Monetary policy during transition : an overview

In this paper, the authors examine monetary policy in 26 transition economies in Central and Eastern Europe (CEE) and the Former Soviet Union (FSU) between 1989-1994. They provide a schema for classifying the use of 6 important monetary policy instruments, both direct and indirect, and suggest criteria for defining market-oriented use of these instruments. They assess the extent of market-oriented instruments use during the period under review and around stabilization. The impact of instrument use on inflation and financial depth, which declined dramatically during the transition's early years, is also explored. The authors indicate several clear patterns. Among them, by the end of 1994, slightly less than half the countries were relying primarily on market-oriented forms of monetary instruments and had moderate or low reliance on such instruments. Countries quickly formulating a monetary policy response were more likely to switch to market-oriented instruments. Second, CEE countries moved more rapidly than FSU countries towards these forms, even when stage of stabilization is controlled for. Third, using credit ceilings appeared helpful in the year of stabilization, especially in CEE countries; the elimination of these controls was associated with effective stabilization. The authors conclude that monetary stability goes hand in hand with adjustment in the real sectors. Generally, the relatively weak link between market orientation of instruments and indicat effective suggests thst inflation control and financial depth are more directly related to policy stance, which is in turn related to broader structural reforms.Payment Systems&Infrastructure,Economic Theory&Research,Fiscal&Monetary Policy,Environmental Economics&Policies,Banks&Banking Reform,Macroeconomic Management,Environmental Economics&Policies,Banks&Banking Reform,Economic Stabilization,Economic Theory&Research

The Russian city in transition - the first six years in ten Volga capitals

After studying the nature and variety of transition in 10 regional capitals of Russia, the authors observe that: 1) All cities have experienced radical changes in their institutions and economies - changes associated on the one hand with the abolition of central planning and the introduction of freer markets, and on the other hand with political decentralization and the introduction of local elections. 2) These changes have led to a wide diversity in economic and social outcomes, reflecting differences in the central government's (inequitable) economic relations with regions with regional as well as differing local and regional policies. Most northern cities adopted policies more consistent with the central government's support of free market reforms; most southern (Red Belt) cities pursued more cautious, protective policies. 3) City governments are using proactive economic policies, including interventions to save local industries. Such efforts highlight the dual nature of the Russian transition, characterized by a shift in power from central to local government as well s public to private enterprises. 4) A major difficulty facing Russian cities is the cost of subsidies to housing and utilities. Real estate in general constitutes a major expenditure category for local government rather than, as in most western cities, a major source of revenue. A transition in this area alone could revolutionize the finances and independence of Russian cities. 5) The jury is still out in what the right social and industrial policies were during the first years of reform. Ulyanovsk clearly lagged on market reforms, and Saratov represents a model of liberalization without institutional support. Both extremes have failed, but so far the social consequences of the Saratov model appear to be worse than those of the Ulyanovsk model. 6) With the credibility of Russia's federal government at an all-time low, foreign investors have no choice but to rely on the competence and reliability of local leaders, especially mayors and governors. They will be looking for evidence of accountability in the form of the rule of law, and transparency in the form of reliable public information. Information at the city level - often unavailable and not easily accessible - would be very useful in attracting local researchers to monitor progress (as a basis for accountability) and diagnose problems (as a basis for public policy debate and political decisions.Regional Governance,Banks&Banking Reform,Environmental Economics&Policies,Municipal Financial Management,Public Sector Management and Reform,Urban Governance and Management,Municipal Financial Management,Banks&Banking Reform,Environmental Economics&Policies,Public Sector Management and Reform

Government revenue from financial repression

This paper explores the theoretical underpinnings and empirical relevance to public finance of financial repression - of controls on international capital flows and on domestic financial intermediaries. It concludes, in principle, countries should not resort to financial repression when they face no constraints on taxation, but such constraints as administrative cost and income distribution objectives might justify an implicit tax on domestic financial markets. The revenue from financial repression can be substantial. The unweighted cross-country average is about 2 percent of GDP and 9 percent of total government revenue, but varies significantly among countries. Reform aimed at liberalizing financial markets should first estimate what amount of government revenue comes from financial repression and provide for the revenue shortfall that will result from financial liberalization. Finally, this paper concludes that countries with higher rates of inflation tend to raise more revenue from financial repressions because the relative costs of foreign and domestic borrowing are influenced by the domestic currency's rate of depreciation, since domestic nominal interest rates are normally fixed administratively.Environmental Economics&Policies,Banks&Banking Reform,Public Sector Economics&Finance,Financial Economics,Economic Theory&Research

Transition in Regional Capitals along the Volga

transition russia local government fiscal decentralization

From plan to market : patterns of transition

In analyzing the transitional experience of countries in Central and Eastern Europe (CEE) and the former Soviet Union (FSU), the authors find strong common patterns for countries at similar stages of reform despite differences in initial conditions. To establish rankings, the authors create a reform index combining the intensity and duration of economic liberalization. Freeing domestic prices is one element of reform captured by the index; it was needed to enable governments to cut subsidies and restore macroeconomic balance. Other dimensions of reform captured by the index are liberalization of external trade, including foreign currency convertibility, and facilitation of private sector entry through privatization of state enterprises and improvements in the environment for private sector development. Some countries moved faster on reform than others, and one major reason appeared to have been the pace of political liberalization. Liberalization has, indeed, encouraged capital and labor to reallocate from industry toward services, many of which were previously repressed; and the repressed sectors fueled the return to positive growth in fast reformers. For slow reformers, the main problem in achieving stabilization has been the continued monetization of fiscal and quasi-fiscal deficits, associated with attempts to maintain employment in the old system. Among the policy implications are: 1) stabilization is a priority for the resumption of growth, and this requires extensive liberalization; 2) stabilization is made difficult by output contractions in the early stages of liberalization, by limited external financing, and by very large depreciations of the real exchange rate; and 3) there is no evidence that a slower pace of reform strengthens the fiscal position of slow reformers; their consolidated fiscal and quasi-fiscal deficits are quite high.Insurance&Risk Mitigation,Economic Conditions and Volatility,Environmental Economics&Policies,Economic Theory&Research,Insurance Law,Economic Conditions and Volatility,Economic Theory&Research,Environmental Economics&Policies,Insurance&Risk Mitigation,Insurance Law

