms, vanced Central European countries could spontaneous privatization, appreciating as well as openness to economic, tech- take 15 to 20 years-balancing the bud- its "evolutionary" potential for creating a nological, and cultural exchange with get should remain a long-term concern. vibrant private sector. the outside world, reasonable monetary Buthewarns againstsimplistic attempts stability, and development of a vibrant to keep inflows and outflows in balance Beyond his forceful critique of main- private sector to sustain economic in each calendar year. He recognizes the stream views, Csaba offers, as an alter- growth. dangers ofinflation, and thatprice stabil- native, an "evolutionary" approach (in ity is the best way to protect the socially Hayek's and Popper's sense) based on Csabadoesnotregardthermisguideduse vulnerable, especiallytheelderlyandthe "organic," "incremental" changes result- of"reform" for "transformation" asjust disabled,topromotesavings, andtomake ing from "spontaneous" decisions by a quibble over terminology. In his view, investment decisions simpler. But he autonomous agents. For the reader ea- "both sides" (presumably meaning both emphasizesthatwhilehyperinflationwill gerly awaiting an alternative "vision" advisers and governments of transition prevent transformation, a moderate rate after the extensive critique of familiar countries) have underestimated the dif- of inflation does notcall for stabilization blueprints, this message may appear dis- ficulties related to the multidimensional asthe inevitable first stage ofatransfor- appointingly general. The author, how- character of modernization. In applying mation strategy: "themodernization strat- ever, wouldprobablyarguethatanyother 16 May-June 1995 Transition than such a low-key posture would be a instead ofjumping atthe promises ofthe warding reading for those who are not relapse to "social engineering," deduced latest wizards offering swift, painless satisfied with the conventional wisdom from a "theory of transformation"-the economic cure-alls. and are looking for new answers to the very approach that the proponents ofthe formidable puzzles of transfornation. evolutionaryparadigmreject. Thiswould Csaba's very explicit criticisms and follow from his thesis that "shock- rather vague proposals will probably be (Laszlo Csaba's The Capitalist Revo- therapy andgradualism, although inpur- contested by many readers; similarly, lution in Eastern Europe: A Contri- suit of converse ideological agendas," his occasionally caustic or dismissive bution to the Economic Theory of bothprovide detailed top-down prescrip- language will not meet with universal Systemic Change, is published in the tions for institutions, focus excessively applause. He portrays as "quick fixes" Studies of Communism in Transition on details, and suppress spontaneity- comprehensive first-generation reform Series, Edward Elgar Publishing, common characteristics of"social engi- blueprints, and labels specific proposals Aldershot, U.K. and Brookfield, U.S., neering." as "ideological," "reductionist," or "na- 1995, 342 p. ive." Some chapter subtitles promise Csaba's prescription for arriving at a more than the author delivers, such as To order: Ashgate Publishing Co., Old more operationally relevant methodol- "The OperationalizationofTransforma- Post Rd.,Brookfield, VT 05036-9704. ogy reflects his concept of "moderniza- tion in Functional Terms" or "Towards a The author is Senior Economist at the tion" as the essence of transformation, Theory of Transformation." But the Budapest-based research institute, as mentioned earlier. In his view, there author makes no secret of his limited KopintDatorg. isno roomforadistincteconomic "theory purpose: it is to "contribute to, rather of transformation" with cross-country than settle the international debate on Martin Schrenk is Economist in the validity and endowed with predictive this particular area of general econom- TransitionEconomyDivision, the World powers, fromwhich "optimal" speedand ics." And indeed, this book will be re- Bank. sequence for specific countries can be deduced. Instead, he calls for a multi- Milestones of Transition disciplinary approach that addresses the social and culturalenvironment oftrans- [Contributions of Open Media Re- Poland's national bank said the appre- formation, such as descriptive and com- search Institute, Prague are appreci- ciation of the zloty may have a short- parative economics, institutional econom- ated.] term negative effect on Polish exports, ics, political economy, history, law, and but that it should prove temporary as sociology. The yawning gap between Polish Finance Minister Grzegorz Polish importers and exporters learn to abstract theories and utopian designs of Kolodko warned in early June that infla- minimize currency risk. On May 16 the transformation, and aimless muddling- tion would pick up unless his anti-infla- national bank widened to 7 percent the through, needs to be filled by patient, tion package-including duty-free im- band within which the zloty exchange multidisciplinarydialoguebetweenschol- port quotas for some foodstuffs, more ratecanfluctuate above orbelowits fixed ars and practitioners, Csaba suggests. intervention in the farm market, tighter mid-rate. Since then the national bank budgetary discipline, and measures has continuedto intervene onthe domes- This evolutionary approach assumes a againstraisingpricesbymonopolists-is tic foreign-exchange market to halt the sound relationship between a govern- implemented. Iflation for the first half zloty's rapid appreciation against the ment and its people. Public trust should of this year is likely to be around 14.6 dollar. Official hard currency reserves be based on a fairly simple but stable set percent, as against a government target rose $1.6 billion in April to $9. 1 billion, of institutions and rules and on efficient of 17 percent for the whole year. The according to a national bank report. conflictmanagement. Stability ofexpec- economy grew by between 5.5 and 6.5 tations is also important and requires percent in the first quarter of the year Poland was awarded its first invest- credibility of policies and diminishing compared withthe same period in 1994. ment-grade credit rating (a Baa3) by fears of policy reversal. This may be According to a poll of general election Moody, the international rating agency. attainedthrough laborious andtime-con- voting intentions published in the June 4 The rating, which is the first to be as- suming consensus building, in whichthe Gazeta Myborcza, support for the Demo- signed to a country that has negotiated a challenge is to persuade social partners cratic Left Alliance (SLD) has risento 25 debt forgiveness package with bank lend- and a large partofthe public ofthevirtue percent, whilethat fartheFreedomUnion ers, will pave the way for the country's offollowing sensible economic policies, has fallen to 9 percent, and for the Peas- debut Eurobond offering. However, Stan- ants' Party to 8 percent. Volume 6, Number 5-6 17 The World Bank/PRDTE dard & Poor's, the other large U.S. Foreign capital in the Czech economy the subsistence minimum of 385,000 rating agency, and IBCA, the European exceeded $3 billion at the end of May rubles ($45) a month. agency, chose to assign only sub-invest- and is producing strong inflationarypres- ment grade ratings to Poland. sures, Czech National Bank Governor Western official creditors and Japan Josef Tosovsky said on June 6. The agreed on June 2 to reschedule nearly $7 Latvia's largest commercial bank, economy cannot absorbthe huge inflow billionofRussiandebtanddebtservicing Baltija Bank, where about 40 percent of of foreign capital-the bank's hard cur- due in 1995. In addition, the group of 17 all Latvian deposits are held, resumed rency reserves have risen from $6.2 creditorcountries affihiatedwiththe Paris partial banking operations on May 31. billion to $9.5 billion. Much of the for- Club agreedto launchtalks inthe fall for (The bank's president suspended op- eign capital is short-term speculative "a comprehensiverescheduling" ofRus- erations on May 23, and its shares were money. The Czech government is ex- sian debtto official lenders (estimated at transferred to the government two days pected to approve a new hard currency $36-$40 billion), provided some condi- latertoprevent bankruptcy.) Two former law. The earliest date the koruna can tions are met, including continued adher- heads of the Baltija Bank are charged become convertible is October 1995. ence to the recently concluded IMF sta- with exchanging 60 percentofthe bank's bilization plan. Russia will pay the Paris credit resources, worth about 80 million Slovakian Premier Vladimir Meciar Club countries some$1.2 billion in inter- lati($156million),forRussianstatetrea- announced on June 6 that underthe new est payments this year. sury bonds, redeemable in 2008, with 3 voucherprivatizationconceptinSlovakia, percent annual interest. the National Property Fund will distrib- According to Russia's Deputy Finance ute bonds worth 35 billion koruny, with Vladimir Petrov, the government plans The banking