Bridging “the Great Divide”: Countering Financial Repression in Transition

The large and widening gap between economic performance in Eastern European transition economies and those of the former Soviet Union has been dubbed “the Great Divide” by Berglof and Bolton (2002). This paper provides a rationale for the gap based upon the concept of financial repression. The magnified effects of transition to the market can be attributed to the government manipulation of financial markets in these countries, with the divide defined by the length of time that governments relied upon financial-market manipulation to finance government fiscal policy. Policies undertaken to assist in financing government expenditures caused financial repression and financial fragmentation, to use the terms introduced by McKinnon (1973). After an introductory section, I introduce a theoretical model of real and financial sectors in transition. The dynamic path to equilibrium from transition is derived. It is shown to have a tendency toward output contraction and hyperinflation when government policies promote financial repression. In the third section this hypothesis is examined with macroeconomic data from Ukraine for the period 1992 - 2001. These data are consistent with the hypothesis, although other factors (e.g., recession in trading partners) are also shown to be important.http://deepblue.lib.umich.edu/bitstream/2027.42/39895/3/wp510.pd

Saving in transition economies : the summary report

The stimulation of private saving is essential to both stabilization and structural adjustment in the transition economies. Private saving in these countries has declined sharply since independence, and this decline has been a factor in the onset of extreme inflation because governments have resorted to an inflation tax to finance deficit spending. The author examines evidence on spending in Belarus, Georgia, Kazakhstan, and Ukraine. He examines decisions about whether to save,and in which specific financial or real instruments. He summarizes the evolution of financial sectors in these countries to provide a history of the success or failure of financial institutions to intermediate between private savers and the government as borrower. He concludes that private saving has indeed declined since independence, but less than is indicated by banking system statistics. Concurrent with this downturn has been a shifting of financial assets from bank deposits to alternative financial instruments, including foreign currency,"trust company"shares, and private loans. The financial sector has reacted slowly to this change, but the most successful commercial banks have recognized the change in demand for financial instruments and have accommodated the savers. The state commercial banks - especially the successor to the Soviet Saving Bank - have been slow to adjust to the new environment. As a result, the near-monopoly that banks once held deposits has been rapidly eroded. Government methods for mobilizing funds must change, contends the author. Governments are not typically prepared to borrow savings from the these new instruments, since they are denominated in foreign currency or are offered only at positive real interest rates. That attitude must change if governments are to make needed investments in infrastructure and to avoid creating inflationary credit.Economic Theory&Research,Banks&Banking Reform,Payment Systems&Infrastructure,Environmental Economics&Policies,International Terrorism&Counterterrorism,Banks&Banking Reform,Economic Theory&Research,Environmental Economics&Policies,Financial Economics,Financial Intermediation

Ruble overhang and ruble shortage : were they the same thing?

Economists and policymakers in the Soviet Union before its dissolution were concerned about the growth of the"ruble overhang."The concern was that the rationing of consumer goods evident in prior years had led to an excess of purchasing power in households. Price liberalization was expected to lead to a jump in consumer prices as households tried to exercise their purchasing power. But after the Soviet Union dissolved, a new concern emerged: a ruble shortage. Throughout the ruble currency area, governments and state enterprises could not get enough rubles to pay wages and pensions. As a result, households were unable to make the purchases they wanted to make. Ruble shortages contributed greatly to the progressive deterioration of the ruble area, from its beginning with fifteen members to its present membership of two. The names given to these two episodes - the"ruble overhang"and the"ruble shortage"- are misleading, because they are both manifestations of the same phenomenon. In both cases, forced savings led to a reduction in purchasing power and downward pressure on inflation. The difference was in the mechanism that induced forced saving. For the ruble overhang, the government maintained price rigidity; there was nonprice rationing of output that was insufficient to satisfy demand at those rigid prices. For the ruble shortage, the government - through the de facto inconvertibility of deposits to currency. The result was the same: a rationed household sector unable to trade financial assets for commodities.Markets and Market Access,Banks&Banking Reform,Economic Theory&Research,Environmental Economics&Policies,Access to Markets

Sustained inflation in response to price liberalization

The author demonstrates that sustained inflation is a predictable response to price liberalization in the countries of the former Soviet Union. The author models the phenomenon in a dynamic macroeconomic framework,and demonstrates the immediate price jump followed by sustained inflation that has characterized the transitional economies of the former Soviet Union. The author supports the theoretical derivation with a simulation exercise that demonstrates the scope of sustained inflation for specific parameters.Markets and Market Access,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Access to Markets

