What Can Arab Countries Learn From Post-communist Transition?

The commentary by Marek Dabrowski on what Arab countries can learn from the post-communist transition of the early 1990s, after the political uprisings against the authoritarian regimes in the Arab world

Two Years of Economic Reforms in Russia. Main Results

The goal of this article is the presentation of the general results of the Russian economic reforms in the period from November 1991 to November 1992, with particular emphasis on macroeconomic policy and the failed attempts at fiscal stability. Such a profile of the article results from the personal interests of the author, the specific condition in which Russia found itself after the collapse of the USSR (the existence of a rouble zone with a series of independent central banks), as well as from the importance of macroeconomic balance (often under appreciated) in the success of the process of transformation from a planned to a market economy. Furthermore, macroeconomic policy is precisely the factor of the chosen strategy of transformation, which most differentiates Russia from the countries of the so-called Visegrad group. The article will also leave out a deeper analysis of the political situation, even though it has had a significant influence on the course of the reform process. The article will focus mainly on the second year of the Russian transformation. This is due to the possibility of presenting rather current economic results, as well as formulating more advanced conclusions. Furthermore, the initial program assumptions and the course of events in the first year of transformation (1992) have been the subject of analysis for a number of studies [Aslund and Layard, 1993; Blanchard et al., 1993; D1browski et al., 1993]. It must however be clearly emphasized that it is still too early for formulating definite evaluations of what has occurred in Russia in the years 1991-1993. This will require, as the Polish example illustrates, a somewhat longer time span. An additional complication is the low quality of statistical data dealing with Russia. This is in regards to not only the GDP statistics or inflation, which, in light of the experiences of other post-communist countries, seems obvious, but also such things as monetary and fiscal statistics. Due to this, the conclusions presented in this article should be treated as introductory, and might be corrected as new events unfold and more accurate statistical data can be attained. The content of the article has been organized as follows: Point 2 presents a concise view of the characteristics of the starting point of reform at the end of 1991. Point 3 describes the process of the liberalization of the domestic prices and market. Point 4 deals with the meanders of the liberalization policy in foreign trade. Point 5 presents a synthetic picture of the privatization policy Point 6 describes macroeconomic policy in 1992, while point 7 - the stabilization efforts of 1993. In point 8 there is a short history of the collapse of the rouble zone. Point 9 contains conclusions and an attempt to forecast future events.transition, Russia, liberalization, deregulation, privatization, rouble zone

Limits of Quantitative Easing

The recent decision of the U.S. Federal Reserve Board (Fed) to increase its assets by purchasing $600 billion worth of Treasury bonds is unlikely to boost economic growth or employment prospects in the U.S. Instead, it will cause major damage throughout the world economy, especially in emerging markets, where the U.S. dollar remains a leading reserve and transaction currency. If this decision is not corrected soon, the Fed’s policy may cause another macroeconomic and financial crisis in the very near future.Quantitative Easing, financial crisis, economic growth

Rethinking balance-of-payments constraints in a globalized world

This paper confronts the traditional balance-of-payments (BoP) analytical framework (with its dominant focus on the size of a given country’s current account imbalance and its external liabilities) with the contemporary realities of highly integrated international capital markets and cross-country capital mobility. Some key implicit assumptions of the traditional framework like those of a fixed residence of capital owners and home country bias are challenged and an alternative set of assumptions is offered. These reflect the unrestricted character of private capital flows (with no “home country bias” and fixed domicile) determined mostly by the expected rate of return. As a result, the importance of BoP constraints (in their “orthodox” interpretation) diminishes and they disappear completely with respect to individual member states within a highly integrated monetary union. This does not mean, however, immunization from other kinds of macroeconomic risks.balance of payments, international investment position, current account, monetary union, globalization, global imbalances

Economic Relations between the EU and CIS (An Overview)