crisis in Latvia has no di- eachcitizenreceivingbondsworth 10,000 towriteintoits 1996budgetforeignloans rect implications for Lithuania; none- koruny. Citizens will be ableto use bonds worth$8.7billion,withhalfofthemfrom theless, bankers and businessmen are to buy shares in companies that are ear- multinational lenders. He saidthis would watching their operations more closely, marked by the government and can also include $4.8billioninloansfrominterna- says Lithuanian Finance Minister use them as downpayment on an apart- tional financial organizations. Russiamay Reinoldijus Sarkinas. Questions remain ment. The new measures will increase also borrow to pay off its $120 billion aboutthree ofthe country's biggestbanks state control ofthe economy andprohibit foreigndebt, but only ifitcanmake credit in which the govermnent still holds 51 privateownershipofstrategicindustries, arrangements that will not increase its percent of shares. The World Bank has ineffectspellingtheendofcouponpriva- repayment burden over the next two recommended further privatization of tization, according to the Financial years. the sector. But the state plans to hold on Times. its 51 percent share, Sarkinas said: "In Several Western banks have recently the future, it will come to a priva iza- Average monthly income in Russia, begunissuingAmericanDepositoryRe- tion." measured in dollars, fell from $87 in ceipts (ADRs) for Russian companies. November 1994 to $72 in March 1995, ADRsmayfacilitatetheinflowofneeded The Czech government on June 7 de- a spokesman for the Russian foreign investment to Russia. However, cidedto unilaterally abolish the clearing government's Economic Reforns Cen- while ADRs provide avehicle for foreign system that has governed trade pay- terreportedonMay 16. Accordingtothe portfolio investment, particularly from ments with Slovakia since the two coun- State Statistics Committee, the highest U.S. funds, they do not eliminate the tries split. Thus, it is likely that as of wage-1.47 million rubles (about fundamental deficiencies ofthe Russian Octoberbilateral tradewillbe conducted $286)-was paidinthegas industry, and securities market. in hard currency. Ending the clearing the lowest-147,000 rubles (about system, under which the Czechs have $29)-in agriculture. Average wages in Russia's foreigntrade turnover reached run up monthly deficits for more than a the health care, education, and scientific $25.7 billion in the first quarter of 1995, year, will beafurthersteptowardmaking research sectors has dropped below the anincrease of 10.5 percentoverthe same the Czech koruna convertible. The can- subsistence minimum. The population's period in 1994. Exports totaled $14.4 cellation may lead to a decline in Slovak average real income declined 6 percent billion, while imports amountedto $11.3 exports andhardcurrency reserves.(The compared with the same month in 1994. billion. Trade turnover with Western Czech Republic remains Slovakia's big- Between January and April some 30 countries reached $20.3 billion, with gesttradingpartner,accountingfor37.1 percent of the population-44 million exports accounting for$11.5 billion and percent of exports and 29.6 percent of people-had monthly incomes below imports $8.8 billion. imports in 1994.) 18 May-June 1995 Transition Russia introduced new import customs the only possible way to increase pro- Ukrainian authorities increased utility duties on May 10. In an effort to protect duction in many cases is to turn state- prices for individual consumers as of nationalagriculturalproducersfromcom- owned businesses into joint stock com- June 1. The cost of heating has doubled, petition with cheaper Western products, panies. while prices for water and sewage dis- import duties on meat and meat products posal have risen by 40 percent. The were raised from 8 percent to 15 per- Bulgarian Deputy Prime Minister and government announced recently that it cent, on poultry from 20 percent to 25 Minister for Economic Development intends gradually to raise utility rates, percent, on sausage from 8 percent to RumenGechevsaidonMay 10 saidthat previouslyheavilysubsidized,untilthey 20 percent, on butter from 15 percent to the government's major economic goals reach 60 percent of their real cost; on 20 percent, and on fish from 5 percentto in 1995 are maintaining financial disci- June 1, they covered only 30 percent of 10 percent. pline and achieving2.5 percenteconomic the real cost. growth. The cabinetprojects an increase Russiaproduced 81 milliontonsofgrain in GDP averaging 4.5 percent a year The European Bank for Reconstruc- in 1994, down 18 percent from 1993, during its term in office; it also intends to tion and Development (EBRD) has and the amount will fall still further this lower inflation from 121.9 percent in saidthatthebankwillsetupacapitalfund year. The government failed to ensure 1994 to 15 percent by 1998, and curb with $60 million equity to buy and re- adequate supplies of fertilizer. Russia unemployment. Gechev said that priva- structure Hungarian companies experi- now has 285,000 private farms, butmost tization, to be carried out in two stages, encing serious difficulties. EBRD Presi- are in bad shape: 20,000 failed last year, will start in January 1996 and end in late dent Jacques de Larosiere during a largely because of a lack of machinery. 1997. Some 150 enterprises will be se- late-MayvisittoHungary,confirmedthe lected for privatization. The Kozloduy successful relations between the bank Since 1991,thelandareaheldbyRussia's nuclear reactor, the military-industrial and the host country. The EBRD had state farms has shrunk from 124 million complex, the Bulgarian Telecommuni- invested $900 rnillion in Hungary in a hectaresto 34 million,whilethecoopera- cations Company, the Post Office, and total of31 projects, whichamounts to 12 tive sector's holdings have increased one or two major banks are among those percent of the EBRD's investments. from 85 million to 137 million and the enterprises that will not be privatized, TheEBRDwill continuetoplaya rolein private sector's from 4 million to 23 Gechev said. The private sector's share Hungaryinthedevelopmentofthefinan- million. State Committee on Land Chair- in GDP, which accounted for 30 percent cial sector, in privatization, and restruc- manNikolaiKomovsaidonMay20that in 1994, is projected to reach 55 to 60 turing, and in the development of infra- the number of "land users" percent by the end of 1996 and 70 to 75 structure and the capital market. (zemlepolzovateli) has increased from percent in late 1997. 300,000 to 45 million. He added that The EBRD had increased its disburse- despite "weak legislative guarantees," Illegal business activities in Bulgaria ments to Eastern Europe and the former there have been "significant structural amountedto $9.5 billionin 1994, equiva- Soviet Union by 238 percent inthe first changes" in land tenure. lent to the country's GDP, according to quarter of 1995. The bank made invest- a May 8 report in Trud. The trade union ment commitments of$383 million inthe Russia's central bank has introduced a newspaper cited statistics ofthe Bulgar- period. First-quarter operating profit 100,000-ruble note, worth about $20. ian National Bank. Illegal business in- before provisions surged to $9.91 mil- Previously, the 50,000-rublenote, intro- cludes drug trafficking, forged customs lion, up from $2.16 million ayear earlier. duced in 1993, was the largest in circu- declarations, and trade with countries lation. thatare underan embargo. Accordingto China's industrial output has grown to Trud, many restaurants, hotels, and ca- $18.81 billion, 15.4 percent higherthan The Uzbek government will no longer sinos are frontbusinesses created tojus- in April of 1994, according to figures finance insolvent enterprises, President tify profits to the revenue office. from the State Statistics Bureau. Islan Karimov told the republic's cabi- net of ministers on May 16. While noting Viet Nam cut its trade deficit inthe first China will halve its new foreign borrow- that inflation has been steadily decreas- fourmonths of 1995 to $80millionfrom ing this year to $5 billion in a drive to ing in 1995, he said managerial inertia is $228 millioninthe sameperiod lastyear. maintaintightcurbs onintemational fund to blame for the country's poor eco- Exports rose 48.7 percent to $1.48 bil- flows inthe wake ofthe Mexican crisis, nomic performance and its failure to lion, during the period, and imports rose according to the deputy governor of the privatize. Karimov also indicated that 27.4 percent to $1.56 billion. central bank. Zhu Xiaohua insisted that Volume 6, Number 5-6 19 The World Bank/PRDTE the Chinese government would stand by tons from the previous year, turned to nominal value of at least $8 million and Chinese state-owned banks that have foreignmarketstofillthegap andtohold that have at least 20 percent ofthe issue borrowed abroad. back prices. In the first three months of publiclytraded). the year, U.S. exporters shipped agri- *A second-tier market (for bond trad- By the year 2005, China will be the cultural goods worth $984 million to ing, comprising