The economics of cash shortage

Many economies of the former Soviet Union have experienced cash shortages: people with demand and savings deposits in the banking system are unable to convert them into currency. Usually this is attributed to the common use of the ruble. The author argues otherwise. According to him: (a) cash shortages are manifestations of financial disintermediation: the banking sector is unable to attract enough voluntary deposits; (b) cash shortages allow the government to hold inflationary pressures in check; (c) solutions to the cash shortage problems that rely on printing newcurrency will lead to accelerating inflation. More appropriate solutions (increasing the nominal interest rates, for example) involve reversing the economic incentives to financial disintermediation. Excess demands for cash reflect conditions in financial markets. The phenomenon of cash shortage is related to the concept of shallow formal financial markets. This shallowness is recent in the former Soviet Union. The burst of inflation in early 1992 removed the"ruble overhang"and greatly reduced all indicators of financial depth. Continuing shallowness is a direct consequence of financial disintermediation because of negative real interest rates.Banks&Banking Reform,Economic Theory&Research,Financial Intermediation,Environmental Economics&Policies,Rural Finance

The economic effects of widespread application of antidumping duties to import pricing

Dumping accurs when a firm charges a price in the foreign market below its price in the domestic market when it supplies the indentical good to both markets. Provisions within the GATT allow member countries to impose antidumping (AD) duties to counteract this behavior and return the price of the dumped goods to its"fair value". The increasing incidence of dumping allegations and imposition of AD duties indicate the dumping of exports in foreign markets is a growing concern in international trade and policy discussions. The other studies of this volume have presented in quite impressive detail the evolution and present ubiquity of AD investigations and duties in import-competing countries, and have also addressed the issue of whether these trends truly indicate a rise in dumping activity. In this paper the authors focus on a separate, more theoretical issue: what is the impact of widespread dumping and use of AD duties on the exporting and importing economies?Environmental Economics&Policies,Trade Policy,Economic Theory&Research,Markets and Market Access,Access to Markets

The Aqueous Phosphorylation and Ligation of Nucleoside Analogues and Aqueous Azide Reduction Methodology

The research within this thesis is primarily concerned with the synthesis of modified nucleosides, their oxyphosphorylation and thiophosphorylation to form analogues of nucleoside monophosphates and phosphodiester linkages, and the chemistry of the thiophosphoryl group. These families of compounds may have potential in the areas of antisense oligonucleotide agents or nuclease inhibition. The work described here may also provide routes to new glycosyltransferase inhibitors. This work builds upon previous work in the Hodgson research group, principally the thiophosphorylation and subsequent alkylation of organic amine fragments as a ligation strategy, and the optimisation of the thiophosphorylation procedure as applied to 5$'$\hyp{}amino\hyp{}5$'$\hyp{}deoxyguanosine. My role was to extend these techniques to the thiophosphorylation of other nucleoside derivatives and to use the thiophosphorylation procedure to produce potentially biologically active compounds. This thesis is divided into a number of chapters and appendices, and commences by providing a review of the synthesis, properties, and applications of natural and unnatural phosphodiester compounds in the first chapter. The second chapter details the work which has already been carried out within this research group on the synthesis, oxyphosphorylation, and thiophosphorylation of aminodeoxynucleosides; this forms the foundation to my own work on optimisation of the oxyphosphorylation procedure, and the application of both the oxyphosphorylation and the thiophosphorylation methodology to other aminodeoxynucleosides. The third chapter describes the application of the thiophosphorylation procedure to the synthesis of a thiophosphoramidate mimic of a dinucleoside. The following chapter concerns the investigations into the hydrolytic stability of the thiophosphoramidate group, using the dinucleoside thiophosphoramidate analogue as a model. The fifth chapter is on an aqueous method for the reduction of organic azides using the thiophosphate ion as the reducing agent. The reaction was tested on a number of alkyl and aryl susbstrates, and the mechanism of the reduction was investigated. Appended to this thesis are some chapters on work related to the main project in their application of modified nucleosides and nucleotides; in the first appendix, modifications were made to the phosphate group of guanosine monophosphate to allow the role of the phosphate group in the formation of G-quadruplex structures to be studied. The second appendix concerns work done in support of a project to incorporate 5$'$-deoxy-5$'$-hydrazinoguanosine into the 5$'$- terminus of RNA strands, which allowed the termini to be labelled with fluorescein isothiocyanate (FITC). Using 5$'$-deoxy-5$'$-hydrazinoguanosine as a model for the modified RNA strands, it was shown that within the limits of detection, each hydrazine group reacts with only one molecule of FITC

An atheoretic evaluation of success in structural adjustment

The author presents and implements a methodology for assessing the success of structural adjustment based on a"fixed effect"method. He examines data for 75 countries over 11 years. Performance indicators include measures of inflation, economic growth, external balance, and physical investment. He measures government policies in terms of spending, trade regime, financial deepening, and real exchange rate policy. The empirical estimates he obtains suggest that ranking countries by adjusted economic performance yields significantly different results than ranking them by historical performance. Further, countries following a prescription of relatively low government spending, deep financial markets, and outward orientation in trade policy performed significantly better than those that did not. This prescription was correlated significantly with more rapid economic growth, current accounts with lower deficits, expanded investment, and reduced inflation.Environmental Economics&Policies,Economic Theory&Research,Macroeconomic Management,Achieving Shared Growth,Economic Stabilization