53872 Transition and Macro-Adjustment Division · Country Economics Department · The World Bank Persistent Economic Decline in Central and Eastern Europe What Are the Lessons? hat are the main causes of been strong. In other areas the pro form to support the implementation W the precipitous fall of output in the Central and Eastern European (CEE) countries? What is cess has moved relatively slowly, in cluding privatization of large-scale enterprises, adoption of market-ori of macroeconomic policies. Common Features of the role of macroeconomic policies ented managerial practices in the Transformation relative to that of structural and ex state-owned sector, conversion and ternal shocks? What are the main restructuring of productive activities, A common feature ofthe transforma obstacles to a sustained recovery in and consolidation of institutional re- tion has been the sharp decrease in economic activity? In June a two-day conference in Washington cospon sored by the International Monetary What's inside ... Fund and the World Bank addressed The RU88ia File: Interview with IMF Hunprian M.in.iater on Privatization these issues. Participants included Director, John Odling-Smee scholars, officials from the CEE coun Inane:xclusive interview Tamal Szabo. min tries, and IMF and World Bank staff. This summer has been a landmark in the ilter without portfolio in charge of privati history of the IMF and the World Bank: suc zation in Hungary, admit! the weaknelS of cessor states of the USSR joined both insti centrally managed privatization programs More than two years have gone by tutions and shortly thereafter Russia W8l!l and that making room to enterprise initia since the series of political changes in able to draw $1 billion from the Fund and tivea CX)uld accelerate the process. (page 9) Central and Eastern Europe, and the $600 million from the World Bank. John hopes for a rapid transition to pros Odling-Smee explains the economic back The Czech-Slovak Privatization Pro ground and acknowledges the dangerl gram:.Alter the First Wave (page 11) perous market economies have all but ahead. (page 4) faded. Startling changes were ob Quotation of the Monih: "Levels of served in most of these countries. But Social Systems in the New CentralAsian c:liIIbu:rBement8aredisappointinglylow" the initial euphoria has been replaced States (page 12) by a more sober assessment of the A radical reform of social transfer systems in Mlleflon_ of Tramdtion (page 13) magnitude of and the complications Uzbekistan, Tajikistan, and Turkmenistan entailed in the task ahead-which in shouldtake into account that free health care, Conterence Diary (page 15) tum is dwarfed by the challenge fac free education, and other widely spread 80 ing the ex-Soviet states. cial benefits are considered supplementary World BankIIMF Agenda (page 16) income to low wages. (page 6) New Boob and Workinc Papers In the process of transition remark Research Update: The Labor Markei in (page 17) able progress has been made in estab Transitional Economies lishing pflvate product markets, Chance in the Muthead (page 19) reorientin~; international trade, and A new research project will monitor results of key policy changes in the labor market in Selected Articl_ (page 20) instituting legal reforms. The growth same post-socialist economies. (page 8) of th.~ sma H-scale private sector has The World Bonk/CECTM measured output as comprehensive former German Democratic Republic with its implied protection of domes reforms were put into place. Accord (GDR), and the sti."ccessor states ofthe tic production through the exchange ing to official statistics, output has former Yugoslavia. These extreme rate; and in Yugoslavia the civil war. fallen across Central and Eastern cases are attributable to special cir Europe in the past two years. The cumstances-in Albania, the disrup Nonetheless, by most conventional most dramatic output losses-mea tive disintegration of an unusually measures the other five countries in sured output has fallen by more than closed regime; in the GDR, the ab Central and Eastern Europe seem to half-have been in Albania, the sence of a macroeconomic constraint, be in the grip ofa severe and extended recession. After falling by 8 percent in 1990, the gross domestic product Policy suggestions from Ric hard Portes (GDP) of these countries (Bulgaria, Czechoslovakia, Hungary, Poland, · In external policy, I stand by the View ing any more than we can trust the mar and Romania) on average declined that the move to convertibility should ket. This is therefore a major challenge another 8 percent or so in 1991. In come as soon as it is at all feasible (of for foreign adviso~. dustrial production has dropped even course a sufficient devaluation of the faster, by an average of 17 percent in nominal exchange rate will eliminate · A financial cleanout is long past due. 1990 and about 11 percent in 1991. As excess demand for foreign exchange, but The market cannot and will not work if of March 1992, only the former GDR that may give a real exchange rate so credit markets do not function. The bot showed clear signs of"having turned low as to be unsustainable and indeed tom line is that it is urgently necessary the comer. Production in the other undesirable). Buta move toconvertibil and quite feasible to recapitalize the economies appears still to be falling, ity must be accompanied by a sensible banks, cancel the debts of {inns to be although not as rapidly as before. In exchange rate policy: do not devalue privatized, and, meanwhile, institute most of the countries output is declin excessively, peg initially, then go to a cash-limited subsidies to the state ing while inflation remains high and crawling peg. Some of the output loss owned enterprises. Not to have done this unemployment increases. has been due, directly or indirectly, to immediately was the single mostimpor violation of one or more of those prin tant errorin sequencing. with the great The nature, the speed, and the scope ciples. est cost to restructuring and output. of the contraction in production have · Excessively abrupt opening of the · Finally, some of the lost trade could had different twists in the CEE coun economy has unwisely and unnecessar and should be recreated. A substantial tries. But it is possible to note some ily exaggerated the initial shock. There part of the problem is that the swi tch to common features: isa prima facie case for initial tariffpro the market has been incomplete within tection-for senile even more than for the former Soviet Union and between it · All CEE countries have experienced infant industries. Indeed, it is also the and its former CMEA partners. After large losses in measured output, re case that some of the apparently senile the initial shock ofliberalization, there gardless oftheir initial specific condi industries and firms could in fact ad is a serious coordination failure--mar tions. just, but do not get a chance. This may kets are not yet functioning. The en be third-best to the second-best ofa wage forced move to barter has created great · The extent of output contractions subsidy, which may be infeasible. inefficiencyandhas brought a dramatic was not well anticipated, even when fall in the volume of transactions and, the radical nature of the reform pro · The authorities should immediately consequently, of output. The most ur· grams was apparent. Projections take steps to reverse the "state deser gent measure is to create the simplest made by many western experts as well tion" that has left state-owned enter institutional framework for monetary as by international organizations have prises floundering: commercialize the exchange-a payment or settlements consistently underestimated the rates enterprises, pay attention to their man mechanism with a mutually acceptable of output decline in 1990-91. agementand the environment in which means of exchange and facilities for it operates, improve corporate gover organizing transactions. Grand schemes · The fall in output does not seem to nance, and rehabilitate industrial for payments unions are a distraction; have been accompanied by the radi policy. In the conditions of Central and they are not feasible (and perhaps not Eastern Europe, we cannot trust the desirable). But ifwe believe in the mar cal economic restructuringthat many market to select and eliminate negative ket. the least we can do is to create the expected as part of the reform pro val ue-added activi ties and to develop ac institutional framework for it to func cess. Labor markets have shown signs tivities that do have good long-run pros tion. This is the quickest way to raise of adjustment. In Czechoslovakia, pects. The market cannot and will not output in the short run, or at least to Hungary, and Poland industrial out restructure the large state-owned en stop it from falling yet farther. put fell to about 65 percent of its 1989 terprises-and they are too big to fail levels by the end of 1991, and indus until they are broken up and there is Richard Portes is Director ofthe Centre trial labor forces decreased by one some expansion elsewhere in the for Economic Policy Research, London. quarter in 1989·91. The weakness of economy. But we cannot trust the old This comment is based on his conference both ownership and creditor institu nomenklatura to guide the restructur presentation.. tions cushioned the transmission of shocks and macroeconomic policies to Transition the enterprises. The enforcement of noted that food demand in Poland fell Enterprise Behavior. Finally. to what tight financial discipline on enter only 2 percent whereas the consump extent did the fall in output result prises is still lax and erratic. The in tion of many consumer durables actu from perverse behavior at the micro cidence of bankruptcy and liquida· ally increased. economic enterprise level in response tions (outside the former GDR) has to macroeconomic policies? Some as been relatively low. Firms have had The Trade Shock. CMEA trade has pects of adjustment were encourag access to various buffers, including fallen since 1989, mainly because of ing. such as the considerable adjust inventories and involuntary interfirm the disappearance of 85 to 90 percent ment of employment in response to credits. The underdevelopment of fi· of trade with the former USSR. In falling industrial output and the re nancial markets-and their passiv. addition, the shift to world prices, alignment of trade away from the .ity in initiating bankruptcy proceed· especially for Eastern Europe's manu CMEA toward the West-a shift that ings to accelerate restructuring-was factures, has imposed substantial did not simply reflect the switching of a major bottle~leck in speeding re terms of trade losses, averaging 4 existing exports. On the other hand, structuring and recovery. A second percent of GDP for Czechoslovakia, within the industrial sectors signs of bottleneck was the unresolved own Hungary, and Poland. How much has structural reallocation were modest, ershipandcont~olofstateenterprises. this trade shock reduced output in although a shift from industry into Eastern Europe? Estimates presented (largely private) services was taking · The prospe«:ts for a rapid resur at the conference suggested a reduc place. This is an important area for gence in production do not seem fa tion of about 8 percent of GDP for more research. vorable acros: the region. In some Czechoslovakia and Hungary and 4 countries, such as Czechoslovakia and percent for Poland. A reasonable con In retrospect, are we still so surprised Hungary, it has been estimated that clusion might be that the trade shock by the collapse in output? Greater real output pel' capita might return to was responsible for at least one-third external finance could have cushioned prereform levds by 1996; in Bulgaria of the fall in regional output. This is the reforms, and in hindsight these and Romania it may take until the supported by the experience of Fin could have been fine-tuned to improve next decade. land, where GDP since 1989 has fallen performance. Underlying the general by some 6 percent, due in part to a loss structure of the reforms, however, was The ubiquity ,)fthe collapse in output of Soviet trade of2 percent ofGDP. a strong political imperative-to promptf!d several questions: Is the break rapidly with the old system and sharplyfallin g outputan unavoidable Macroeconomic Policies. Macroeco join the West. This should not