issues that have a free world's second largest economy, will China, just short of the 1994 total of float of$4 million or more and that have rankinthetophalf-dozenaamongtrading $1.08billion. ScottReynolds,directorof at least 15 percent of equity available economies, and will be the largest trad- the U.S. Department of Agriculture's for public trading). ing partner of each of its neighbors, trading office, predicts a record year for *An unrestricted market to handle all according to a study by China experts at U.S. exporters in 1995. remaining issues. the Australian National University. The Prague Stock Exchange (PSE), The PSE has struggled to digest the The 1994 grain harvest in China was taking its next step toward continuous roughly 1,700 issues that came on the the second biggest in the country's his- trading, will split into three separate sec- market subsequent to the two waves of tory, but was not enough to keep pace tions this autumn. As of September 1, privatizationin 1993 and 1995. Alackof with rising demand, combined with a shares on the bourse will be placed into transparency has plagued the market, fourth year of greater than 10 percent one of three categories: because most companies were not dis- economic growth. Beijing, caught by a *A main market (trading listed issues closing the full informationthatis needed grain shortfall of some 11 million metric that have a free float of shares with a for a healthy capital market. The Russian Economy-Stabilization at Last? A mood of optimism about the economy budget. (The ruble roseto atwo-month high ration of the final version will continue prevails in Moscow. Russia's economy is of4,900tothedollarinmid-June.)Theruble until July 25. The draft envisages an an- startingto stabilize. Inthefirstfourmonths has begun to squeeze foreign currencies nual inflationrate of20-25 percentand an oftheyear, GDPreached275 trillionrubles firomthenational market,andde-dollarization exchange rate of 6,000 rubles to $1. It sets ($55billion)comparedwithplannedlevels of the economy has begun, according to revenues at 273 trillion rubles and spend- of 200-260trillionrubles($40-$52billion), Chubais. ing at 349 trillion rubles. As in 1995, the and output fell by 5 percent instead of the deficit-4 percent of GDP-is to be cov- anticipated 6-8 percent. Industrial output The mid-May projections of Credit Suisse ered by noninflationary sources; state in May was unchanged compared with FirstBostonalsoforeseearecoveryin 1996. securities(40trillionrubles)andloansfrom May 1994. and only 0.8 percent less then The Swiss-American bank sees GDP down international financial organizations (23 a month before. The steel, chemical, and 4 percent in 1995 (against 15 percent last trillionrubles). Thebalanceoffinancingis petrochemical industries raised output by year), andthenupafurther 1 percentin 1996, to be shifted from external to internal 10 percent in the first five months of the and envisages 60 percent consumer-price sources,withforeignloansin 1996amount- year over the same period in 1994. inflationin 1996. Lastyearinflationreached ing to 40 percent of the total, compared Interenterprise debts were shrinking and a high of 200 percent, then dropped to 170 with 58 percent this year. The rest of the wage arrears declining. percentfortheperiod end-1994to end-1995. deficit is to be financed through domestic Inflationiscontinuingtoslowthisyear: the bond issues and privatization revenues. The budget deficit in the first four months cumulative monthly consumer price index of 1995 dropped to 3.3 percent of GDP has decreased every month, beginning at The government has set a ceiling of $8.5 instead ofthe expected 8 percent. Accord- 17.8 percent inJanuary, and falling to below billion for debt payments and new credits ing to a government budget report, first- 8 percent in May. nextyear. The budgetoutline callsforbor- quarter revenue rose to 32 trillion rubles rowing$ 1.1 billionunder anIMF standby ($6billion),exceedingtheplannedlevels- EconomicsMinisterYevgenyYasinwarned, loan agreed earlier this year, and another forthefirsttime infiveyears-by 3.3 per- however, that expectations of an inuninent $1.8billioninnewlMiF loans. PlannedEu- cent. Expenditures totaled 39.7 trillion upswing in the Russian economy might be robond issues will raise $1.5 billion, and rubles ($8billion), 82percentofthe target unrealistic. He said that arresting the con- bilateral credits$2.4 billion. Lendingfrom figure. traction in the economy has been a great the World Bank and the EBRD will total achievement in view of cuts in government $1.7billion. Subsidiesandbudgetloansto First Deputy Prime Minister Anatoly credits, stagnant state investment, and re- industry and agriculture will be reduced, Chubais, hailed the data saying that "the strictive monetaly policy. The economy's with direct subsidies to the farm sector countrys economic situation has radically performance show that output can be pro- remainingatthe 1995 level. changed, and recovery is under way." duced without state backing. Chubaisconsiders the ruble's month-long Based on OxfordAnalytica Reports rise against the dollar a sign of stabiliza- The government submitted the draft 1996 tion, the result of the government's tough budget to the Duma on June 18, and prepa- 20 May-June 1995 Transition World Bank/IMF Agenda Social Fund Project Launched in urban transport policies throughout the enterprises to produce andmarketseeds, Cambodia country, as well as on restructuring the improve regulation of the seed system domestic bus manufacturing industry. and develop a research plan. Long-term The World Bank announced June 9 that (Russianmasstransportsystemsaccount goals will include liberalizing seed pric- its first Social Fund in the East Asia formorethan85percentofallmotorized ing, marketing, and trade and establish- region will be set up in Cambodia, with urbantrips, comparedwith20percentin ing private seed production. Earlier, the $20millioninIDAfunds,tobringsschools, Western Europe andjust 3 percent inthe Bank had released $250 million to clinics, roads, and clean water to this United States.) Ukraine-the second trance of a $500 country where life expectancy is a mere million rehabilitation loan-to finance 52 years. (The social fund is not subject Russia Seeks New IMF Loan Facility critical imports and supportthe country's to recipient government control. It is balance of payments. World Bank offi- transparent and demand-driven: com- Russia's Deputy Economics Minister cial OleksanderKaliberda saidthe Bank munities can request money up to Sergei Vasiliev said negotiations are be- is ready to expand its aid program to $250,000 for specific projects. The av- ginning with the IMF on a new loan Ukraine. He noted that among the 19 erageprojectcostis about$25,000.) The facility. Russian officials hope that the projects currently under review for fi- fund will finance small-scale projects in loanwill amountto $3 billiona year over nancing are a proposal for institutional the poorest areas, and will help local three years beginning in 1996. Vasiliev developmentworth$44imillion, forwhich groups take ownership of assets. said the first $1.2 billion tranche of last the Bank could appropriate $27 million, month's IMF $6.8 billion standby loan and aprojecttorehabilitatehydroelectric $600 Million Rehab Loan to Russia went to pay foreign creditors. He added power plants in Ukraine, with the Bank thatfinalplansforspendingtherestofthe possibly providing a $115 million loan. The World Bank on June 7 granted a standby financing are to be made later He said that if Kiev continues to pursue second rehabilitation loan worth $600 this year. economic reforms, there will be no rea- milliontoRussiatohelp financeimports. son for it not to qualify for $1 billion The funds will support the government's Oil Cleanup in Russia Turns Messy annually in World Bank assistance. macroeconomic stabilization program during 1995 and will finance structural Taxes, bureaucracy, and suspicion are Help Pledged for Central Asian Na- reforms, including opening up trade, hindering efforts to clean up the oil spill tions abolishing quotas and export licenses, in Russia's Komi region as disaster reducing importtariffs, streamliningfuel looms, reports the Wall Street Journal International donors and agencies, meet- export procedures, and abolishing re- Europe. "I think the government is try- ing in Paris in late May, offered strictions on commercial land sales. The ing, " says a World Bank official in Mos- Kazakhstan, Azerbaijan, and Kyrgyzstan loan is for 17 years, including a 5-year cow. "But every single ministry has its further financial assistance to keep their grace period, with an interest rate of7.09 own turfto protect and they are not used wide-ranging reforns on track: percent. to cooperating in a crisis." The World *Kazakhstan was pledged $1.22 billion Bank and European Bank for Recon- for 1995, and a further $575 million for Russia Upstages Mass Transit struction and Development recently 1996. (In 1995, $400-$450 million in approved $125 millioninloanstopay for long-term loans are to come from the Under a new $329 million World Bank the cleanup, but the Ministry ofFinance World Bank and Asian Development loan, 14 Russian cities will get help up- is charging a 23 percent value added tax Bank. The IFC andthe EBRD will grant grading and restructuring their public on Western equipment being imported afurther$150millioninequityparticipa- transport companies. The project, ap- to remove the oil. tion and loans. Export credit agencies proved May 16, will finance urgently indicated additional commitments in ex- needed replacement vehicles and spare World Bank Focuses on Ukraine port-financing credits.) On June 9 the parts in the target cities. The cities will be World Bank approved a $180 million able to buy more than 1,700 buses and In support of efforts to resuscitate structural adjustment loan to improve trolleys andrehabilitate morethan 1,500 Ukraine's seed industry, the World Bank competition in the Kazakh agriculture vehicles already in service. The loan will has approved (May 23) a $32 million and energy sectors, to expand foreign also finance expert advice on improving loan. The project will develop private trade, and to strengthen the private and Volume 6, Number 5-6 21 The World Bank/PRDTE the financial sectors and social services. planned annual lending program or $100 that have swallowed up vast tracts of Earlier, the IMF approved a 12-month million equivalent, whichever is greater. forest due to rampant tree-cutting over standby credit of $290 million. centuries. In another development, the *Azerbaijan was pledged $430 million IMF Drafts Standards on Financial WorldBankhasapproveda$400million for 1995,and,preliminarily,$240milhion Data loan to China to improve its congested for 1996. Inflation has fallen sharply railway system. The loan will cover 23 (monthly inflation has been reduced to IMF officials are drafting standards that percent of the cost of the govenmment's around 3 percent from 60 percent at the will press member governments to pub- program to reorganize and refurbish the end of 1994), and the exchange rate has lish faster and fuller financial accounts. system, which carries more than half of stabilized, but the lasting Nagorno- The documentwillbe submitted forcon- the country's freight and much of its Karabach dispute woaies donors. siderationtomembersattheIMFAnnual passenger traffic. The project involves *Kyrgyzstan was pledged $680 million Meeting in October. IMF official Roger electrifying a line more than 600 miles for 1995-96. Donors commended the Nord saidthat eventually itwill be made long, computerizing its telecommunica- country for being at the forefront of availabletothepublic. Theissueofopen- tion and information systems, develop- stabilization and economic reform. Infla- ness will be raised at the June summit of ing containertransports, and acquiring of tion is down to single digits and the theG-7countriesinHalifax.Nordsaidin more powerful locomotives. currencyisstableandconvertible. Priva- an interview that there was no decision tization is progressing well, enterprise yet on whether the IMF would publish a New IDA Credits for Viet Nam restructuringisunderway, financialdis- report twice a year on how well some cipline has been imposed on enterprises major countries had followed IMF ad- A $ 100 million IDA credit to Viet Nam and banks, and land distribution and vice. He said some countries were willing will help modernize the country's irriga- agricultural reform have been stepped for the report to be made, butthat others tion system, which dates from French up. There was concern about the budget argued that they could not speak frankly colonial times. Another IDA credit of andamonitoringperiodwas agreedwith to the IMF if such material were to be $165 million will help finance the the government. The budget deficit is disclosed. government's plans to improve power expected to rise to 11 percent of GDP in supply in southern and central VietNam; 1995, from 8.4 percent in 1994. (Tax IMF Approves $1.8 Billion for toprovidenewandrehabilitatedgenera- collection is currently a problem, pend- Algeria tion,transmissionanddistributionequip- ing implementation ofthe country's first ment; andto upgrade agencytraining for universal tax laws later this year.) The IMF Board had approved a $1.8 better management and maintenance. billion three-year extended fund facility World BankExpands Single Currency for Algeria to support an economic re- MIGA First Guarantee in Viet Nam Loan Program form program started in 1994. The pro- gram aims to slash inflation and spur The Multilateral Investment Guarantee The World Bank has expanded its single economic growth through rapid elimina- Agency (MIGA) issued its first Contract currency loan program. The Bank will tion ofthe budget deficit, full liberaliza- Guarantee in Viet Nam to the U.S. offerall its borrowersthe choice offloat- tion of prices from government control, Citibank. Citibank invested $15 million ingrate single currency loans, fixed rate andpromotionoftheprivatesector. Under to open a Hanoi branch. The MIGA single currency loans, and currencypool the plan, economic growth is to acceler- guaranty of $13.5 million will protect loans with a variable lending rate. Previ- ate to 5.3 percent from 1.1 percent in against the risks ofexpropriation, trans- ously, all borrowers received loans in a 1994-95;the year-end rate ofinflation is fer restrictions, civil disturbance, and basket of currencies. The new measure to be reduced to 10.3 percent from 35.1 war. will allow borrowers to select any cur- percent; andthebudgetdeficitistobecut rency or composite currency for which to 1.3 percent of GDP from 2.8 percent. Since Viet Nam joined MIGA in Octo- there is sufficientborrower demand, and ber 1994, MIGA has received more in which the World Bank can efficiently World Bank Assists China's Fores- than 30 applications for coverage of borrowfromthe market.Itwillalsoallow tation and Rail Modernization potentialforeigninvestmentsinthecoun- borrowers to select the interest rate basis try, totaling hundreds of millions of dol- thatwillapplytotheloan.TheBanksaid China is using $500 million in World lars.MIGAmembershiphasincreasedto each member country will be eligible for Bank loans for a range of afforestation 128 with Ukraine and Mozambique single currency loans for up to half ofits projects, aimed at pushing back deserts among its most recent new members. In 22 May-June 1995 Transition the current fiscal year MIGA has fa- discharged into the Baltic Sea or its million, approved May 23, aims to in- cilitated foreign direct investments major rivers. crease productivity and reduce poverty totaling over $1 billion in 18 develop- in rural areas by speeding up delivery of ing countries. Latvia Loan extension services to farmers and in- proving the technical expertise of agri- Macedonia Receives $154 M[illion The World Bank approveda$14 million cultural staff. (Agricultureaccountsfor loan to Latvia on May 23 to rehabilitate 60 percent of Madagascar's exports.) The IMF on May 5 granted a $5 5 million the district heating system in the City of loan to the FYR (former Yugoslav Re- Jelgava. Bank funds will be used to Uzbek Cotton Fields Fertilized by public) of Macedonia. An $85 million increase boiler efficiency, eliminate en- World Bank Money IDA credit approved May 16 will provide vironmentally unsound coal-fired boil- crucial balance of payment support for ers, install heat meters, and improve The World Bank on May 26 approved a the government's planned reforms in its maintenance of power generators. loan of $66 million to help Uzbekistan enterprise and banking sectors, along improve production in the vital cotton withsocial safetynetprogramstoprotect IDA Credits: Infrastructure Rehabili- sector. Specific project goals include: the most vulnerable people. The project tation in Angola supporting the private sector efforts to will also help clear some ofthe country's process and market about 25,O00tons of debt. A secondIDAcreditof$14 million, The World Bank's IDA will provide planting seed per year, improving pest approved on May 16, will provide ser- Angola with a $249 million credit to controls, and providing equipment and vices to laid-off workers and help them strengthenmacroeconomicmanagement trainingtointroduceirrigationtimingtech- find new jobs. and rehabilitate the infrastructure, said nology. The total project cost is esti- National Investment Director Ana Dias mated at $84.6 million. Baltic Sea Cleanup Lourenco. Other projects totaling $309 million have been identified. IFC's Beer Investment The World Bank will join the European Bank for Reconstruction and Develop- Road Building in Albania The World Bank Group's International ment, the European Investment Bank, Finance Corporation will invest $24.4 the Nordic Environmental Finance Cor- Albania's economy has continued to millioninarecentlyprivatizedTanzanian poration, andNordiclnvestmentBankin expand, boosted by international assis- brewery. The $18.4 million loan and $6 financing seven projects, costing $240 tance andthe emergence ofthe country's million equity investment will help the million, to clean up the Baltic