Experience and Perspectives of Financial Sector Development in Central and Eastern Europe

Financial sector development in Central and Eastern Europe has proved to be a very dramatic process characterized by some well trumpeted success stories but even moreso by many unexpected collapses of seemingly decent institutions and some systemic meltdown as well. The overall record of transition in the area of financial sector development is much less impressive than achievements in macroeconomic stabilization,economic liberalization and privatization of formerly state owned enterprises. There are several reasons for this. Among others I would highlight the specific complexities of the financial business and the intense political as well as emotional sensitiveness attached to any major move in this area. Influential stakeholders such as politicians, government officials, business and media people tend to overestimate the real value of particular institutions and at the same time overemphasize their importance to the national economy. In the absence of strong external and internal governance structures managers and at times also owners of banks, brokerages and insurance companies abuse this situation to increase their own influence and perceived importance. The story and history of financial sector development in most countries of Central and Eastern Europe in the first decade of transition, therefore, has been an uphill struggle to restore reliable channels and prudent practices of financial intermediation – to create a new culture of trust and confidence against all odds of a dire legacy sometimes characterized by crime and corruption, cronyism and collusion.financial sector, transition Central and Eastern Europe, banking, corporate governance

Visegrad Twins' Diverging Path to Relative Prosperity - Comparing the Transition Experience of the Czech Republic and Hungary

The author highlights the striking difference between the economic transition of the Czech Republic and Hungary. These two countries, roughly of the same size and same level of development, have traveled on markedly diverging paths toward relative prosperity. After the velvet revolution of 1989, the Czech Republic began to introduce a comprehensive and consistent package of macroeconomic stabilization coupled with voucher privatization. Hungary ? not having experienced a revolution, rather a change of the ruling elite ? was not ready to make substantial macroeconomic adjustment, but did implement a supply-side shock therapy toward corporate restructuring. The strategy of the Czech government was widely regarded as successful, while the Hungarian one was considered as flawed. The situation had changed by the mid-1990s, however, when Hungary was forced to undertake comprehensive macrofinancial stabilization, which, in turn, has paved the way for high-level, sustainable, and export-led growth since. The Czech Republic paid its price for postponing corporate restructuring, but there have been important reforms since 1997 directed at accelerating modernization in both the real and the financial sectors. The pattern of macro versus micro adjustment was, therefore, quite the opposite in the two countries.transition; macroeconomic stabilization; corporate restructuring