be for phase of the :-eform process? If so, is nomic policies certainly contributed gotten when evaluating initial out loss of ;>utput a desirable, although to the decline in output. The openques comes. Sustaining reforms now in costly development-given the need tion is whether the "big bang" policies volves increasing efficiency, which for radical structural transformation? were overly restrictive-whether requires further systemic changes and Should it th'~refore be regarded as a hyperinflation could have been financing. There are evident lessons problem, or is it part of the solution? avoided ata lower cost to output. Some here for the ex-Soviet States-which Can the market mechanisms effec presentations suggested that this are facing an even sharper cut in im tively take mot v:ithout action being might have been the case for Poland, port capacity than Eastern Europe taken to curlail the scope of the public and that the initial degree of macro and for countries offering assistance. sector's ecoromic activity? economic imbalance in Czechoslova kia had perhaps been exaggerated in Mario 1. Blejer and Alan Gelb Major Causes of Declines in planning the stabilization program. The World Bank Output The subsequent recovery in real credit volumes (except in Hungary, which The conference considered four major followed a more gradual strategy) did causes oftr.e dedines in output: not signal recovery, however. Instead, increased credit reflected the growth Statistical ')verstatement. Estimates of arrears, which resulted in a contin presented Jar Poland in 1990 put the ued credit squeeze on the more prom actual declines at between 5 percent ising firms-the outcome of underde (measured from the demand side) and veloped financial markets and own 9 percent (measured from the supply ership arrangements. Without im side) complred with official estimates provements here, pumping credit into of12 percent. Official statistics might the economies would not be an ad not adequltely capture the growing equate solution. There is also reason private se ;tor and can face daunting to question the initial jump toward index. number problems. In addition, extremely liberalized trade policies measurements do not allow for effi instead, moderate tariffs could have ciency gains resulting from the elimi provided revenues and a breathing From the Bulgaria1l magtlZi1le. StursheL nation of :;hortages and lines. It was space for firms. 3 The World Bank/CECTM The Russia File: Phasing In the Assistance Interview with IMF Department Director, John Odling-Smee T here is no off-season at the IMF or, for that matter, at the World Bank. Experts in both institu tions have been working on the first more expansionary than was envis aged in the earlier memorandum. After Russia became a member of the assistance packages for the states IMF on June 1, our discussions con emerging on the territory of the former tinued in the hope that this time they Soviet Union. If only for its sheer size would result in agreement on a pro and economic potential, Russia is the gram that the Fund could support fi mostimportantoftheserecipients. But nancially. However, little progress time seems to be running out in Rus had occurred on another crucial is sia, where production indicators are sue, namely, agreement on how to down, poverty is on the rise, and ad coordinate monetary policies with versaries of the "western-style" re other members of the ruble zone.IMF ruble, conditional on progress in thE forms are on the offensive. Can the staff tried to accelerate the process Russian economic reforms. Are these IMFhelpturn the tide? We asked John and in May, at the Tashkent meeting reports accurate? Odling-Smee, Director of the IMF's of the central bankers of the fifteen European II Department, who is deal states of the former Soviet Union ANot quite. At the Washington meet ingwith the fifteen states ofthe former (FSU), the Fund came forward with ing the Managing Director and the Soviet Union. its own guidelines, based on a volun Russian Prime Minister indeed de tary agreement between those states cided that the ruble area difficulties Q. How much has been achieved so that were ready to keep the ruble as should not hold up an accord between far? their national currency. Even though the Fund and the Russian govern most participants were ready to ac ment_ To handle this peculiar situa A Shortly after the new Russian cept that as a starting point, the Rus tion they agreed on a three-phase government's inauguration last No sians remained concerned. They be approach. In the first phase, a first vember, the Fund started discussions lieved that a voluntary agreement credit tranche arrangemen t had been with Russia on a comprehensive eco would not bring under control the signed. [Editor's note: The first nomic program the IMF could sup credit expansion by the non-Russian tranche equals 25 percent of a port with a stand-by arrangement. In members of the ruble zone. They member's quota in the IMF. For Rus February these discussions resulted wanted the Central Bank of Russia to sia, whose quota is approximately $4 in a memorandum that summarized have a more powerful position than billion, this is about $1 billion.] Ac a good, although rather general, mac the Fund had envisaged in its guide cording to the Russian economic pro roeconomic program. Had it been lines. gram, which we subsequently agreed elaborated in a little more detail, the with the government, by the end of program could have been recom To sum up, both the Russiap . the year the monthly inflation rate mended to the IMF Board for finan government's expansionary monetary should be brought down to single dig cial support. However, things began and fiscal measures and the slow its, and the budget deficit (net of that to change in Russia in March and progress in coordinating monetary part to be financed by foreign assis April; at the session of the Congress of policy in the ruble zone delayed agree tance) should be cut to 5 percent of Peoples' Deputies the government met ment on a program that we could sup the Russian GDP. This would be a strong opposition and, while surviv port with an upper credit tranche great achievement, as before the ing the challenge, it had to make a stand·by arrangement. present measures we expected a bud number of economic concessions. By get deficit corresponding to 17 percent late spring the political shift had be Q. According to some press reports the of the GD P in the second halfof 1992. come more obvious as managers of stalemate was overcome as a result of The Executive Board of the IMF industrial enterprises and state farms the mid-June Washington meeting be agreed to the first credit tranche ar· emerged as an important political tween IMP Managing Director Michel rangements on August 5, 1992. (See force. Their interests had to be taken Camdessus and Yegor Gaidal", who box on page 5.) care of, which translated into more hadjust been appointed acting Prime directed credits and budgetary con Minister. As a result, $4 billion ofIMP As to the second phase. the objective cessions and the appointment ofsome support had been agreed on, and an would be to reach an agreement on a of their representatives to the cabi other $6 billion would be made avail program that could be supported by net. Macroeconomic policies became able as a stabilization fund for the an upper credit tranche arrangement 4 Julv-Auoust 1m Transition later in the autumn. We assume that ten times, while the average monthly terprises realize that they should ad the Russian government would fur income in June reached only 4,100 just instead of relying on subsidies, ther tighten monetary and fiscal poli rubles (less than $30 at end-July ex the quicker the transition will take cies, cutting the annual inflation rate change rate). Don't you think that place, and the faster the economy will to low single digits by next year. It is overly drastic actions could throw the move to a sustainable.industrial struc also assumed that Russia would by country's economy into a deep reces ture. This adjustment from the old then have come to some agreement sion? inadequate manufacturing enter with the countries of the ruble zone prises to the new industrial structures about the coordination of monetary A. The monetary and fiscal measures isnot without costs, however, not even policy. In the meantime a reasonably we are talking about are to ensure the in Western economies. Unemploy controlled mOMtary expansion and a macroeconomic stabilization of Rus ment must come at some stage; it will tight budget p,)licy in Russia would sia, which is a key to further progress be the result of the need to close or offset any tendency for other coun in the economy. Only if enterprises scale back the old plants before new tries using the ruble to apply insuffi feel the heat from being ovennanned employment opportunities have had cient monetary and fiscal discipline. or in a redundant line ofbusiness will a chance to develop, rather than the We should not:orget that Russia rep they be willing to make adjustments. result ofmacroeconomic stabilization resents more than 60 percent of the We in the Fund think that the govern per se. economic potential of the ruble area. ment should not excessively subsidize enterprises or provide them with The most important thingis to ensure Q. This sl?cond phase is said to involve cheap or easy credit. The sooner en- that the government has an adequate a stand-by credit olat Least $3 billion -the figure is ,ased on the remaining 75 percerzt of the $4 billion Russian The IMF says '" quota in the F;tnd. Is this assumption "The International Monetary Fund has uct (GDP) from the deficit that would correct? approved a request by the Russian Fed have prevailed ifno new measures had eration for a stand.by arrangement in been taken. At the same time, the growth A. One cannc,t at this stage specify the first credit tranche, authorizing a of central bank credit to the banking the exactamc,unt of the upper credit drawing ofup to the equivalent ofabout system will be limited, and a flexible tranche arrangement. It depends on $1.04 billion. Thisis the first use ofIMF interest rate policy, responsive to de the strength 0 /'the program that might creditby the Russian Federation, which velopmentsin prices, the exchange rate, result from t he impending negotia became a member of the IMF on June 1, and the level of official reserves, will be tions, andofc,mrse the proposal would 1992, with a quota of about US$4.1S followed. have to be approved by the IMF's billion. Board. In the third phase Russia During the second halfofthis year, the would be abll to use a $6 billion fund The stand-by arrangement approved to government intends to accelerate struc to help stabr ize the ruble. The stabi day, which hasadurationoffive months, tural change in the areas of enterprise lization fune would be set up by the and the policy program that it supports, reform, privatization, anti-monopoly IMF with thl~ help of financing under constitute the first stage of a phased and pro-competition policy, financial the General Arrangements to Borrow, process of collaboration with the IMF. sector reform, and in the agricultural which is previded by the G-10 plus Successful implementation of this policy sector. Work in all these areas has been Switzerland and Saudi Arabia. Set program, together with further mea proceeding in close cooperation with the tingup a stabilization fund, however, sures aimed at stabilization and accel World Bank, and in addition, the gov is only appr:lpriate when the ruble's eration of the reform process, as well as ernment in June approved a medium exchange rate is fixed. And it can only agTeement on monetary coordination term program for transformation of the wi th other states of the former U.S .S.R. economy that sets out reform strategies be fixed in a reasonably stable macro that decide to remain in the ruble area; in these areas. economic er.vironment, in which the could lay the basis for a second stage of exchange ra te itself-after a period of financial support from the IMF, includ The Russia authorities are committed floating-h,1s stabilized at a sustain ing a possible upper tranche stand-by to protecting the most vulnerable groups able level. arrangement. When conditions are ap of the popUlation during the economic propriate, a third stage, involving the transformation process, while ensuring Q. Recent economic surveys indicate