Sea. As private sector, butthe recoveryhas been companyincreaseoutputandmeetinter- announced on May 17, the projects will tempered by the lack of adequate infra- national health, safety and environ- back the Baltic Sea Joint Environmental structure. With help from a $15 million mental standards. Program, an international effort to clean IDA credit approved May 25, Albania upandprotecttheBaltic Sea. The overall will promote agricultural development Mozambique Privatizes cost of the program will be about $1 and improve road access to rural areas. billionayearover20years,tobecovered Thegoalistoimproveroads,usinglabor- Mozambique agrees with the World by 14 countries (Belarus, Czech Repub- intensive methods; provide equipmentto Bank to privatize most ofthe country's lic, Denmark, Estonia, Finland, Germany, maintain roads; and conduct an inven- big state-owned enterprises, includ- Latvia, Lithuania, Norway, Poland, Rus- tory of roads that fall under different ing the telecommunications and en- sia, Slovakia, Sweden, and Ukraine) with administrativeareas. ergy sectors, within the next two to assistance from international lending in- three years. Simon Bell of the World stitutions. and Agro-Service Development in Bank's Mozambique office said that Madagascar the country has so far sold off 14 of Of the seven Bank projects-two each the 55 largest state-run firms. for Latvia and Lithuania, and one each TheagriculturesectorinMadagascarhas Mozambique has one of the most suc- for Estonia, Poland and the Russia- performed well below its potential be- cessful privatization programs in Af- four have already been approved. Their cause of lack of support-services for rica, Bell is quoted as saying. aim is to improve municipal water treat- farmers, cooperatives, fisheries, and ment services and to reduce pollutants other producers. An IDA credit of $25 Volume 6, Number 5-6 23 The World Bank/PRDTE Conference Diary Russian market; energy and infrastruc- Information: Conference Holdings, kets; and privatization. Participants in- Burlington, MA 01803, USA, tel. 1- International Infrastructure Projects cludebothforeign investors and Russian 800-767-9499 or, outside the U.S. June8-9,1995,CentralParkSouth,New corporations. Information: Conference (617) 270-6200. York, USA Department, Euromoney Publications PLC, Nestor House, Playhouse Yard, Cleanup of Manufactured Gas Plants Highlights of this conference included London, EC4V5EX, UK, tel. (44171) September 19-21, 1995, Prague, Czech projectfinancingin Asia, Latin Amenca, 779-8366, fax (44171) 779-8835. Republic and Russia and tapping the capital mar- kets for infrastructure finance. Hydropower Projects in Emerging Intemational symposium and trade fair, Information: American Conference Markets sponsored by the U.S. Environmental Institute, 175-Fifth Avenue, Suite Septemberll-13,1995,NewYorkUSA Protection Agency, U.S. Department 2182, New York, New York 10010, of Energy, Electric Power Research USA, tel. (416) 926-8200, fax (416) Conference will analyze intemational Institute, Czech Technical University, 927-1563. hydropowerdeals, witheemphasis onhow Gas Research Institute, SGS Environ- to develop an efficient structure, help ment, Umweltbundesamt, NATO's Poland 1995: Crossroad of Oppor- manage multiple sources of risk and Committee on the Challenges of Mod- tunities bringtogetherpartners. Discussions will em Society, Edison Electric Institute, June 19, 1995, New York, USA touch upon criteria that determine the TedhnicalUniversityofBudapest,Florida greatest profit opportunities for hydro- State University, Woodward-Clyde, and A one-day conference presented and powerproject development:tappingnew EPP Publications. The symposium fo- hosted by the U.S -Poland Chamber of and alternative funding sources; deter- cuses on: Site characterization and in- Commerce of Metropolitan New York. mining the ownership structure for a vestigation; Monitoringand field screen- Topics included: Changing role of com- hydropower project; implementing the ing technologies; Soil remediation mercial banks im post-London Agree- optimal strategies for managing cur- technologies; Groundwater remediation ment Poland; Transition ofthe financial rency; bundling smaller hydro projects technologies; and Waste reuse, recy- market for capital, institutional, and eq- for total package financing; and identi- cling, and minimization. Information: uityinvestments; Resources and opera- fyingthebest models inhydroprivatiza- MGP '95 Symposium, Florida State tions of multilateral and U.S. organiza- tion and revitalization. University, 2035 East Paul Dirac tions and the mass privatization prograni-emergingopportunitiesforin- Peep Show vestmenfts. Information: U.S.-Poland Chamber of Commerce of Metropolitan New York, 812 N. Wood Avenue, Suite 204, Linden, New Jersey, 07036, USA, tel. (908) 486-9311, fax (908) 486-4084. v I Russia: A New Era for Business, 'U ____l Finance and Investment ' l July 6-7, 1995, Moscow, Russia Conference sponsored by Euromoney and Bank Austria, Linklaters & Paines, focusing on sectoral opportunities in the FromtheHungarian magazine Uritok 24 May-June 1995 Transition Drive, 226 HMB, Tallahassee, Information: Klaus Nielsen, EAEPE Althanstr 5, 1090 Wien, Austria, teL Florida, 32310, USA, tel. (904) 644- conference organizer, Roskilde Uni- 43-1-313 36/4371, fax 43-1-313 36/ 5524, fax (904) 574-6704, (Email: versity Centre, Box 360, DK-4000 751, (Email: springer@isis.wu- MGP95@,mailerfsu. edu.) Roskilde, Denmark, tel. (4546)757- wien.ac.at), or Professor Dr. Petr 711, fax (4546) 756-618, or Jerzy Chadraba, Kellstadt Center for Mar- Social Relations and Social Policy Hausner, Cracow Academy of Eco- keting Analysis and Planning, DePaul under Conditions of Market nomics, ul. Rakowicka 27, 31-510 University, I East Jackson Boulevard, Economy: Russia and World Expe- Krakow, Poland, tel. (4812) 167-731, Chicago, Illinois 60604, USA, tel. rience fax (4812) 226-919. (312) 362-6200, fax (312) 362-5647, September 24-27, 1995, Moscow, Rus- (Email: pcha drab@wppost.de- sia Energy Situation in the Eastern Euro- paul. edu.) pean Countries Sponsored by the Institute for Employ- November 6, 1995, Zittau, Germany Privatization of Welfare Systems: ment Studies and Socio-Economic Re- Strategies and Policies search Association. Topics to be dis- 5th Zittauer Seminar, organized by the March 1-2, 1996, Trento, Italy cussed include: Types of social policy; FachhochschulefuerTechnik,Wirtschaft Redistribution of power and property; und Sozialwesen. Information: Prof The European Association for Com- Social guarantees and social responsibil- Dr Wilhelm Riesner, Fachhochschule parative Economic Studies will hold its ity; the Social orientation of an economy fuer Technik, Wirtschaft und sixth Trento workshop in cooperation and criteria of economic expediency; Sozialwesen, Zittau/Goerlitz, Theodor- with the Department of Economics of Psychological aspects offorming a mar- Koerner-Allee 16, D-02763 Zittau, tel. the University of Trento, Italy. The ket economy in Russia; Confrontation in (49-3583) 614-13, fax (49-3583) workshop will focus on definingthe rules the sphere of social-labor relations and 510-626. governing private supply; creating more problems of public consensus; Social suitable organizational forms ofthe for- stratification in countries with a market Marketing Strategies for Central profitfirminordertohandletheproblem economy; and Prognosis for the social and Eastern Europe of information asymmetry; promoting structure of Russian society. November 30-December 1, 1995, the voluntary supply of services of col- Information: Dr DulnaraSorocoumova, Austria lective interest by fiscal means; and conference coordinator, Institute for adopting a policy designed to develop EmploymentStudies, MalayaLubyanka Annual conference ofthe Kellstadt Cen- private supply, whether for profit or oth- Str 16, 10100, Moscow, Russia, tel./ ter for Marketing Analysis and Plan- erwise. fax (095) 928-8319, (Email: comm- ning, DePaul University-Chicago, and pub(comlab.vega.msk.su.) the Department of Intemational Busi- Papers are called for in the following ness Administration, University of Eco- areas: theoretical analysis ofthe privati- Transforming Economies and Soci- nomics and Business Administration, zation ofwelfare systems; concrete mod- eties: Towards an Institutional Vienna. els of welfare system privatization; Theory of Economic Change analysis of policies promoting private October 19-21, 1995, Cracow, Poland The conference will promote dialogue supply; size, evolution, and features of between decisionmakers and business the nonprofit sector and implications for Organized by the European Association and government leaders from Central policies for the privatization of welfare for Evolutionary Political Economy and Eastern Europe and Western indus- systems; and the consequences of wel- (EAEPE) and the Cracow Academy of trial countries, presenting information fareprivatizationonpublic spending, the Economics. Keynote speakers include: about the economic transfornation in level ofwelfare, and employment. Analy- Professor D. Mario Nuti, London Busi- Central