The purpose of this paper is to examine the economic aspects of EU policy towards its Eastern neighbors in the former Soviet Union. For a long period of time, this region was considered as less important for the EU, as compared to Central and Eastern Europe, which was the subject of a far-reaching economic and political integration offer materialized in two rounds of EU Eastern Enlargements (2004, 2007). However, moving the EU's geographical frontier further to the East and Southeast increased the importance of the CIS region as a potential partner of the enlarged EU. In 2004, East European and Caucasus countries were invited to participate in the European Neighborhood Policy a new EU external policy framework also addressed to the Southern Mediterranean countries. Russia has been attempting to build a strategic political and economic partnership with the EU outside the ENP framework but the content of this relationship is, in fact, very similar to the ENP. A general weakness of the ENP is that there is a lack of balance between farreaching expectations with respect to neighbors' policies and reforms, and limited and distant rewards that can potentially be offered. Thus, making this cooperation framework more effective requires a serious enhancement of the rewards using, to the extent possible, the positive experience of previous EU enlargements. The nature of contemporary economic relations in the globalized world calls for a more complex package-type approach to economic integration rather than just limiting cooperation to some narrow fields.EU-CIS relations, EU-Russia relations, EU and Central Asia, European Neighborhood Policy, Partnership and Cooperation Agreement, Wider Europe

Ukraine at a Crossroads

The Orange Revolution in the fall of 2004 built great hopes for a better future for Ukraine. However, three years later those hopes have been replaced by disappointment, frustration and confusion. Although progress in the areas of political freedom, pluralism, civil rights and freedom in the media remains unquestionable the record of economic, institutional and legal reforms is much more problematic. The key macroeconomic indicators are not better than they were few years ago and the business climate has barely improved. The WTO accession process remains incomplete. The perspectives of Euro-Atlantic integration are continually subject to heated domestic political controversies. The political situation remains unstable, mostly due to the hasty constitutional changes that were adopted during the Orange Revolution. The purpose of this paper is to analyze the state of the Ukrainian economy at the end of 2007 and reflect upon what kind of reform program the Ukrainian government should consider, regardless of its political color. The reforms suggested in this paper involve a broad agenda of macroeconomic, social, structural and institutional measures. This agenda goes beyond the purely economic sphere and also addresses issues of legal, administrative and political reforms. The politics and political economy of any future reform effort will not be easy because the country is deeply divided in political, cultural, regional and ethnic terms. In such an environment, crucial reforms and strategic decisions will require a wider cross-party political consensus.Ukraine, Orange Revolution, CIS, transition, European Naighborhood Policy, Euro-Atlantic integration

Currency Crises in Emerging - Market Economis: Causes, Consequences and Policy Lessons

Currency crises have been recorded for a few hundreds years but their frequency increased in the second half of the 20th century along with a rapid expansion of a number of fiat currencies. Increased integration and sophistication of financial markets brought new forms and more global character of the crises episodes. Eichengreen, Rose and Wyplosz (1994) propose the operational definition, which helps to select the episodes most closely fitting the intuitive understanding of a currency crisis (a sudden decline in confidence towards a specific currency). Among fundamental causes of currency crises one can point to the excessive expansion and over-borrowing of the public and private sectors, and inconsistent and nontransparent economic policies. Over-expansion and overborrowing manifest themselves in an excessive current account deficit, currency overvaluation, increasing debt burden, insufficient international reserves, and deterioration of other frequently analyzed indicators. Inconsistent policies (including the so-called intermediate exchange rate regimes) increase market uncertainty and can trigger speculative attack against the domestic currency. After a crisis has already happened, the ability to manage economic policies in a consistent and credible way becomes crucial for limiting the crisis' scope, duration and negative consequences. Among the dilemmas that the authorities face in such circumstances is the decision on readjustment of an exchange rate regime, as the previous regime is usually the first institutional victim of any successful speculative attack. The consequences of currency crises are usually severe and typically involve output and employment losses, fall in real incomes of a population, deep contraction in investment and capital flight. Also the credibility of domestic economic policies is ruined. In some cases a crisis can serve as the economic and political catharsis: devaluation helps to temporarily restore competitiveness and improve a current account position, the crisis shock brings the new, reform-oriented government, and politicians may draw some lessons for future. The responsible macroeconomic policy can help to diminish a risk of an occurrence of a currency crisis. It involves balanced and transparent fiscal accounts, proper monetary-fiscal policy mix, and low inflation, avoiding indexation of nominal variables and intermediate monetary/ exchange rate regimes. On the microeconomic level key elements include privatization, demonopolization and introduction of efficient competition policy, prudential regulation of the financial sector, trade openness, and simple, fair and transparent tax system. All the above should help elimination of soft budget constraints, overborrowing on the side of both private and public sector and moral hazard problems. All these measures need to be strengthened by legal reforms, efficient and fair judiciary system, implementation of international accounting, reporting and disclosure standards, transparent corporate and public governance rules, and many other elements. Reforms can be supported by the IMF and other international organizations, which on their part should depoliticize their actions and decision-making processes, sticking to the professional criteria of country assessment and their consequent execution.currency crisis, financial crisis, contagion, emerging markets, transition economies, exchange rates, monetary policy, fiscal policy, balance of payments, debt, devaluation