pegging of the exchange rate and acti that social safety net expenditures are that a largf part ofRussian industry vations of a stabilization fund, could consistent with macroeconomic stabili is heading toward bankruptcy. The follow .... zation." Russian MillisterforEconomypredicts an 18 perce'lt decUneofGDPthisyear. Macroeconomic policies are designed to IMF press release from August 5, 1992. There are a iready signs that monetary reduce the budget deficit in the second See page 16for more information on the andf;:scaL restrictions arecausingper. half of 1992 by approximately 1.5 per World Bank loan to RU3sia. vasiue poverty. In the first six months centage points of gross domestic prod ofthis yea, the cost ofliving increased The World Bank/CECTM social safety net in place. We have to ofpreparing the policy guidelines for cess, the costs of liquidating tradi remember that the old Soviet system the Russian reform program? tional institutions, and the adjust always had a frurly generous system ment of deeply ingrained behavior of transfer payments to pensioners, A. So far the opposition to the patterns? Is the IMF dealing with this working mothers, sick leavers, and government's economic policy has issue? the like. The unemployment compen come mrunly from the enterprise man sation scheme that the Russian gov agers' and not the general popula A. Such studies could, of course, point ernmentintroducedlastyearwasalso tion. Ofcourse that could change even to the enormous social and personal generous. [Editor's note: If a worker tually. It was predictable, especially tensions that will occur during the becomes unemployed, he is entitled in view of Eastern European experi transition to a market economy. The to three months' severance pay from ence, that managers would resist the Russian government will be taking his enterprise, after which he becomes economic changes that are involved these into account in navigating its eligible for unemployment benefits in moving to a market economy. I do route, and the Fund will be support from the state.] Both the government not think, however, that there is a ing it with our expertise. We are as and the Fund are concerned that if magic solution to avoiding the prunof concerned as the Russian government unemployment were to rise to a high transition. Of course, the costs ofad to find the route that will minimize level, the budget might not be able to justment should be minimized as the tensions. This does not mean that bear the costs. A few months ago the much as possible. A key way to mini we, or anyone else, will be able to de government presented to the parlia mize them is to move quickly in re vise perfect solutions. There are bound ment a new scheme that would be less forming enterprises and enforcing the to be difficult periods along the way, generous, but still adequate. Unfor hard budget constrrunt. and adjustments to our course will be tunately, the parliament was not able required from time to time. The im to pass that [proposal], and the exist Q. Still, the question remains: Isn't portant thing will be to keep moving ing scheme will not be modified until there a risk that such drastic changes forward on all the main economic el parliament returns after the summer in the economic system will trigger ements of the transition that every recess. reactions that the economists are not one agrees must take place, especially really prepared for? Are there any macroeconomic stabilization, privat Q. Did the IMF reckon with the pos studies or other research that assess ization, development of the legal sible political and social repercussions the human factor in the transition pro framework, and reform of enterprises. Social Systems in the New Central Asian States: Replace with Care! T hree new states of the former Soviet Union-Tajikistan, Turkmenistan, and Uzbek istan-are operating broad and com sanatoriums (or even hospitals), sum mer and winter vacation homes, and children's camps. Firms also provide low-cost apartments. Employees are almost 92 percent of the subsidies. · Large social transfers-both in kind and in cash~over the entire plex systems of social security as a entitled to use these benefits free of population. Transfers in kind include legacy of the past. These systems gen charge or at a very low cost. The capi access to health care services, educa erally have the following characteris tal and operating costs ofthese facili tion (at all levels and all types; this tics: ties are paid out of the firms' profits. includes school transportation and dorms for students), social welfare · The state is responsible for provid · A large variety of subsidies keep institutions (homes for the old and for ingjobs for citizens, and once ajob is consumer prices down. For example, the handicapped, orphanages, holiday obtained there is little possibility of in Turkmenistan in 1991 the govern resorts) free of charge or at very low losing it. ment spent B39.3 million rubles--13.9 prices. Transfers in cash include pen percent of Turkmenistan's 1991 bud sions, sick leave, maternity leave, al · State enterprises provide a wide get expenditures-()n subsid.ies for lowances to newborns, children, and range of fringe benefits. Firms have food, housing, transportation, cloth students, and social re1iefto poor fami their own kindergartens (one or more), ing, and the like. Meat, milk, dairy lies and to families with five or more subsidized restaurants, prophylactic products, bread, and flour account for children. Transition Patterns of Financing revenues reached 1.5 billion rubles including food and other subsidies). (1.2 -billion rubles for pensions and Therefore, a reform of the social sys Health care, education, and social child allowances and about 300 mil tem is extremely sensitive politically. welfare institutions are financed lion rubles for benefits paid through Denying certain population groups through the government. Wage earn trade unions). Total social transfers some social benefits while reforming ers pay 37 percent of their salaries to to the public amounted to about 5.6 the social safety net might be consid social security. The money collected billion rubles. ered by these groups an abuse of their through this contribution is divided human rights. between the pension fund (about 83 Social benefits in the three countries percent) and the trade unions (about are generous in terms of both their The three states, like all countries in 17 percent). The pension fund pays variety and the number of beneficia the former Soviet Union, face serious the pens'lons, lS well as child allow ries. Forexample, in 1989 the shareof economic difficulties. Continuing the ances for children up to six years of Turkmens of pensionable age (for social transfer systems in their cur age. The trade union's fund covers women, from age 55; for men, from rent form exceeds the economic power sick leave, maternity leave, newborn age 60) in the total population was ofthese countries. allowances, funeral allowances, and about 7.6 percent, but the share of the CUITfmtar: d capital costs ofhealth pensioners was lO.8 percent because Measures should be taken to make and holiday 1 esorts. In all three re of early retirements. This means that the social transfer systems more af publics both I,ension funds and trade the average age of Turkmen pension fordable,more efficient, and more ef union funds rE!corded deficits last year, ers is relatively low. In Uzbekistan fective. These measures should in but losses were reimbursed from the 8.5 percent of the population are of clude targeting to direct social trans republies' bulgets. pensionable age and 11.6 percent are fers toward the most vulnerable pensioners. groups to prevent absolute poverty; In Uzbekistan about 17 billion rubles significantly reducing the number of were transfe1'red to the population last The eligibility requirements for so benefits; using more rigorous eligibil year (both in kind and in cash): 7 bil cial benefits are low. Each citizen is ity criteria', such as higherretirement lion rubles lor pension, sick leave, entitled to receive at least a few of the ages; reducing allocations for social maternity le.we, and child allowances, benefits. There are almost no means expenditures; introducing user and 10.2 bill ,on rubles for health, edu tested benefits, and as a consequence charges; and privatizing some ser cation, and social relief. The latter the system does not include any tar vices. alone l'epre~ ented about 30 percent of geting. the country's total budget outlay in Because wages are low, income range 1991. The benefits are spread over the popu is flat, and individuals are dependent latiori. In other words, they are basi on transfers in kind, it is clear that In Tajikistan L 62 billion rubles (40 cally considered a "social right" for radical reform is conditioned on an percent of 1.otal budget expenditure) each memberofthe society. There are increase in the real value of wages. were spent on health, education, and no elements of the "insurance prin Only with a wage increase will indi social relieJ'including transfers to the ciple." viduals and their families be able to pension fund to cover its deficit, and afford health care, education, and 1.24 billior. rubles went to cover pen Warnings and Proposals housing, services for which cost re sions, chili:. allowances, and transfers. coyery and user charges would be through H.e trade unions. These ex For decades Uzbekistan, Tajikistan, appropriate. penditures totaled about 3 billion and Turkmenistan-as part of the rubles, or 75 percent of Tajikistan's USSR-took almost complete care of In the new Central Asian states, let total budget in 1991. their citizens. The state provided ting inflation take its toll and allow child allowances, free education, free ing a real decline in benefits through Turkmeni stan spent3.3 billion rubles health services, jobs, free vacations, price increases cannot substitute for on health. edut:ation, and social relief and subsidized food and housing. Citi real social policy reform. Such a hands in 1991. ~:'his included money trans zens developed the habi t of relying off approach could cause a further de ferred to pension funds and trade on the state. Social transfers (both in cline in the already poor quality of union fimds (to cover their deficits), kind and in cash) were an important services in education, health, and so which equaled approximately 56 per source of family income. Data from cial welfare institutions. cent of j,otal budget expenditure. the Statistical Yearbooks for About 7C percent of Turkmenistan's Uzbekistan and Turkmenistan for budget .... as transferred to the public, 1990 show that social transfers in Aleksandra Posarac including 800 million rubles in subsi kind and in cash made up between The author is an economist at the dies on f(lod, housing, transportation, 40 percent and 45 percent of the av Belgrade Institute of Economic Sci clothing and footwear. Pension fund erage per capita family income (not ences. 