and Eastern Europe, and stimu- ses of selected micro case studies are ness School, United Kingdom; Profes- lation of entrepreneurial activity. The particularly welcome. Authors must be sorGrzegorzW Kolodko, DeputyPrime key question: How can marketing con- members of EACES and submit a two- Minister of the Polish Government and cepts be adapted for the cultivation of page abstract intriplicateby September Minister of Finance; Professor Carlo markets in economies undergoing tran- 16,1995.Information: BrunoDallago, Poni, University of Bologna, Italy; and sition? Department of Economics, Univer- Professor Philip Mirowski, University Information: Professor Dr. Reiner sity of Trento, Via Inama 1, 38100 of Notre Dame. Springer, Wirtschaftsuniversitat, Wien Trento, Italy, tel. (39461) 882-211, fax (39461) 882-222. Volume 6, Number 5-6 25 The World Bank/PRDTE New Books and Working Papers The PRDTE unit of the World Bank regrets that it is unable to supply the publications listed. World Bank Publications Policy Research Working Papers Restructuring and downsizing of the present system will leave adequate but To receive ordering andprice informa- SimonConmmanderandRuslanYemtsov, affordable-thus sustainable-benefits tionforpublications ofthe WorldBank, Russian Unemployment: Its Magni- andwillallowforthecreationandgrowth write: WorldBank, PO. Box 7247-8619, tude, Characteristics, and Regional of private pension funds. Philadelphia, PA 191 70-8619, USA, tel. Dimensions, PRWP no. 1426, Febru- (202) 473-1155, fax (202) 676-0581; or ary 1995, 44 p. To order: World Bank, The shortcomings of company-based visit the World Bank bookstores, in the Valerie Reid, Room M3-107, tel. benefit plans suggest that transitional United States, 701-18th Street, N. W, (202)473-5195. economies should opt in the longer run Washington, D. C. or in France, 66 av- for contribution plans that are based on enue d'Iena, 75116, Paris, (Email: Douglas Galbi, The Significance of individual,fullyfundedcapitalizationac- books@,worldbank.org) (Internet ad- Credits and Subsidies in Russian Ag- counts. Such schemes couldoperatewith dress: http.//www.worldbank.org//) ricultural Reform, PRWP no. 1441, variable contribution rates, reset each March 1995,37 p. To order: The World year in accord with the salary growth of Armenia: The Challenge of Reform in Bank, Nen Castillo, Room S9-035, tel. each worker, the cumulative investment the Agricultural Sector, World Bank (202)473-3490. return on his/her account, and the tar- Country Study, May 1995, 214 p. geted pensionbenefit. Once private pen- Fareed M. A. Hassanand R. Kyle Peters, sion funds are established, long-term fi- HarryG. Broadman, Meeting the Chal- Jr., Social Safety Net and the Poor nancial resources should accumulate lenge of Chinese Enterprise Reform, during the Transition: The Case of rapidly. The funds can then play a major Discussion Paper no. 283, April 1995, Bulgaria, PRWP no. 1450, 34 p. To role in modernizing securities markets, 40 p. order: World Bank, Faith Smith, Room stimulating innovation, fostering better H-245, tel. (202)473-6072. accounting and auditing standards, and Emerging Stock Markets Factbook promotinggreaterdisclosureofinforma- 1995, International Finance Corporation, In Bulgaria, social transfers provide 24 tion. June 1995, 300 p. percent ofper capita household income. This is comparable to the share in other The private pension funds could also Ira W. Lieberman, John Nellis, Enna postsocialist European countries, but greatly improve corporate governance Karlova, Joyita Mukherjee, and Suhail more than 40 percept higher than the andthemonitoringthereof. Their"voice" Rahuja (eds.), Russia: Creating Pri- share in OECD countries. Bulgaria's in corporate affairs could be exercised vate Enterprises and Efficient Mar- safety net needs better targeting. Com- more effectively through collective bod- kets, Studies ofEconomies in Transfor- prehensive reform is needed, focusing ies, allowing themto create more robust mation no. 15, April 1995, 255 p. on pensions, unemployment benefits, structures of corporate governance and child allowance, and social assistance. to lower monitoring costs. To order: Branko Milanovic, Poverty, Inequality World Bank, Priscilla Infante, Room and Social Policy in Transition Econo- Dimitri Vittas and Roland Michelitsch, G8-118, tel. (202)473-7642. mies, PRD TED, Income Distribution Pension Funds in Central Europe and during Transition, Research Paper Se- Russia: Their Prospects and Potential IMF Publications ries no. 9, April 1995, 56 p. Role in Corporate Governance, PRWP no. 1459, May 1995,50 p. Aerdt C. F. J. Houben, Commercial Susan L. Rutledge and others, Selling Bank Debt Restructuring: The Expe- State Companies to Strategic Inves- Social pension systems in most coun- rience ofBulgaria, IMF Policy Analysis tors, Volume I Analysis of Issues, Vol- tries in Eastern Europe and the former and Assessment no. 95/6, April 1995, ume 2, Case Studies, CFS Discussion Soviet Union face severe financial pres- 25 p. Paper Series no. 106, January 1995,33 sure; the aging populations are facing a p./106 p. complete breakdown of the system. 26 May-June 1995 Transition MahmoodH.KhanandMohsinS.Khan, mid-1992. During the first two and a Irena Grosfeld, Comparing Financial Agricultural Growth in Sub-Saharan half years of reform, these countries Systems, CASE no. 26, September African Countries and China, IMF have made significant progress in 1994,26 p. Policy Analysis and Assessment no. 95/ macroeconomic stabilization. Financial 7, April 1995, 28 p. policies weretight, inflation was brought Marek Dabrowski and Rafal Antczak, down, and by 1994, the output decline Economic Reforms in Kyrgyzstan, RobertJ. Flanagan, Wage Structures in hadbottomedoutandrecoverywasunder CASE no. 28, September 1994, 26 p. the Transition ofthe Czech Economy, way. The paper argues that in light ofthe IMF WP no. 95/36, March 1995, 19 p. Balticexperience,thecredibilityofstabi- To order: Center for Social and Eco- lization policies has been of greater im- nomic Research, 00-585 Warszawa, ul. This paper examines the extentto which portancethan the choice ofthe exchange Bagatela 14, Warsaw, Poland, tel./fax wage structures have adjustedduringthe rate regime per se. Moreover, the cost of (48-2) 628-6581. economic transitions in the Czech Re- disinflation in terms of lost output was public. Since 1988, returns to schooling limited and short-lived. CEPR Discussion Papers have increased, driven by weakening returns to vocational education and To orderIMfFpublications: IMlFPubli- Irena Grosfeld and Gerard Roland, De- sharply increased returns to university cation Services, 700-19th Street, N. W, fensive and Strategic Restructuring in education. These changes are led by Washington, D. C. 20431, USA, tel. (202) Central European Enterprises, CEPR developments in the private sector and 623-7430, fax (202) 623-7201. no. 1135, March 1995, 56 p. retarded by the sluggish response of state enterprises. This general pattern of C.E.E.P.N. Publications Mark E. Schaffer, Government Subsi- changing returns emerges in other tran- dies to Enterprises in Central and sition economies as well. As to differ- Andreja Bohm and Uros Korze (eds.), Eastern Europe: Budgetary Subsidies ences between wage policies in the pri- Privatization through Restructuring, andTaxArrears, CEPRno. 1144, March vate and state sectors during the Workshop Series no. 4, 1994. 1995, 47 p. transition, the private sector appears to establish steeper career wage profiles MarkoSimonetiandDusanTriska(eds.), Laszlo Halpem and Charles Wyplosz, and is more likely than the state sector TheRoleofInvestmentFundsinPriva- Equilibrium Real Exchange Rates in to use past unemployment experience tization, Workshop Series no. 5, 1995. Transition, CEPRno. 1145, April 1995, as an indication of a productivity deficit. 42 p. Marko Simoneti and Stefan Kawalec Wage structures in market economies (eds.), Linking Bank Rehabilitation Christopher Heady and Stephen Smith, are not free of distortions. The reconsti- with Enterprise Restructuring and Tax and Benefit Reform in the Czech tution ofEastEuropean laborunions into Privatization, Workshop Series no. 6, and SlovakRepublics,CEPRno. 1151, genuine collective bargaining organiza- 1995. March 1995, 39p. tions has the potential for introducing one source of such distortion into the wage To order: Central and Eastem European Hans-Werner Sinn, Factor Price Dis- structures of economies in transition. Privatization Network, P.O. Box 18, tortions and Public Subsidies in East Union representation is largely confined 61109Ljubljana, Slovenia, tel. (38661) Germany, CEPR no. 1155, May 1995, to the state sector. Unions in the Czech 168-3396, fax (38661) 346-660. 