The Global Financial Crisis: Lessons for European Integration

The purpose of this paper is to analyze the various challenges facing European integration and the EU institutional architecture as result of the global financial crisis. The European integration process is not yet complete, both in terms of its content and geographical coverage. It can be viewed as a kind of intermediate hybrid between an international organization and a federation, subject to further evolution. This is also true of the Single European Market and the Economic and Monetary Union, which form the core of the EU economic architecture. Certain policy prerogatives (such as external trade, competition, and the Common Agriculture Policy) are delegated to the supranational level while others (such as financial supervision or fiscal policy) remain largely in the hands of national authorities.financial crisis, European integration, European Union, Economic and Monetary Union, fiscal policy, financial supervision, global financial architecture, IMF

Fiscal Crisis in the Transformation Period: Trends, Stylized Facts and Some Conceptual Problems

The purpose of this study is to describe the separate stages of the transformation in light of the basic accompanying fiscal difficulties and to formulate general conclusions regarding the factors which substantially affect the state of public finances and the quality of fiscal policy in post-communist countries. The structure of the paper is as follows: Section 2 provides a synthetic classification of the post-communist economies according to their advancement in the transformation process; section 3 contains a proposed scheme for distinguishing successive stages of fiscal policy during the transformation period. In the following four sections, four such stages of fiscal policy are discussed. These are: initial destabilization, initial stabilization, secondary fiscal crisis, and finally, the restoration of fiscal potential. Section 8 is devoted to a group of countries which have not been able, so far, to achieve sustainable macroeconomic stabilization. Section 9 presents the issues concerning quasi-fiscal subsidies and the quasi- fiscal deficit. Section 10 contains a summary and concluding remarks.Poland, economic transition, fiscal crisis

Western Aid Conditionality and the Post-Communist Transition

The political and economic collapse of communism in the Eastern Europe and the former Soviet Union has created enormous challenge for Western democracies. The challenge has been not that of providing financial developmental aid although it is very important for countries facing the double challenge of transition and development. Its most important dimension has been to provide active policy support to implement reforms dismantling central planning. This in turn includes designing and providing a stimulus to implement a viable transition strategies and establishing market friendly institutions. Thus, the question is the extent to which Western assistance has made a difference in the course of transition from economic systems based on central planning to those based on competitive markets. This paper examines links between the economic transition in the former Soviet bloc countries (including states that emerged from the dissolution of the Soviet Union) and Western assistance. Its main focus is on addressing two specific questions: (i) have the Western governments and international institutions supported the most effective strategy of transition in Eastern Europe and FSU?; and (ii) what kind of aid policy can give the best results in terms of recipient countries commitment to effective transition strategy?Post-Communism, transition, Western aid