7 The World Bank/CECTM Research Update The Labor Market in Transitional Socialist Economies Policymakers in the transitional so The research will have two associated The project began in April 1992 and cialist economies need a better under components. The first, a largely em will run until April 1994. Intermedi standing ofthe nature and dynamics pirical component, will involve de ate output from the project includes of two new phenomena: the rapid tailed country studies. These will pro papers on unemployment and incomes growth of unemployment and the fall vide an explicit macroeconomic frame policies. At the end of the first year in real wages. A new research project work in which labor market variables four country studies will be available, of the World Bank, 'The Labor Mar will be central. Monthly and quar to be followed at the conclusion ofthe ket in Transitional Socialist Econo terly time series covering prices, project by comparative and analyti mies," will monitor the results of key wages, employment, and unemploy cal papers. The output will be made policy changes in the labor market in ment will be generated. In addition to available first in working papers and Bulgaria, the Czech and Slovak Fed aggregate macroeconomic data, the at the conclusion ofthe project in book eral Republic, Hungary, and Poland. country studies will rely, where fea form. Researchers plan to hold a mid The four countries provide a range of sible, on establishment and survey project conference to report on coun stages and rates oflabor market tran data, particularly with respect to try study findings and a final confer sition and of economic reform in gen changes in employment and factors ence for policymakers and officials, to eraL This will facilitate a compara determining employment transitions. outline the major results from the tive analysis that distinguishes be overall research program. tween common and country-specific The second component will c:omprise features ofthe transition. The project comparative and analytical work. The The research project is managed by will also allow a more precise under comparative work will extract broad Simon Commander and Fabrizio standing of the growing unemploy trends and policy lessons from the Coricelli at the World Bank. The two ment, the relationship between wage country studies. Although the project project managers collaborate with and employment behavior, the extent will not pool data in econometric work, Olivier Blanchard (MIT), Richard of wage flexibility, the implications of it will draw on country-level estima Jackman (LSE), and Jan Svejnar wage behavior in both private and tions, particularly for price-wage dy (University ofPittsburgh and CERGE, public sectors for overall employment, namics, in developing its comparative Prague). For additional information and the consequences ofincomes regu analysis. The analytical work. will be contact Simon Commander(202) 473 lation under different country experi centered on wage bargaining, employ 6293 or Fabrizio Coricelli (202) 473 ences. ment setting, unemployment dynam 9159. ics, and the design ofincomes policies. The transition inevitably implies ris ing unemployment and significant changes in wage- and employment- Post-socialist agriculture '92 setting procedures. To understand these changes better, the research project raises the following issues: · Consequences of recent stabiliza tion programs for employment. · Characteristics of unemployment; policies to be adopted to reduce the level and persistence of unemploy ment. · Main features characterizing wage and employment setting in both so cialized and emerging private sectors. · Consequences ofdiffering wage and employment behavior in the social ized sector and the emerging private sector for aggregate wages and em ployment. . · Effect of incomes policies-with regard to wage setting-on restrain ing inflation; the magnitude of the associated efficiency c o s t s . !L.F_ro_m_l_"_'S_Io_v_QAt_tna(/}IlZ_in_'_,Ro_ha_c._ _ _._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _.......J __ Transii10n . Hungarian Minister Tamas Szabo Explains Reorganization of State Property "Self-privatization proved very successful" H ungary, although avoiding process-at least they were spectacular mass-privatization transformed to joint-stock techniqu es, is going ahead with companies. Private owners privatization of the still dominant have taken over about 10 state property, relying mainly on the percent of the state assets initiatives ofen terprise management. slated for privatization. To accel:rate the process new laws have been ap:Jroved by the parlia Q. What is the significance ment, cT:ating a new superstructure, of the latest package of the StatE: Assets Holding Ltd.., which privatization laws that came will operate Imterprises remaining into force in late August? permanEmtly i:1 state ownership, Dur inga recent vbit to Budapest Richard A We realized that we have Hirschler, edi ~or ofTransition, asked to work out different ap Tamas Szabo. mimster without port proaches to organizing and folio responsble for privatization, to operating public assets, de explain the reasons for the latest pending on whether we want to hold Q. What companies does the govern measures. on to them permanentlyorto sell them ment want to keep in the public sector, either partly or completely. In the and what would be the productive Q. How cou:d you summarize the latter case an acceleration of the share of the private sector in gross Hungarian privatization process? privatization process seemed appro domestic product by the end ofthe tran priate. Accordingly we had to work sition process? A OwnershiJ re~Jrm and ownership out a legal framework both for effi creation too1-: three different courses cient management of the remaining A That is exactly the other message in Hungary. First, we have created state assets and for speeding up the of these privatization laws: the gov ownership [,y law. The parliament privatization. In my interpretation ernment is ready to determine which approved le!:1s1ation that authorizes these second-generation privatization enterprises it wan ts to keep in the local governments t{) own property, laws have several messages. One public domain and which are slated transfers C( operative ownership to message is that the operational struc for privatization. During the prepa individuals, and compensates former ture of the public enterprises should ratory work it became evident that owner:, for xpropriated property. correspond to the market's require the assets to be retained as state prop ments. The owner-that is, the gov ertyis not an outrageous figure at all. Second, thE: initially small private ernment-andthe management must I was afraid of intense pressure from sector is e),panding vigorously and be separated, meaning that the en the ministries to retain properties already accounts for 25 percent of the terprise should tum into ajoint-stock under their supervision, but was gross doml~stic product. In recent company. pleasantly disappointed. years the Humber of entrepreneurs starting tlleir own businesses ex The public speaks of "forced transfor The state wants to retain 100 percent ploded. Foreign investments are also mation" ofthese enterprises, but there of only a few strategically important increasing by leaps and bounds, cre is no coercion involved. Rather there enterprises. I can count them on one a ting advar Icedindustrial cultures (for is an acceleration of a process that hand, such as the railways and the example, iTI the automotive industry). started in 1988. Of course during postal service. In other cases the state transformation restructuring is also wants to sell out part of the stocks, Third, pri1atization of state enter desirable-downsizing companies, and keep a majority or, for that mat prises is ~ urging ahead. Early this and decentralizing huge conglomer ter, only a minority stake in the com year about half of the 1,900 state en ates by separating self-supporting pany (for example, keep a majority terprises 3elected for privatization production or service units. In gen stake in the Hungarian Airlines, the (representing about 35-40 percent of eral, we want to increase the number Electric Power works, and some state totaJ stat,' assets) were already in of actors and possible competitors in farms, and a minority stake in the oil volved somehow in the privatization the market. industry, a few large petrochemical o The Wond Bonk/CECTM companies, and some pharmaceuti applicants. Nor were original expec cess by June 30, 1993. At the same cal enterprises). Also, the banks and tations met in the so-called first and time, bearing in mind that domestic the telecommunications services will second privatization programs-the investors lack enough accumulated remain, in part, state property. For planned sale of selected large enter savings to buy state property on a banks the state's share will decrease prises with the help of competing do cash basis, the law indicates a num to 25 percent by the end of the 1990s. mestic and foreign consulting compa ber of privatization methods that can nies. help future entrepreneurs acquire Compared with the estimated value property without cash. By transfer of all assets in Hungary, the value of On the other hand, self-privatization ring ownership, investors might use the state property will not reach even (previously called spontaneous optional lease. Employees might be 33 percent, and considering subse privatization), in which state compa able to buyout their enterprise under quent privatization of other state as nies initiate their own transfonna a long-tenn credit scheme called the sets in the long term, the share of tion and look for new owners, proved Employee Share Ownership Program state property in Hungary will drop very successful. Although moral ob (approved by the parliament). We still to less than 20 percent. This ratio, I jections have been raised at this have to work out the proper regula presume, corresponds to the average method based on the concern that such tion of management buyouts. share of state sectors in the market economies. To cut the state sector so Q. And what should happen to those drastically in such a short time is an extremely ambitious goal; however, Nothing induces assets labeled permanent state prop erty? we believe that the present 70-75 per cent share of the state. sector can be or forces the A We have been looking for a market reduced to less than 50 percent by the end of1993 or early 1994. Our privati state enterprise solution, relying on the suggestions of the WorId Bank and the European zation program is supported by the European Community and the World to compete Community. Under the law on man agement of pennanently state-owned Bank. property, we are setting up the State Assets Holding Ltd, to oversee and Q. What new privatization techniques uncontrolled processes invite fraud manage the remaining assets. It will are being used to accelerate the pro and encourage individuals [former be structured as a joint-stock com cess? managers] to salvage their power (for pany and will administer the trans the new political and economic order], fonnation of state enterprises into A It turned out that the centrally the risk must be taken because there joint-stock companies. It is even pos managed privatization programs isn'ta more rational way. The govern sible that competition will develop be bring only modest results. The "pre ment recognizes this and has decided tween the State Privatization Agency privatization" plan aimed to rapidly to extend the decentralized privat (SPA) and the State Assets Holding lease out small shops and restaurants, ization program launched last fall, Ltd, as there will be no strict line di but initially could not attract enough which entrusts enterprise manage viding the SPA with its charge of ment and domestic and foreign con privatizing some state property and suiting companies with initiating and the Holding with the charge of oper Owners of state assets transformed carrying out privatization. We have ating other enterprises over the long to joint-stock companies already started the second program tenn. The SPA will supervise the state (between 1990 and March 31,1992) of this kind, with the participation of property in its charge until it is sold Total assets = 424.47 billion forints about 300 small or medium-size en out, while the Holding, after review terprises. ing enterprises under its control, Local Foreign investors, might decide to restructure or even governments. 