38 p. Republic have had no impact on relative wages in either the state or private CASE Publications, Warsaw Economic development in Eastem Ger- sectors. many is not uniform. The building and Stanislaw Gomulka, The Puzzles of constructionindustryisboomingbutthe Tapio 0. Saavalainen, Stabilizaition in Fairly Fast Growth and Rapid Col- manufacturing industry is stagnating. the Baltic Countries: A Compara- lapse under Socialism, CASE no. 20, This paper argues that severe distor- tive Analysis, IMF WP no. 95/44, April April 1994,20 p. tions in relative factor prices are the 1995,27 p. cause ofthe dichotomous development. JacekRostowski, Labour Markets and These distortions result from excessive The Baltic countries began their stabili- Wages Policies during Economic wage increases and investment support zation and reform process in earnest in Transition, CASE no. 22, July 1994, large enough to make the cost of capital 19p. Volume 6, Number 5-6 27 The World Bank/PRDTE negative for East German industry. The DAE Working Papers Katherine Verdery, Faith, Hope and support for investment should be aban- Caritas in the Land of the Pyramids: doned and apolitical compromise should David M. Newbery, The Distributional Romania, 1990-1994, no. 95.1, 1995. be sought, to reduce the planned wage Impact of Price Changes in Hungary rises. The compromise could include an and the UK, DAE no. 9402, December Andrew G. Walder, Local Governments investment-wage agreement for insider 1994, 26 p. as Industrial Firms: An Organizational workers and a distribution of the stock Analysis of China's Transitional of public housing, to prevent workers Tamis Revesz, An Analysis of the Economy, no. 95.2, 1995. from suffering wealth losses. It would Representativity of the Hungarian be a Pareto improvement, avoiding the Household Budget Survey Samples, To order: Mario Einaudi Center for large welfare loss incurred by the poli- DAE no. 9403, December 1994, 40 p. InternationalStudies, KayRice, Cornell cies currently pursued. University, 1 70 Uris Hall, Ithaca, New Peter Nolan, Large Firms and Indus- York 14853-7601, USA, tel. (607) 255- Maciej Grabowski and Stephen Smith, trial Reform in Former Planned 8933. The Taxation of Entrepreneurial In- Economies: The Case of China, DAE come in a Transition Economy: Issues no. 9516, March 1995, 33 p. I.C.E.G. Publications Raised by Experience in Poland, CEPR no. 1166, March 1995, 43 p. To order: Department ofApplied Eco- Jiri Hlavacek, Education, Science and nomics (DAE), Austin Robinson Build- Technology Development, Reform David M. Newbery, Tax and Benefit ing, SidgwickAvenue, Cambridge CB3 Round Table Working Paper no. 17, Reform in Central and Eastern Eu- 9DE, UK, tel. 01223-335200. October 1994, 13 p. rope, CEPRno. 1167, April 1995,15 p. IRIS Publications Alena Zemplinerova and Vladimir KarlAiginger, Rudolf Wmter-Ebmer, and Benacek, New Private Sector in the JosefZweimuller, EastEuropean Trade Georges Korsun and PeterMurrell, The Czech Republic, Reform Round Table and the Austrian Labour Market, Effects of History, Ownership, and Working Paper no. 18, January 1995, CEPR no. 1168, May 1995, 26 p. Pre-Privatization Restructuring on 19 p. Post-Privatization Governance, Work- Christiande Boissieu, Daniel Cohen, and ing Paper no. 147, January 1995. To Zdenek Tuma and Martin Cihak, The GaeldePontbriand,RussianEnterprises order: IRIS Center, 2105Morrill Hall, Czech Republic: Growth After Stabi- in Transition, CEPR no. 1174, April University ofMaryland, College Park, lization, Reform Round Table Working 1995, 22 p. Maryland 20742, USA, tel. (301) 405- Paper no. 19, January 1995, 34 p. 3110, fax (301) 405-3020, (Email: Zdenek Drabek and Alasdair Smith, info@,iris. econ. umd. edu). To order: lnternationalCenterforEco- Trade Performance and Trade Policy nomic Growth and Foundation Eco- in Central and Eastern Europe, CEPR The Mario Einaudi Center for Inter- nomics, UJniversitas Carolina no. 1182, May 1995, 35 p. national Studies Working Papers Pragensis, Institute ofEconomic Stud- ies, Faculty of Social sciences, DaliaMarin and Monika Schnitzer, Cre- Istvan R. GAbor, Too Many, Too Small: Charles University, smetanovo nab ating Creditworthiness through Re- Small Entrepreneurship in Hun- 6, CZ-11001 Praha 1, Czech Repub- ciprocal Trade, CEPR no. 1185, May gary-Ailing or Prospering? no. 94.7, lic, tel. 422-2481-0804, fax 422- 1995,27 p. 1995. 2481-0987. To order: Center for Economic Policy Mark Selden, Household, Coopera- Other Publications Research, 25-28 OldBurlington Street, tive and State in the Future of London WlXlLB, UK, tel. (44171) China's Countryside, no. 94.8, 1995. Anders Aslund, How Russia Became a 734-9110,fax (441 71) 734-8760, andin Market Economy, Brookings Institu- North America: Customer Service, David Stark and La.szlo Bruszt, Inter- tion, Washington, D.C., May 1995,378 Brookings Institution, tel. 1-800-275- Enterprise Ownership Networks in p. To order: Brookings Institution, 1447, or 202-797-6258, fax 202-797- the Postsocialist Transformation, no. 1775 Massachusetts Avenue, N. W, 6004. 94.9,1995. 2 8 May-June 1995 Transition Washington, D. C. 20036, USA, tel. Janos Gacs and Merton J. Peck, Inter- December 1994, 52 p. To order: Popu- (202) 797-6105. national Trade Issues of the Rus- lation Reference Bureau, Inc., 1978 sian Federation, International Insti- Connecticut Avenue, N W, Suite 520, Alexandra Benham, Lee Benhain, and tute for Applied Systems Analysis no. Washington, D. C. 20009-5728, USA, M xtia-. M e:i, Institutional Re- CP-95-2, Laxenburg, Austria, March tel. (202) 483-1100. form in Central and Eastern Europe: 1995. To order: Ms. Shari Jandl, Altering Paths with Incentives and InternationallnstituteforAppliedSys- Jens Holscher, Anke Jacobsen, Horst Information, International Center for tems Analysis, A-2361 Laxenburg, Tomann, and Hans Weisfeld, Economic Growth, April1995, 59p. To Austria, tel. 43-2236-807-556, Bedingungen Okon mischer Ent- order: Lee Benham, Department of fax 43-2236-731-47, (Email: wicklung in Zentralosteuropa [Con- Economics, Box 1208, Washington jandlŽiiasa.ac.at). ditions of Economic Development in University, One Brookings Drive, St. Central and EasternEurope], Field Stud- Louis, MO 63130, USA, tel. (314) Pierre Guislain, Les Privatisations: iesonTransitionno.Bd. 3,Universityof 935-4535, fax (314) 935-4156. Un Defi Strategique Juridique et Wales, Swansea, 1995. To order: Uni- Institutionnel, Droit/Economie, De versity of Wales-Swansea, Singleton Andrea Gabor, The US Enterprise BoeckUniversite,Belgium, 1995,342p. Park, Swansea SA2 8PP, UK, tel. Funds for Central and Eastern Eu- To order: ACCES, Fond Jean-Paques (0792) 295-179/295-295. rope: Lessons from the First: Five 4, B-1348 Louvain-la-Neuve, Bel- Years, Institute for EastWest Studies, gium, tel. 32-10-482-519, fax 32-10- MarvinJacksonandWouterBiesbrouck, New York, 1995, 59 p. To order: Insti- 482-500. Marketization, Restructuring, and tute for EastWest Studies, Publica- Competition in Transition Indus- tions Office, 360 Lexington Avenue, Carl Haub, Population Change in the tries of Central and Eastern Europe, New York, New York 10017, USA, tel. Former Soviet Republics, Population Avebury, U.K., March 1995, 384 p. To (212) 557-2570. Reference Bureau, vol. 49, no. 4, order: Ashgate Distribution Services, Privatization-Dirty Dancing iw. Fromthe Hungarian magazine Hocipo Volume 6, Number 5-6 2 9 The World Bank/PRDTE Gower House, Croft Road, Aldershot Aldershot Hampshire, GUll 3HR, generate higher tax revenues in Russia. Hants, GUll 3HR UK, tel. (01252) UK, tel. (01252) 331-551, fax To order: Geonomics, 14 Hillcrest Av- 331-551, fax (01252) 344-405. (01252) 317-446. enue, Middlebury, Vermont 05753, USA, tel. (802) 388-9619, fax (802) Eva Kigyossy-Schmidt, Business Ser- The Russian Economy: Survey of 388-9627. vices and Technological Change in 1994 and Forecasts for 1995, Central and EasternEurope: TheLim- Geonomics/International Academy of Alfred Schipke and Alan Taylor (eds.), its and Possibilities for Analysis, Dis- National Economy, 1995, 75 p. The Economics of Transformation: cussion Paper no. 1, Freie Universitat Theory and Practice in the New Mar- Berlin, March 1995, 35 p. To order: Vladimir Popov andhis colleagues from ket Economies, Springer (Berlin) 1994. Freie Universitat Berlin, Department the faculty of the Graduate School of of Economics, Garystr 21, D-14195 International Business (Academy of Transforming the Estonian Berlin, Germany, tel. (4930) 838- National Economy) report rising real Economy, Estonian Academy of Sci- 2244, fax (4930) 838-2129, (Email: incomesandconsumptionspending,posi- ences, Institute of Economics/Intema- eva. kigyossy-schmidt@ccmailer. wi- tive real interest rates, significant infra- tional Center for Economic Growth, wiss.fu-berlin.de). structure and institution building, and Tallinn, 1995. To order: Institute of even some early signs that Russia's pro- Economics, Estonian Academy of Roy Prosterman and Tim Hanstead, longedtransition recession is giving way. Sciences, tel. (3722) 454-162, fax Land Reform: Neglected, Yet Es- That Russia has followed a "third way," (372) 630-8851, (Email: sential, RDI Reports on Foreign aid in between shock therapy and gradual- mail@sekr. tami. ee). and Development no. 87, Seattle, Wash- ism, is a natural outgrowth ofthe lack of ington, April 1995, 11 p. To order: Ru- a national consensus on reforms, ex- Newsletters ral Development Institute, 1100 N.E. tremely dire initial conditions, the col- Campus Parkway, Seattle, Washing- lapseofinterrepublictrade, andthesheer