A policy model for Tunisia with real and financial flows

This model was developed to provide a moacroeconomic framework for Tunisia's structural adjustment program and a flexible tool for further country economic analysis. As currently specified, it is designed to analyze fiscal, debt, and incomes policies, while deriving implications for the exchange rate and for the availability of credit to the private sector. Several policy experiments are carried out to illustrate this focus, and suggestions are offered for variations in model closure and detail.Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Economic Stabilization,Financial Intermediation

Service as a major source of growth in Russia and other former Soviet states

Private services could contribute greatly to economic growth in Russia and the other former Soviet states. The authors use econometric analysis to identify the gap between expected and actual levels of service activities in these countries and simulate the effect on GDP and employment of closing the gap. The gap is particularly wide for business and consumer services. Transport and publicly provided services are comparable to, or higher than, those in other countries. Traditionally, the Marxist doctrine of socialist economies has labeled services"nonproductive."And there is continuing evidence that national policies in these countries favor producers of goods over producers of services. In Russia, for example, there was until recently a 25 percent ceiling on trade margins for some products, and the enterprise profits tax is higher for producers of services than for producers of goods. Also, coefficients for real estate lease payments are sometimes higher for service firms. It will be important for Russia and the other former Soviet states to identify a policy agenda to facilitate the rapid expansion of services. The policy agenda should entail legal, economic, and institutional changes to eliminate the current bias against services, so that service firms can operate on a level playing field. It should also include proactive programs to stimulate a rapid increase in the level of service activity. Appropriate measures may include: (a) changes in the tax law, the regulatory framework, and other economic incentives; (b) government programs to accelerate private sector development and the privatization of government distribution and service activities; (c) training for enterprise employees to facilitate their transfer from production to service activities; (d) action to support the orderly development of input and output markets; (e) creation of a modern banking system that will use appropriate criteria to provide credit to service enterprises; and (f) consideration of service activities as priorities for international technical assistance and direct foreign investment.Governance Indicators,Banks&Banking Reform,Economic Theory&Research,ICT Policy and Strategies,Municipal Financial Management

Circumstance and choice : the role of initial conditions and policies in transition economies

The experience of countries in transition from a planned to a market-oriented economy has varied greatly. The clearest differences are between the East Asian countries, China and Vietnam, and the countries of Central and Eastern Europe (CEE) and the former Soviet Union (FSU). China and Vietnam have contained inflation and benefited from continued high growth in GDP since the beginning of their reforms, while all CEE and FSU countries have experienced large declines in output, and most have experienced hyperinflation. But even in CEE and the FSU, differences are marked. Some countries have lost over half of their GDP, and growth performance in a number of countries is still poor, while others are growing strongly. Some are still suffering from high inflation while others have successfully reduced annual inflation. What determines this divergence of outcomes across transition countries? No study so far has analyzed the interaction of all factors, including initial conditions, political change, and reforms, in a unified framework including CEE, the FSU, China, and Vietnam. The authors examine these broader interactions, but focus first on the role of initial conditions, such as initial macroeconomic distortions and differences in economic structure and institutions, which have been emphasized less in the literature. They find that initial conditions and economic policy jointly determine the large differences in economic performance among the 28 transition economies in the sample. Initial conditions dominate in explaining inflation, but economic liberalization is the most important factor determining differences in growth. But reform policy choices are not exogenous. They depend, in turn, on both initial conditions and political reform, with political reform the most important determinant of the speed and comprehensiveness of economic liberalization. Other findings provide additional insight into these relationships. Results show that liberalization has a negative contemporaneous impact, but a stronger positive effect on performance over time. The results also show that macroeconomic and structural distortions are negatively related to both policy and performance. Regarding the former, unfavorable initial conditions discourage policy reforms but do not diminish their effectiveness once they are implemented. The authors find some evidence that the influence of initial conditions diminishes over time. This is in part because many of the initial conditions are themselves modified in the course of transition. Monetary overhangs are dissipated through inflation, industrial overhang is eroded as plants shut down, and market memory returns through experience.Economic Conditions and Volatility,Economic Theory&Research,Enterprise Development&Reform,Environmental Economics&Policies,Banks&Banking Reform,Economic Theory&Research,Environmental Economics&Policies,Governance Indicators,Economic Conditions and Volatility,Achieving Shared Growth

Tecnologia, Arte e Entretenimento: A Obscuridade dos Artifí­cios para Estí­mulo do Progresso e do Consumo.

A proposta deste artigo é gerar reflexões a respeito das relações entre os avanços tecnológicos e o uso do entretenimento, inseridos no contexto da arte contemporânea, como um modo de estimular determinadas ideologias e reforçar sistemas de controle sobre determinado público, visando estimular, principalmente a crença no progresso tecnológico. Apresentamos nosso argumento localizado em três momentos distintos: (1) Exposições Universais do século XIX; (2) as implicações sobre o contexto dos meios de comunicação e o consumo, especificamente sobre o cinema e a televisão, e (3) a problematização da arte no século XXI, quando inserido nos dos meios digitais