8% Q. Coming back to the new sen some of them. 3.2% privatization laws, what are the ma Hungarian private jor new elements? Q. Will it be possible to create a com investors, 2.5% petitive environment in the state sec· A The law for managing the tempo tor? rarily state-owned property actually is the law regulatingthe State Privat A When the share of the public sector ization Agency and the privatization is as high as 75 percent, which is the process. For assets to be retained tem case now in Hungary, nothing induces porarily by the state, enterprises must or forces the state enterprise to com State Property Agency, start their own transformation to pete. Even the competition from for 86.3% joint-stock companies by the end of eign goods and services under the new 1992 or the State Property Agency liberalized import regime is inad Sou,"",,: State Property Agency. will intervene and complete the pro equate to do that. Whether we wan tit Transition or not, the state must playa major role in restructuring the economy and creating a favorable environment for The Czech-Slovak privatization program: market competition, otherwise iner What comes after the first wave? tia combined with the survival instinct of the state enterprises could stymie reform. Czechoslovak Deputy Finance Minister Some 469 firms were oversubscribed, Vladimir Rudlavcak said on August 19 usually receiving three to five times as that 75 percent of the vouchers pur many bids as there were shares avail Q. Do you suggest then that restruc chased earlier this year by 8.5 million able. Most voucher holders (and presum turing of the state enterprises should Czechs and Slovaks interested in par ably the privatization investment funds precede privatization? ticipatingin the process of privatization too) appeared to place their shares in have been traded for company shares. companies listed among the one hun A Not long ago privatization went Rudlovcak said that after the first two dred top companies based on profits per along the easy way; we tried to sell rounds ofthis initial privatization wave, employee in 1991. Apart from current enterprises as they were, without ofl,500 companies, 1,369 still have some profits, voucher holders were also at· upgrading t}·em. We have changed shares to sell in the third round (which tracted by firms with foreign participa our approach, As I mentioned earlier, began on August 26 and ends on Octo tion. The most popular firms were al· even during:he transformation pro ber 8). All together, 56 percent of all most exclusively banks, hotels, brewer cess, when enterprises are becoming shares offered have now been allocated. ies, ceramics works, and foreign trading joint-stock I:ompanies, production companies. units can be separated from Between May 18 and June 8, Czecho overdiversified enterprises and can slovak voucher holderssentin their bids About 800 firms that were supposed to becomE! pri\i ately owned new busi for shares in 1,500 state-owned firms be included in the first round, but were nesses. The tough bankruptcy law whose 299 billion crowns in assets were not processed in time, were added to the will also generate a dynamic restruc put up for sale. (See TrallSition, May second round, which began on July 8 turing becs use loss-making enter 1992, page 3.) Of the 8.6 million vouch and ended on August 18. prises, as they are liquidated, will be ers purchased earlier in theyear, 72 per forced to gi"e up part of their assets cent had been lodged with the privati The third round of auctioning (still in· to new own ~rs, perhaps through the zation investment funds, leaving 2.9 mil the first wave) started on August 26. It commercial banks. Also, the pre lion individual voucher holders bidding will proceed without a change in the in the first round. Two million bid for rules, said Lubomir Dolgos, the Slovak privatizaticn restructuring could be Czech firms and 890,000 for Slovak privatization minister. Dolgos met with supported ':>y a credit-consolidation firms. his Czech counterpart, Jiri Skalicky,and fund, whicr could take care ofthe bad they decided that the two republics loans of the banks and restructure On June 30, the overall results of the should proceed separately with the sec the loss-making enterprises under first round of bidding were announced. ond wave ofvoucher privatization. Thus market prl:ssure. Both this kind of At that time 29.9 percent of the shares far Czech funds have invested 95 per restnJcturing and the privatization on offer were actually allocated, for a cent of their shares in Czech companies, process could be accelerated by sev value of 90 billion crowns in nominal while Slovak funds have invested a full eral new irstitutions proposed by the shares. The 420 privatization invest 47 perc en t in Czech companies, and in government, such as a new credit ment funds participating in the round dividual Slovak shareholders 19 percent guarantee system, a specialized bank were allocated shares worth 70 billion in Czech companies. In absolute figures, that provides loans for land pur crowns, andindividuals acquired shares Czechs, who outnumber Slovaks by two chases, a 1d a bank that provides worth 20 billion crowns. to one, now hold 2.6 million shares in mortgage loans. These new institu Slovak companies, while Slovaks have tions couli be financed at least par Some 1,022 firms were undersubscribed, invested 7.5 million shares in Czech tially from privatization earnings. that is, bids came to less than 75 per industries. cent of the nominal value ofthe assets. Q. How rr. uch earnings do you expect Bidders were given shares in these firms "National constitutions which are to be t his year I rom selling state enterprises equal to the nominal value of their bids, passed by the Czech and Slovak parlia to foreign and Hungarian investors? but the remaining shares were with· ment must clearly define citizenship to drawn and offered in a second round, at decide who can acquire propertyin which a lower price. republic," Skalicky said, but added: "The A. We ex Ject about 57 billion forints settlement must not infringe on prop (about $750 mi Ilion) this year, ofwhich In only forty-eight firms did the level of erty rights of the individual sharehold· some 25 billion forints will help fi bids fall within the range defined by the ers. nance buiget expenditures. Aftertak government as acceptable for complete ing care of other responsibilities, 16 sale, namely, 25 percent above or below Based on reports from OxfordAnalytica billion v. ill remain to develop the fi theassetvalue. These were mostly small and ru!ws agencies. nancial institutions. Two billion firms. forints v. ill be used to launch the State Assets Holding Ltd. ,, The Wend Bank/CECTM Quotation of the Month: IILevels of disbursements are disappointingly low" A New York Think Tank Wants to Upgrade International Assistance Edited excerpts from the 1992 Report U cial burdens upon them-before they and possible adoption by the ACC it of the IEWS Task Force on Western are sure they can use the resources self, and negotiate-among them Assistance to Transition in the CSFR, efficiently and to good purpose. Ac selves-an overall strategy for West Hungary, and Poland: Moving Beyond cording to calculations made by the ern assistance to the Central Euro Assistance," commissioned by the In G- 24, as ofApril 1992-excluding the pean states. TheACC would be staffed stitute for East-West Studies, Euro debt reorganization for Poland-the and supported by a slightly enlarged pean Studies Center, New York I grant component of assistance com G-24 Coordination Unit, inside the EC Prague IStirinlWarsaw. mitments to the CSFR, Hungary, and Commission. Representatives of the Poland stood at $2.11 billion, an aver three Central European governments In the framework of the G-24 assis age of8.5 percent. would be included as full partners. tance program involving the twelve European Community (EC) member During the first phase of transition, · Begin to provide full and up-to-date states, the six European Free Trade [characterized by financial assistance data on assistance figures. At presen t, Association (EFTA) countries, the for supporting stabilization], the Co neither the Organization for Economic United States, Canada, Japan, Aus ordination Unit of the G-24 countries Co-operation and Development tralia, New Zealand, and Turkey, played an important part in coordi (OECD) nor the G-24 Coordination some $23.4 billion has been pledged nating assistance efforts. The second Unit is given such information. Data to the CSFR, Hungary, and Poland, phase oftransition-structural trans must be broken down into categories from end-1989 to end-1991. Including formation-will take longer than the and must be compatible. Commitment commitments to these three countries stabilization phase and is likely to figures must be distinguished from by the IMF and the World bank Group, last from ten to fifteen years or until disbursement figures. Governments assistance totals $33.8 billion over the the three countries achieve full mem should refrain from making commit· same period. Global commitments to bershipin theEC. This phase requires ments that cannot be met and from the post-communist countries ofEu a new assistance strategy [based on] publishing impressive but mislead rope (Albania, Bulgaria, the CSFR, full partnership, coordination, and an ing assistance figures. These practices Estonia, Hungary, Latvia, Lithuania, operational vehicle to ensure effec have caused disillusionment and dam Poland, Romania, and Yugoslavia) to tive implementation. aged relationships with recipientgov end-1991 amounted to some $52.5 ernnients and their publics. billion including food and medical aid, Donor Partner Governments economic restructuring and technical Should: · Conclude agreements to ban the assistance, export credit and invest use of tied assistance to Central Eu ment guarantees, debt relief, and bal · Decide, in keeping with a mandate rope, particularly in the form of ex· ance of payments support. To this established by the G·7, to transform port credits (along the lines of the amount, ~he G-24 contributed $38.2 the existing Western assistance coor recent OECD agreement on Third billion, and the international finance dination system by means of a new World countries). institutions another $14.3 billion (at operational vehicle, the Assistance an exchange rate ofEcu 1=$1.26, May Coordination Council (ACC), to be · Provide a higher proportion of as 1992). chaired by the Commission of the EC .. sistance in grants as opposed to loans; It should have five committees, each establish funds on the model of the The media and the public tend to fo bearing responsibili ty for a major sec EC Regional Development Funds, cus on commitment figures, yet it is tor of assistance: macroeconomic as with the aim of co-financing private levels ofdisbursement that are disap sistance (under the leadership of the investment in selected regions. pointingly low and give cause for con IMF); structural transformation and cern. Disbursements of total assis adjustment (World Bank); microeco · Open their markets progressively tance to Poland by end-1990, for in nomic policies and privatization (Eu to Central Europe. EC members and stance, were approximately 27 per ropean Commission); technical assis institutions should not use the cent, to Hungary 16 percent, and to tance (European Bank for Reconstruc antidumping provisions of the trea the CSFR less than 2 percent. In part tion and Development [EBRD]); and ties to unduly restrict access of sensi the low level of disbursement is at noneconomic assistance (Council of tive exports from Central Europe. tributable to the reluctance ofrecipi Europe). The five committees would Liberalized market access will in entgovernments to take up assistance draft statements ofintent and policy crease the attractiveness of Central resources--which often place finan recommendations for consideration Europe to private investors. Transition · Provide incentives for private in International Organizations and private sources-the World Bank vestment in Central Europe, particu Should: estimates that for every $1 it lends, a larly tax incentives and increased further $2-$3 are raised. either governmental investment guarantees · Ensure that complementary forms through co-financing or from the re for viable Western investment. of Western assistance--for instance, cipient government. currency convertibility support, mar Recipient Partner Governments ket access, debt relief-are used to · Help mobilize internal savings and Should: match the needs of the three recipi attract foreign investment through ents. schemes on the model ofthe Enhanced · Coordinate flational policies to Co-financing Operation (ECo), which match the forms andamountsofWest · Acknowledge that assistance for encourages the involvement of com em assistance provided. transition differs from development mercial banks in assistance projects. aid; be more flexible in conditionality The World Bank's use of ECO pro · Create a mechanism to establish in view of proven commitments to vides a good example. domestic priori ties for assistance and reform and growing budgetary defi to attend to national, regional, sec cits during a world recession. · And finally, the European Commu toral, and local needs on an equitable nity should start to consider how in basis. · Encourage and support regional creasing market access to the Com policy cooperation initiatives. The munity for products from Central · CreatEl a f~,vorable environment European Community is urged to ex Europe might complement EC poli and management mechanism for ef tend appropriate regional policy pro cies aimed at transforming declining fective absorpf.ion and use ofWestem grams to the three countries now, in industries into competitive ones in assistan.;e. anticipation oftheir full membership side the EC. The readaptation meth in the Community. In particular, en ods used by the High Authority of the · Delegate seme of their control over vironment and infrastructure prob European Coal and Steel Community the distribution of assistance to re lems demand a subregional coordi in dealing with the coal crisis of the gional and 10 :al authorities. Decen nated approach. 