DispatchfromBerlin, aquarterlynews- ton 98105, USA, tel. (206) 528-5880, magnitude ofrequired industrial restruc- letter of the Cooperation Bureau for fax (206) 528-5881, (Email: turing. Economic Research on Eastern Europe. rdi@u. washington. edu). To order: Cooperation Bureaufor Eco- In early 1995 the governnent predicted nomic Research on Eastern Europe, Andrzej Rudka and Kalmin Mizsei, that nominal GDP would reach 950 tril- Koenigin-Luise-Strasse 5, D-14191 East Central Europe between Dis- lionrubles,upfrom850trillionrublesin Berlin-Dahlem, Germany, tel. (4930) integration and Reintegration: Is 1994. The budget it submitted to the 89789-332,fax (4930) 89789-305. CEFTA the Solution? The Rose Oc- Duma contained a 73 trillion ruble defi- casional Paper Series vol. 1, no. 1, Insti- cit, or 7.7 percent of forecasted GDP. SIGMA Public Management Forum, tute for EastWest Studies, 1995, 46 p. This forecast, however, was based on a a quarterly newsletter of the OECD/ To order: Institute for EastWest Stud- predicted 50 percent annual inflation CCET and EC/PHARE, for public ad- ies, Publications Office, 360 Lexing- rate, the prospects for which have been ministration practitioners in Central and ton Avenue, New York, New York dashed by the almost 40 percent infla- Eastern Europe. To order: PublicMan- 10017, USA, tel. (212) 557-2570. tion during the first quarter. Thus, with agement Forum, SIGMA4-OECD In- aggregate output likely to be at least formation Services, 2 rue Andre-Pas- Russian Economic Developments in stable, if not growing slightly, nominal cal, 75775 Paris Cedex 16, France, April1995: A BriefOverview, Institute GDP will almostcertainlytop 1,000tril- tel. (331) 4524-7900/4524-1311, fax forthe Economy in Transition, Moscow, lion rubles by year's end. (331) 4524-1300. 1995,8 p. To order: 5 Gazetnypereulok, Moscow 103918, Russia, tel. (095) What this much-higher-than-forecast Wirtschaft im Wandel, published by 229-5449/229-6083, fax (095) 203- nominal GDP implies for fiscal and InstitutfurWirtschaftsforschungHalle. 8816. monetary policy remains to be seen. But To order: Professor Dr Rudiger Pohl, it is virtually certain that with the Institut fur Wirtschaftsforschung The Global Monetary System after "shadow" economygrowingrobustlyand Halle, Delitzscher Strasse 118, 06116 the Fall ofthe Soviet Empire, Avebury, now accounting foras much as a third of Halle, tel. (0345) 7753 701, fax (0345) U.K., January 1995, 288 p. To order: GDP,taxavoidancewillcontinuetomean 7753 820. Avebury, Gower House, Croft Road, that higher tax rates do not necessarily 30 May-June 1995 Transition Bibliography of Selected Articles Postsocialist Economies Soros, G. Toward Open Societies. Keifetz, B. Russian Yield Curves. ForeignPolicy(U.S.)(98)65-75, spring Emerging Market Investor (U.K.) Eastern Europe's Capitalism- 1995. 2(4):36-38,April 1995. Who's Boss Now? The Economist (U.K.) 335(7915):65-68, May20,1995. CIS and the Baltics Kramer, D. Russian Aid (II), The Na- tional Interest (U.S.) no 39:78-82, Exchange-rate Regimes in Transi- Focus: The Russian Far East and Spring 1995. tional Economies. Russian and East the Environment. Russian Far East European Finance and Trade: A Update (U.S.) 5(6):7-10, June 1995. Liesman, S. Ukraine's Rough Ride. Journal of Translations (U.S.) 30:3- Central European Economic Review 96, November-December 1994. Geonomics Paves the Way for Busi- (U.K.) 3(3): 10-13, April 1995. ness Initiatives on the Kola Penin- Fishman, A. Religious Socialisim and sula. Geonomics Bulletin (U.S.), Win- Privatizing Pensions [in Russia]. Economic Success on the Orthodox ter 1995. Central European (U.K.), April 1995, Kibbutz. Journal of Institutional and pp. 70-7 1. Theoretical Economics (Germany) Goland. Y Currency Regulation in 150:763-68, December 1994, the NEP Period. Europe- Asia Stud- Reddaway, P. Cancel the IMF Loan ies (U.K.) 46(8):1251-96, 1994. To Russia. Wall Street Journal (Eu- Judy, R. W. Currency Boards: An rope), March 9, 1995. Idea Whose Time Has Come? Eco- Haub, C. Demographic Upheavals in nomic Reform Today (U.S.) (1):5-7, the Former USSR. Population To- Sokolov, I. Investment Crisis [in Rus- 1995. day (U.S.) 23(1): 1-2, January 1995. sia]. Problems of Economic Transi- Ridley, F. F. Civil Service and De- Partial Success mocracy: Questions in Reforming the Civil Service in Eastern and Central Europe. Public Administra- tion and Development (U.K.) 15:11- 20, February 1995. Sachs, J. D. Consolidating Capital- ism. Foreign Policy (U.S.) (98):5 0-64, spring 1995. Selden, M. Pathways From C'ollec- tivization: Socialist and Post-Social- ist Agrarian Alternatives in Russia and China. Review/Fernand Braudel Center for the Study of Economies, Historical Systems, and Civilizations I (U.S.) 17:423-49, fall 1994. Sobhan, R. Down and Out In Outer Mongolia: Lessons for Economic Reformers for 1995. Economic and Political Weekly (India) 30:499-501, March 11, 1995. Mr. Secretary, we managed to halt inflation-this morning, forfifteen minutes. From the Hungarian magazine Hocipo Volume 6, Number 5-6 31 The World Bank/PRDTE Bibliography of Selected Articles continued tion: A Journal of Translations from Chinal. Wall Street Journal (U.S.), Viet Nam Russian (U.S.) 37:29-45, October1994. April7, 1995. Edwards, J. D., and J. H. Godwin. Why Timwell, S. Kazakhstan: Cornered Tam, 0. K. Corporate Governance Sound Accounting Standards Count. With The Loot. The Banker (U.K.), in China's Listed Companies, Cor- Economic Reform Today (U.S.) (1):8- April 1995, pp. 44-52. porate Governance-An Interna- 13,1995. tional Review (U.K.) 3(1), January Tumbull, D. Clearing Customs for 1995. Publishedby Blackwell Business, Freeman, N. Viet Nam: Poised at the Imports into the Russian Far East, Oxford, U.K. and Cambridge, Massa- Amber Light. Banker (U.K.) 145:59- Russian Far East Update 5(4): 7-10, chusetts, U.S.. [Paper available: e- 62, January 1995. April 1995. mail:tam@ccadfa.cc.adfa.-oz.au); or tel. (616) 268-8831, fax (616) 268- Vinton, L. Uzbekistan: Two Steps 8450.] Roman, L. Transaction Costs and Forward, One Step Back. Business Transition: The Case of the Viet- Eastern Europe (Austria), April 10, Tung, R. Market-Oriented Reform namese Banking Sector. Savings 1995, p. 7. of State-Owned Enterprises in andDevelopment(Italy) 18(3):281-306, Mainland China. Issues and Studies: 1994. Yashchenko, 0. Asian Lion and Slavic A Journal of Chinese Studies and Lamb: Japan and Ukraine Try New International Affairs (Taiwan) 31:1- Schwarz, A. The Way We Were: Relationship. Eastern Economist 20, February 1995. Breaking Up Is Hard To Do for Viet- (Ukraine) 2(10):1-4, April 3, 1995. namese State Firms. Far Eastern Weida, Z., and P. Shi. Discussion on EconomicReview (HongKong) 158:56, China Wei Zinghua's Economic Thought. 58, March 2, 1995. Social Sciences in China (China) 15:16- Crook, F. [Chinesel Trade on the 26, Winter 1994. Central and Eastern Europe Edges. China Business Review (U.S.) 22:26-30, January-February 1995. Xin, W., and G. Brown. People's Re- Kopits, George. Hungary: Midway in public of China: Recent Legal De- the Transition. Eastern European Li, J. People's Republic of China: velopments in China Affecting Tax Economics, (U.S.) Vol. 32. (6):29-55, Domestic Enterprise Income Tax. and Investment. APTB: Asia-Pacific November-December 1994. Bulletin for International Fiscal TaxBulletin (Netherlands) 1:43-54, Feb- Documentation (Netherlands) 49:81- ruary-March 1995. Playing the Tax Game. The Budapest 94, February 1995. Sun (Hungary), June 1-7, 1995, p. 4. Yang, C. The Impact of Partially-in- Pei, M. Economic Reform and Civic troduced Market Mechanisms on Zizmond, E. Economic Developments Freedom in China. Economic Reform the Efficiency of Chinese Industry: in Slovenia. Eastern European Eco- Today (U.S.), no. 4, 1994, pp. 10-15. The Case of Iron and Steel Indus- nomics: A Journal of Translations try. Economic Systems (Germany) (U.S.) 32:75-99, November-December Prosterman, R. With Reform of 18(4):335-62, December 1994. 1994. Farms, Masses Can Be Fed [in TRANSITIONis a regular publication ofthe World Bank's Transition Economies Division, Policy Research Department. The findings, views, and interpretations published in thearticles are those ofthe authorsand shouldnotbe attributed to the WorldBank orits affiliated organizations. Nordo anyofthe interpretations orconclusions necessarily represent officialpolicy ofthe World BankorofitsExecutive Directors orthe countriesthey represent. Richard Hirschleris the editor andproduction manager, Room N11-003, tel. (202)473-6982, E- mail: RHirschler@Worldbank.org. Jennifer Prochnow-Walker istheresearchassistant, desktop publisher, andproducer of graphs and figures. If youwish to receive Transition, sendnameand addressto Jennifer Prochnow-Walker, room N-1 1023X the WorldBank, 1818 HStreetNW, Washington, D.C. 20433, orcall (202)473-7466, orfax (202)522-1152 orEmailJPROCHNOWWALKER@Worldbank.org. Information on upcoming conferences on transforming economies, indication of subjects of special interest to our readers, letters to the editor, and any other reader contributions are appreciated. 32 May-June 1995