1950s, and the more recent experi tralization, (lespite its short-term ence ofthe Community programs help costs, is necessary to develop capacity · Co-finance investment in infra ing restructure the steel industry in from the grollnd \J.p. structure in Central Europe. This will the 1980s and 1990s, are models that reduce major impediments to the ab could be built on and expanded in the · Share exp,;rience, expertise, infor sorption ofassistance; provide better future. mation, and training among them overall infrastructure on a pan-Euro selves in order to concert their poli pean basis, benefiting donors as well cies toward donors and encourage as recipients; create jobs, thus reduc Information: IEWS, New York, Ms. subreg:onalllOd cross-border coopera ing unemployment in the region; and Michelle Boyd, Distribution Dept., tel: tion. attract additional capital from public (212) 557·2570. Milestones of Transition Romania doubled the price of staple ductivity was 11.1 percent lower in drastic revision of its original forecast foods such ~.s bread, sugar, and cook July as against June. The number of of zero growth. Unemployment, cur ing oil on September 1 by slashing unemployed as of August 17 was rently just less than 11 percent, is set subsidies.Electricity was also hit-its 750,000(6.7 percent ofthe labor force). to rise to up to 20 percent next year, a price ...vill rise by 62 percent. The cuts Although in July the trade balance government report to parliament will add to year-on-year inflation that registered a surplus ofUS$22.2 mil warns. reached 228 percent in June, when lion, the overall deficit for the first the lastpri( edata were released. Cash seven months of the year amounts to China can sustain double-digit eco handouts and wage rises were agreed US$641 million. nomic growth even though faster re between the government and major form is bound to bring some chaos, unions to sweeten the economic medi Hungary's recession is proving far Wang Shiyuan, secretary general of cine. According to the Romanian Sta· deeper and more prolonged than ex the State Commission for Restructur tistical Board, industrial production pected, according to a new official fore ing the Economy, said. The official in July dropped by 13.7 percent as cast. The National Bank of Hungary People's Daily reported that GNP in against June, and was 32.9 percent is braced for a drop of 5 percent in the first six months of 1992 increased lower thal in July 1991. Labor pro gross domestic product this year, a by 10 percent over the same period 'f ._ ~ __ "" _ .._ . _ _ .. , The World Bank/CECTM last year, with industrial production, deaths, resulting in zero real popula Industry's (MIT!) is promoting the consumer spending, overseas trade, tion growth. The number ofdeaths in Japanese economic model for Russia and domestic investment all on the 1992 is expected to incrElase by 15 and other former socialist economies. rise. China's foreign trade overall percent to reach 1.7 million. The institute, which has written twc surged 20.2 percent, powered by the reports on the implications ofJapan'E country's five special economic zones, Russian Economics Minister Andrei experience for the former USSR, io which accounted for 15 percent ofthe Nechaev has given a projection of urging these countries not to adopt total. But the trade surplus shrank by Russian economic performance in extreme laissez-faire policies, but more than $1 billion in thefirsthalfof 1992. The gross domestic product is rather to supplement macroeconomic the year, as imports rose 23.4 percen t expected to decline by 18 percent and stability with some kind of indu stria1 to $33.06 billion, while exports in the national income by 19 percent. policy." The MITI group feels Japan creased by 17.3 percent to $35.61 bil Nechaev noted that the cost of living is a good model because, like Russia, lion. The resulting $2.55 billion sur rose by a factor of ten in the first half it had to democratize and demilita plus was 29.7 percent less than last of 1992 and that the average family rize quickly. The group recommends year's $3.63 billion. monthly income was 4,100 rubles in some form of wage and price controls June. The minister forecast that the to preserve economic stability and en Ukraine National Bank Chairman general wholesale price index will rise courages developing strategic indus Vadim Hetman said his country plans by three times over its first quarter tries. Japan's Finance Ministry is also to leave the ruble zone by October 1 level, while consumer prices will pushing for a closer study of policies and is seeking a $1.52 billion stabili double. that nurture new industries. zation fund to support the grivna. Hetman said Ukraine had not yet Mongolia's industrial output fell by Czechoslovakia sets date for split. decided whether to peg the grivna to 23.7 percent during the first six Slovak Prime Minister Vladimir a specific currency, although the Ecu months of this year against the same Meciar told reporters "we assume the and a basket of Western currencies period in 1991, largely because of dis Czechoslovak federation will cease to were being considered. ruptions in electricity produ(:tion and exist on January 1, 1993, and that shortages of raw materials, according the Czech and Slovak republics will The highest paid people in Russia to official figures. Inflation, spurred come into being as two state bodies." today are said to be presidents of stock by shortages oflocally produced con A federal law on the dissolution of or commodity exchanges (earning up sumer goods, continued to spiral up the Czechoslovak federation should to 80,000 rubles a month), followed by , ward, with the consumer price index be adopted by the end of September private businessmen (up to 55,000 indicating that prices leapt by 122 by the parliament, together with a rubles) and street traders (up to 15,000 percent from January to June. law on the division of property and rubles), according to the Moscow daily, successor rights. Medar said the Pravda, which published data on wage Prices in the first six months of 1992 deadline for the adoption of the laws levels onJune 30. By contrast, an army rose by 40.7 percent in Bulgaria, and on property succession rights could general earns a maximum of 10,000 inflation reached 5.76 percent in June, be extended into October. By the end rubles and the director of a state en announced theNational Statistical In of November both regional parlia terprise, 6,500 rubles. A construction stitute. The NSI expected about 5 per ments should negotiate and adopt worker can earn up to 3,500 rubles. cent inflation in July. laws on future coexistence covering The lowest pay goes to kindergarten fields such as civic, property, and fi teachers (maximum 1,500 rubles) and Angola's effort to rebuild its economy nancial relationships. December manual workers (1,300 rubles). after fifteen years of Marxist rule will would be reserved for negotiating any take at least ten years and will re outstanding issues. Medar's Czech The population of Russia will reach quire increased foreign inves.tment, counterpart, Vaclav Klaus, said both 148.5 million at the beginning of1993, according to Helder Azevedo, head of sides had agreed to set up a customs up only 0.1 million from 1992, accord the foreign in vestmen t department of union beginning next year and had ing to a forecast by the Russian State Angola's Planning Ministry. Thecoun reached consensus on setting up two Committee for Statistics. The popula try needs to build or rebuild roads, separate currencies that would be tion growth will result from immigra telecommunications' networks, and firmly tied with a fixed rate of ex tion exceeding emigration. The birth power plants. Azevedo said that the change." rate continues to fall; preliminary cal country is negotiating with the World culations show 1.7 million births in Bank to receive aid for some of its Tanzania's Prime Minister John 1992, compared with 1.8 million in development projects. Malecela said that his government 1991 and 2.2 million in 1989. For the had decided to delay privatizing the first time since the 1950s, the number The research institute of Japan's marketing of cash crops until next of births will equal the number of Ministry of International Trade and year. Transilion Conference Diary Why Is It Worth Investing in Hun Slavic Studies. This year's agenda International Center. The conference gary? includes roundtables on Causes and will address a number of questions: November 9-10, Budapest, Hungary Consequences of Change in the ex Who benefits from and who bears the Soviet Union, and Industrial Organi· burden ofeconomic and social change? Conference organized by the Hungar zation and the Transition from So What determines the willingness of ian Economic Association, the Joint cialism to Capitalism; panel discus firms to locate and invest in transi Venture Associl;,tion, the Institute for sions on Economic Restructuring and tional economies? How can society World Economics, and the Duna Privatization, Continuity in Russian balance economic efficiency and so holding Ltd. H-lngary would like to IndustrialAdministration 1860-1990, cialjustice? The kick-off plenary ses attract even mare capital from out Political and Economic Transition in sion will focus on national reports from side sources and keep up with the dy the Baltics, and "Farmer Threat"; and Bulgaria, Czechoslovakia, Germany. namics of capital imports. The confer progress reports on Land Reform in Hungary, Poland, and Russia and will ence intends to provide information Russia and Central Asia, and Transi include three invited papers on on the government's long-term policy tions in Mass-Elite Culture in Cen privatization from economic, social, plans and to discuss problems encoun tral and Eastern Europe. and business perspectives. Topics of tered by foreifn businesses in Hun Information: Sandy Costa, Coordina the workshops include: Approaches gary. Topics include: Current Stage tor, AAASS, Jordan Quad, Acacia to Privatization; Economic Rights and of Privatizatic n in Hungary, Situa Bldg., 125 Panama St., Stanford, CA Industrial Relations; The Role of the tion in the Banking Sector, Invest 94305-4133. Tel: (415) 723-3220, fax: State and the Political Process; ment Possibilities for Foreign Enter (415) 725-7737. Women's Issues; The Role of the West prises, and Vbw of International In and International Organizations; The stitutions. Leading domestic and for Privatization and Socioeconomic Privatization of Social Programs and eign scholars and business persons Policy in Central and Eastern Social Services. are expected t\) participate and inter Europe Information on paper proposals (dead· act with Hun{rarian government poli June 7-10, 1993, Krakow, Poland line: November 14, 1992) and atten cymakers. dance: Prof. Demetrius Iatridis, Bos Information: Mr. Tamas Halm, Di An international conference organized ton College Graduate school ofSocial rector, J{ungcrian Economic Associa by the Boston College and hosted by Work, Chestnut Hill, MA 02167. Tel: tion, Budapet t V,.IozsefAttila,u.8, fax: the Jagello University, The Krakow (617)552-4041 or (617) 552·4034,{ax: (361) 2/)6-28,:;2. Academy of Economics, and Krakow (617) 552·3199. Business Outlook and Economic Trans:ition ;)fEastern Europe and "Culture must be self-supported you know" the Forme)' Soviet Republics Noverr"ber 17-19, Rome, Italy Organized by PlanEcon, Inc., a Wash ington-base:! business and consulting firm. ropics include economic and political OVE rviews of the regions, sec toral reviews of the food, automotive, consumer goods, and engineering in dustr..es, ar.d a symposium on energy. Informatio.l: Mary Hogan, PlanEcon, Inc., 1111 14 Street, NW, Suite 801, Washingto't, D. C. 20005. Tel: (202) 898-0471, ,'ax (~W2) 898-0445. AAASS National Convention NovE,mber 19-22, Phoenix, Arizona 24th Com ention of the American As sociation for the Advancement of From tM Polish weekly, Tygodnik Solidam08c. 15 The World Bank/CECTM World BankjlMF Agenda World Bank Lending in Fiscal made a payment of$9.3 million to join Product Development Loan to 1992 the IBRD. Latvia paid $5.7 million, Hungary and Moldova $7.6 million . The other New lending commitments to mem former Soviet republics that have Hungary will make it easierfor manu ber countries from the IBRD and the joined the IBRD are Russia on June facturers and traders to market, trans IDA totaled $21. 7 billion infiscal 1992, 16, Estonia on June 23, Lithuania on port, and sell consumer products which ended June 30. The comparable July 6(paid $6.3 million), Belarus on through a project being supported by figure for fiscal 1991 was $22.7 bil· July 10 ($17 million), and Kazakhstan a $100 million World Bank loan, ap lion. World Bank loans to China on July 23. There are now 166 mem proved in the current financial year. reached $2.55 billion in fiscal 1992, bers of the IBRD and 144 members of Most ofthe funds from the IBRD loan compared with $1.6 billion in fiscal IDA. Membership of the IMF totaled will be channeled to participating 1991. The lending was provided to 168 countries by August 12, when banks through the National Bank of finance nineteen projects, including Moldova joined the Fund. Members' Hungary. The banks will provide loans projects in electric power, railways, quotas in the IMFtotaISDR96,465.05 to private-sector firms involved in roads, public health, primary educa million (about $139.83 billion). wholesaling, retailing, warehousing, tion, and the environment. Mongolia received $35 million worth of IDA credo World Bank's first loan to Russia and plans for the future its and Laos $40 million worth. IBRD and IDA commitments by to the coun· On August 6 the World Bank approved storage and food-handling problems. a $600 million loan to the Russian Fed· Critical inputs needed to maintain ag tries of Central and Eastern Europe eration to provide foreign exchange to ricultural production, such as high and Central Asia in fiscal 1992 to· purchase imports critically needed to yielding seeds and veterinary drugs, taled $1. 78 billion, down from $2.94 address the country's recent decline in may also be financed. billion in fiscal 1991. This decline is . production. This "rehabilitation" loan · The transport sector will receive $50 attributable in part to elections and will support the first phase of the million for spare parts and equipment continued policy debate in Poland and government's reform program, inel ud needed to put buses back in service and suspension of new commitments to ing privatization and restructuring of improve cargo handling at the major Yugoslavia. state-owned enterprises, promotion of ports, including St. Petersburg. foreign direct investment, pro-compe · The energy sector will receive up to MIGA Guarantees tition and anti-monopoly policies, re $50 million for spare parts critically form of financial institutions and the needed to maintain production. The Multilateral Investment Guar commercial banking sector, and estab antee Agency (MIGA) issued twenty lishment of a social safety net to pro The "rehab" loan has a term of fifteen one investment insurance contracts, tect those who may be affected by the years, including five years of grace, at including five contracts for invest reforms. Subsequent World Bank op the Bank's current 7.6 percent rate of ments in Poland in fiscal 1992 (which erations win support the government's interest. ended June 30). The contracts had a efforts to expand programs for combined maximum coverage of$313 privatization and social protection and "During the current fiscal year [which million. The total direct investment extend reforms to the agriculture and began on July 1], the World Bank could of the fiscal 1992 contracts was about energy sectors. approve loans totaling as much as $1. 7 $1 billion. As of June 30, MIGA had billion for as many as five projects. In eighty-five member countries. Thirty The rehabilitation loan has two main the coming years, the World Bank is parts: $250 million for imports by the considering a lending program of about more countries, including most ofthe growing commercial private sector and $2 billion annually," said Yukon Huang, former Soviet republics, have submit $350 million for priority imports by the division head in the Bank's Europe and ted applications for membership in health, agriculture, transport, and en Central Asia region. In an interview the agency. ergy sectors. The latter portion of the with World Bank News he added that loan breaks down as follows: "Russia's external financing require Membership Tally ments-in terms of new lending · Up to $1 00 million has been allocated might be about $15 billion amlUally The former Soviet republics of Geor for pharmaceutical and medical equip during the next few years. Most of this gia, Latvia, and Moldova have joined ment to stop the rapid decline in health money will have to come with guaran· the IBRD. Georgia joined on August services that has resulted from short tees from official sources or from insti 7, Latvia on August ll, and Moldova ages of foreign exchange. tutions such as the World Bank. Sub on August 12. Georgia also joined the · The agriculture sector will receive stantial flows of private capital won't International Center for the Settle $150 million to improve efficiency and become available until economic re ment of Investment Disputes, and reduce losses because of inadequate forms take root." Latvia has joined the IDA. Georgia Transition packaging, trucking, and other ser vices, to streamline their operations. New Books and Working Papers * · The CECTM unit of the World Bank regrets that it is unable to supply the publications listed. The project includes training and ex pert advice for the staff of both public and private-sector agencies. P. Marer, J. Arvay, J. O'Connor, spending), monetary policy (do coun M. Schrenk, and D. Swanson tries with high and unstable inflation IDA Loan to China Historically Planned Econo grow more slowly?), trade interven-. mies-A Guide to the Data tion (do tariffs, quotas, and high black IDA has approved a credit of $147 The World Bank, Washington D.C., market premia on foreign exchange million for a project that will help in 1992,264 p. have growth effects or one-time-only crease agricult.lral production, rural level effects?), financial policies (do incomes, and employment in Sichuan Efforts to assess the economic perfor penalties on domestic financial inter Province. The~roject will expand irri mance and financial flows ofthe CEE mediation lower growth ?), and finally, gationtomore':han 135,000 hectares, countries and the former Soviet Union openness to foreign capital (how do provide train in gand research, and ex have been frustrated by the practical restrictions on direct foreign invest pand soil cons,~rvation measures. problem of finding reliable data and ment affect growth?). The paper em convertingthem to comparable terms phasizes the specific relationships Albania: mRD, rnF Assistance in market economies. The Guide ad between policy and growth that can dresses these problems, but will need be used to quantify the effects of vari The World Balk has opened an office periodic revision. The first part ac ous policies and their interactions. It in Tirana, Albania Mr. Kutlay Ebiri, quaints the reader with statistical is also examines the relationship be a Turkish national, has been ap sues that are important for viewing tween growth and broader measures pointed resident representative of the economic and social conditions in the of welfare such as social indicators new offiee. He took up his assignment historically planned economies and environmental quality. on August L l:t another development, (HPEs) in a global context. The next the IMF appr .wed its first-ever credit part presents HPE data in tables for · · · for Albania-a $29 million stand-by comparative analysis. The third part credit to be dr:twn over the next twelve provides country-specific details on David Begg and Richard Portes months-in mpport of the govern how data are molded during transi Enterprise Debt and Economic ment's econc mic and financial pro tion and cites country examples of Transformation: Financial Re· gram. The government program basic data problems. The last part structuring of the State Sector in shoots for stlbiIization of output by explains data sources and methods. Central and Eastern Europe 1993, ~ith 311 early revival of agricul Centre for Economic Policy Research ture and a re·iuction in monthly infla Available from the World Bank book (CEPR) Discussion Paper Series 695, tion to :2-3 percent by mid-1993 (from store or to order: World Bank Publica London, 1992, 43 p. 6 percent in ,June 1992). tions, tel: (908) 225-2165 or P.O. Box 7247-8619, Philadelphia, PA 19170· The authors argue that possibly the Michel Cru::ldessus in the Baltics 8619. most important obstacle to economic restructuring in Central and Eastern Speaking aj the end of a three-day W. Easterly, R. King, R. Levine, and Europe is the widespread failure of visit to Litht.. aniain mid-August, IMF S. Rebelo enterprise debtors to pay creditors, Managing Director Michel Camdessus How Do National Policies Affect who in turn have strong incentives expressed satisfaction with the Long-Run Growth? A Research not to declare bankruptcy. In these governmen1's moves toward privati Agenda circumstances a disproportionate zation and its efforts to balance the The World Bank, WB Discussion Pa share of bank credit effectively goes budget. He ~,dded that "the Fund prob per No. 164, Washington, D.C., 1992. to refinance incumbents, which im ably will bE ready to help Lithuania pedes entry into the credit market. introduce i ~s own currency in Octo The recent decline in output in the ber," when the country plans to re formerly planned economies of Eu Banks have scant incentive to enforce place the ruble. Prime Minister A. rope has refocused attention on eco debt contracts. "Creditor passivity" Abisala said the country needs $120 nomic growth. These countries' expe may arise when the expected value of million to $>150 million from the IMF rience mirrors a less drastic economic a debtor's assets are less than the cost to stabiLze the currency. M. decline in developing countries whose ofenforcing bankruptcy orwhen there Camdessu;; also visited Latvia and median per capita growth rate in the is an option value in waiting to see suggested that the IMF Executive 1980s was -0.3 percent (excluding the whether the debtor's fortunes im Board mifht extend the maximum oil countries). prove. If banks are severely under credit aIle wed to the country (cur capitalized, have extensive nonper rently abollt $70 million). In Tallinn The paper examines five types ofna forming loans, and face political pres he v,)wedco back Estonia's applica tional economic policies: fiscal policy sures to finance struggling state tion for $4 0 mi ilion in IMF funds. (growth effects of taxes and public owned enterprises (SOEs), they may The World 8onk/CECTM conclude that their debtors are too big M. Guzek,J. Biskup, and E. Kawecka rid of a competitor. Conclusion: el~ to fail. Wyrzykowska ments other than property structur Creation of a Free Trade Area in affect the competitive nature an This institutional passivity redistrib Czechoslovakia·Hu:ogary-Po· quality of the market. utes liquidity from sound to poten land: Consequences for the Pol tially unsound enterprises. The pa ish Economy. No. 659, 17 p. · A change in the proprietary stru' per proposes a structural reform of ture will not necessarily result in credit markets, with recapitalization Peter Bofinger and Ivan Cernohorsky more meritocratic selection of mar ofbanks and enterprises. The govern Some Lessons from Economic agers. Social security directorates an ment would take over all nonperform Transformation in East Germany. self-governments might be endowe ing loans from the banks and replace No. 686, 27 p. with sizable properties, but their se: them at par with treasury bills. If the vices could deteriorate unless they ar government wishes to keep loss-mak To order, write to CEPR publications forced to compete with ,the privat ing SOEs going, it should do so by (new address!): CEPR , 25-28 Old sector. explicit, cash-limited fiscal subsidies. Burlington St., London WIX lLB. Tel: In a second stage, the SOE debt held (4471) 7349110,fax:(447V 7348760. · Speed is not a good indicator ( by the government is marked to mar success for the transformation pr( ket,just like the physical assets ofthe · · · cess. SustainabiIity becomes an indi enterprises, as part of the prepara pendent variable and an importar tion for privatization. Laszlo Csaba measure of success. The shortest di Transition to the Market: Theory tance between two points may be Other recent CEPR Discussion Pa and Evidence straight line. However, if one of tr pers: KOPINT-DATORG,DiscussionPaper points is at the top of a 6,000 met( No.5, Budapest, Hungary, 1992,26 p. high mountain, climbing straight t: J. Bradford De Long and Barry might not be the safest or fastest Wf. Eichengreen Author sums up some lessons of of getting there. The Marshall Plan: History's Most postsocialist systemic transformation: SuccessfulStructuralAdjustment Other titles in this series: Program. No. 634, 48 p. · Thereislittleincentiveforthepub lic to buy loss-making or dl~bt-ridden Gabor Oblath Ken Mayhew and Paul Seabright public firms unless the government Accumulation of Foreign Det Incentives and the Management creates the necessary conditions and and Macroeconomic Problems ( ofEnterprises in Economic Tran even gives preference to investment Debt Managemen't: Hungary sition: Capital Markets Are Not over consumption. Case. No. 1. Enough. No. 640, 58 p. · Rather than hoping for a quick and Laszlo Csaba Konstantine Gatsios sizable adjustment on the supply side, Economic Consequences ofSovit Privatization in Hungary: Past, the time horizon for meeting expecta Disintegration for Hungary. Present, and Future. No. 642,46 p. tions must be lengthened and the ex No.2, 26 p. tent of improvement that is hoped for Michael Burda and Michael Funke must be lowered. Bart W. Edes Trade Unions, Wages, and Struc· Import Liberalization and Indu! turalAdjustment in the New Ger· · Government shouldn't be compla try Protection: International Pr( man State. No. 652, 31 p. cent in fighting inflation, as grave fis cedents and Possible Options fc cal imbalances could threaten price Hungary. No.3, 30 p. Gordon Hughes and Paul Hare stability. Still, a degree of realism is In dustrial Policy and Restructur recommended, as the period of pro Laszlo Csaba ing in Eastern Europe. No. 653, tracted contraction mightnot be a good Russia's Road toChaos.No.4,41: 46 p. time to apply textbook-prescribed stringent monetary and fiscal policies. Kamilla Lanyi Peter Bofinger and Daniel Gros Hungarian Agriculture and th A Multilateral Payment Union for · Empirical evidence in Hungary Collapse of Comecon Markets. the CIS: Why and How? No. 654, indicates that too much attention was No.6. 35 p. devoted to privatization techniques and the correct valuation of assets, To order: KOPINT-DATORG, Inst Gerard Roland and Khalid Sekkat and too little to strategic issues. Sell tute for Economics, Market Researc Market Socialism and the Mana ers were often surprised, for instance, and Informatics, H-1051 Dorottya 1 gerial Labour Market. No. 655, when buyers purchased a plant only 6. Budapest, Hungary. Tel: (361) 118~ 16 p. to use it for dumping waste or to get 055, fax: (361) 118-6483. Transition · · · CEEPN, Ljubjana, Slovenia, 1992, Centre for Regional Studies, Hungar 183 p. ian Academy of Sciences, Pecs, Hun Jamie De Melo, and others gary, 1991,215 p. Tax Evasion and Tax Reform in a Reprivatization in Central and To order: Library, Centre for Regional Low-Income Economy: General Eastern Europe Studies, P.O. Box 199, Pecs, H-7601, Equilibrium Estimates for Mada (Papers of the CEEPN roundtable on Hungary. Tel: (3672) 12-755, fax: gascar Reprivatization of Commercial and (3672) 10-390. WorldBankPolkyResearch WPS918, Industrial Enterprises, Ljubjana, 1992,34 p. Slovenia, May 31.June 1, 1991.) Gur Ofer and Aaron Vinokur Available from Dawn Ballantyne, the CEEPN, Workshop Series No.1, The Soviet Household under the World Bank, Rm. N·I0023, tel: (202) Ljubjana, Slovenia, 1992, 88 p. Old Regime: Economic Condi 473·7947. tions and Behavior in the 1970s Cambridge University Press, Cam Jerzy Gajdka and Alexander PreparingEnterprises for Privat bridgelNew york, 1992,396 p. Hamilton ization: Business Valuation Privatization in Poland (Papers of the CEEPN and UNDP Janos Matyas Kovacs and Marton CIBER, University of Maryland, Col workshop on Enterprise Privatization, Tardos lege Park, Maryland, Occasional Pa Bratislava, Czechoslovakia, October Reform and Transformation in per No. 19, 19!)2, 22 p. 1991.) Eastern Europe: Soviet-type Eco CEEPN, Workshop Series No.2, nomics on the Information: ClBER (Center for In Threshold of ternational Bz:siness Education and Ljubjana, Slovenia, 1992, 156 p. Change Research), Cotlege of Business and Rutledge Press, LondonlNew York, Management, UniversityofMaryland Information: CEEPN Secretariat, 1992. at College park, College Park, MD Dunajska 104, P.O. Box 92, 61109 20742. Tel: (301) 405-2136, fax: (301) Ljubjana, Slovenia. Tel: (3861) 182 Vladimir Tismaneanu and Patrick 405-7635. 331, fax: (3861) 346 389. (CEEPN Clawson, eds. Central and East European Privat Uprooting Leninism, Cultivating Michal )iejstrik ization Network-is a regional asso Liberty The C2.echoslovak Large Privat ciation ofprivatization agencies, min University Press ofAmerica, Lanhaml ization. istries, and other institutions and was New YorkiLondon, 1992,87 p. CERGE:, Cha.rles University, Faculty established in June 1991.) Information: University Press of of Social Sci1mces, Prague, WPS 11, America, 4720 Boston Way, Lanham, 1992,30 p. Jack A Barbanel and Lynda A Maillet MD20706. Addres s: Tab orits /za 23, 13087 Prague Business in the [former] Soviet 3, Czechoslo..·akia. Union: A Primer and Overview Kazimierz Z. Poznanski, ed. [Updated Supplement] Constructing Capitalism: The Re Gang Fan a:ld Wing Thye Woo Transnational Juris Publications, emergence of Civil Society and Decentralb:ed Socialism and Mac Ardsley-on-HudsonlNY, 1991,287 p. Liberal Economy in the Post-Com roeconomic Stability: Lessons Information: T JP Inc., P. O. Box 7282, munist World from China Ardsley-on-Hudson, NY 10503. Tel: Westview Press, Boulder/San Fran University (,fCalifornia, Davis, Dept. (914) 693-0089, fax: (914) 591-2688. cisco/Oxford, 1992, 230 p. of Economi;:s, \Vorking Paper, 1992, Information: Westview Press, 5500 29 p. Gyula Horvath, ed. Central Avenue, Boulder, CO 80301 Available (rom Donna Raymond, Regional Policy and Local Gov 2847. Dept. ofEcot'l.omlcs, UniversityofCali· ernments fomia, Dal:is, CA 95616. Tel: (916) 752·9240. Change in the Masthead: A Note to Our Readers Our readers certainly have noted that These changes became necessary as New Books in our newsletters' masthead the divi· demand increased for analytical work sion for "Transition and Macro-Adjust on the growingnumber ofmember coun Marko Simoneti and Andreja Bohm, ment"has replaced the "Socialist Econo tries in transition and for research that eds. mies Reform Unit." The switch signals links macroeconomic issues to microeco Privatization in Central and East organizational changes in the Country nomic policy and structural changes. ern Europe in 1991 Economics Department of the World While Tra1l.$ition.'s profile remains un (Papers of the CEEPN II. Annual con Bank; the Socialist Economies Reform changed, we hope that the reorganiza ference ir Vienna, Austria, Novem Unit has merged with the former Mac tion win inspire new authors to share ber 1991. covering country privati roeconomic Adjustment and Growth their research findings with our reader zation reI orts and specific implemen Division and a new division was born. ship. tati:m isslles.; 10 The World Bank/CECTM Bibliography of Selected Articles Staff may contact the Joint Bank·Fund Library, (202) 623·7054. Post·Socialist Economies Financial Economics (U.K.) 2:33.42, CIS and the Baltics March 1992. Lachmann, L. M. Socialism and the Buraway, Michael and Kathryn Market: A Theme of Economic So Kaser, Michael and Christopher Allsopp. Hendley. Between Perestroika and ciology Viewed from a Weberian Assessment: Macroeconomic Transi· Privatization: Divided Strategies Perspective.SouthAfricanJoumalof tion in Eastern Europe, 1989-91.0%· and Political Crisis in a Soviet En· Economics (South Africa) 60:24.43, ford Review ofEronomic Policy (U.K.) 8:1· terprise. Soviet Studies (U.K.) March 1992. 13, Spring 1992. 44(3):[371].402, 1992. Lee, Keun and Hong Yong Lee. States, Kocsis, Gyorgyi.Light for the Economy? Etzioni, Amitai. How Is Russia Bear Markets and Economic Develop New Hungarian Quarterly (Hungary) ingUp? Challenge (U.S.) 35:40-43, May. ment in East Asian Capitalism and 33:71· 78, Spring 1992. June 1992. Socialism. DevelopmentPolicy Review (U.K.) 10:107.30, June 1992. Maier, Harry. SystemsTransformation Maeltsemees, Suley. Estonia 1987 East·West: Economic Problems with 1990: From a Theory of Economic McKinnon, Ronald I. Taxation, the Unification of Germany. Techno· Sovereignty to the Beginnings ofan Money, and Credit in a Liberaliz· logical Forecasting and Social Change Independent Republic. Technologi. ing Socialist Economy. Economics of (U.S.) 41:223-42, May 1992. cal Forecasting and Social Change (U.S.) Planning (U.K.) 25(1):97·112,1992. 41:271·81, May 1992. Makara, Klara. Wasting Disease: The Murren, Peter. Conservative Politi· Health ofthe Nation. New Hungarian Olcott, Martha Brill. Central Asia's cal Philosophy and the Strategy of Quarterly (Hungary) 33:45·50, Spring Catapult to Independence. Foreign Economic Transition.East European 1992. Affairs (U.S) 71:(108].30, Spring 1992. Politics and Societies: EEPS (U.S.) 6:3 16, Winter 1992. Paukert, Liba. Economic Status of Russian Soviet Federated Socialist Women in the Transition to a Market Republic: Law on Foreign Invest Welfe, Wladyslaw, and others. On the System: The Case of Czechoslovakia. ments in the RSFSR, July 4, 1991. Methodology ofConstructingLarge IntematicnallAborReview/ International International Legal Materials (U.S.) Econometric Models ofan East Eu lAbor Office (International) 130(5·6):613 31(2):397-423 March 1992. ropean Economy (Poland): A Com· 33,1992. ment. Economic Modelling (U.K.) Cuba 9:137-45, April 1992. Toma, Luigi and Eugen Gheorghe. Pos sible Communication Model Applied Griffin, Clifford E. Cuba: The Domino Central and Eastern Europe to Socioeconomic Development Pro that Refuses to Fall. Can Castro cesses: An Alternative Scenario for Survive the "Special Period"? Ash, Nigel. Croatia: Preparing for Romania. Technological Forecasting and Carribean Affairs (Trinidad) 5:[24]·42, Peace. Euromoney (U.K.) Supple. Social Change (U.S') 41:[283]-307, May January.March 1992. ment:1-45, May 1992. 1992. Africa Bartlett, David. Political Economy of Valencia, Matthew. Slovenia: ~king Privatization: Property Reform and Consensus. Finance and Business in Chole, Eshetu. Ethiopia at the Cross· Democracy in Hungary. East Euro· Central and Eastern Europe (U.K.) roads: Reflections on the Econom· pean Politics and Societies: EEPS (U.S.) No. 12:24-27, May 1992. ics of the Transition Period. Ethio 6:73-118, Winter 1992. pian TrodeJournal10:15.16, April 1992. Zalesski,A. B.Effect ofComplete Profit Blejer, Marioand SilviaB. Sagari. Hun· Accountability on the Efficiency of Huffman, Robert T. Colonialism, So gary: The Initial Stages in the Fi· Enterprises. Matekon: Tro1!.8latio1!.8 of cialism and Destabilization in nancial Sector Reform of a Social· Russian & East European Mathematical Mozambique. Today (U.S.) 39(1·2):9· ist Economy in Transition. Applied Economies (U.S.) 28:26·44, 1991·92. 27,1992. TRANSITION is a regular publication of the World Bank's Transition and Macro.Adjustment Division, Country Economics Department. The , findings, views, and interpretations published in the articles arethoseofthe authors and should not be attributed to the World Bankorits affiliated organizations. Nor do any of the interpretations or conclusions necessarily represent official policy of the World Bank or of its Executive Directors or the countries they represent. Richard Hirschler is the editor and production manage!'. Desktopping is by Mary Mahy for the Policy Research Dissemination Center. To be on the distribution list, send name and address to Richard Hirschler, Room N-S027, The World Bank. 1818 H Street i NW, Washington, D.C. 20433 oreal! (202)473·6982, or fax (202) 676-0439. Information on upcomingeonferences on socialist economies, indication of subjects of special interest to our readers, letters to the editor, and any other reader contributions are appreciated.