bull bull

53869

Socialist Economies Reform Unit Country Economics Department The World Bank

Haunting Spirit of the CMEA Dilemmas of Economic Integration

I t is widely believed that Ule colshylapse ofCMEA trade in 1990 and a further decline of intraregional

trade in 1991 (when it dropped by 15 to 40 percent in real tenns) led to sharply reduced economic activity in Central and Eastern Europe (CEE) and the fonner USSR According to this belief a decline in exports led to unused cashypacity in export industries while raw material and energy shortages in the CEE and the unavailability of manushyfactured inputs in the USSR produced supply bottlenecks that reduced aggreshygate output Manyobservers conclude that a revival of intraregional trade through a mechanism that could subshystitute for the defunct CMEA is needed to stimulate economic recovery in the region

The possibility and even desirability of reviving intraregional trade through integration measures depends critically on the economic rationality ofthe trade that has been eliminated however If intraregional trade was in the past uneconomically high then efforts to prevent its decline may be either futile or counterproductive

Output fell in all countries of the reshygion last year by 20 percent in Bulshygaria 12 percent in Czechoslovakia 9 percent in Romania 8 percent in Poshyland 7 percent in Hungary and 125 percent in the USSR Such declines in output can be viewed as either a cause or a consequence of the fall in

Volume ~ Number 4

intraregional trade In a number of countries restrictive monetary and fisshycal policies price refonns and other austerity measures reduced effective demand leading to a decline in proshyduction and thus a decline in incomes and demand for imports This was most clearly the case in Poland Hun-

Whats inside Reforming Socialism----or the Seeds of Destruction

Janos Kornais latest book 1he Socialist System The Political Economy of Comshymunism argues that reducing accumushylated tensions and contradictions of classhysical socialism through reforms could deshystroy the coherence of that system withshyout substituting a new order (page 4)

Cooperation or Rivalry-Interview with an EBRD Official

The World Bank and the EBRD already regularly exchange information tocoordishynate their activities At the grass-roots

I level links should be closer stressed EBRDs Senior Country Manager Rolf B Westling (page 6)

Giving ugt Eating for FearofChokinl

An article from a Beijing daily asks whether there is anything worth oorrowshying from capitalist countries economic policies and legislation (page 5)

Albania Agenda Prevent an Ecoshynomic Disaster

The new Albanian government faces serio

gary and Czechoslovakia The foreign trade multiplier meanwhile transmitshyted the deflationary shock to all tradshying partners in the region In some cases there were supply-side effects involved with shortages ofenergy raw materials and immediate inputs all playing a role

ous challenges as the countrys economy approaches a potential breaking point (page 8)

Quotation of the Month Oil and Ag riculture The PayoflWill Be Large

During the next 12 months the World Bank might lend $25 billion to the new states of the ex-USSR Half of this sum could go to Russia announced Wilfried Thalwitz the Banks Vice President for Europe and Central Asia (page 9)

Why This Newsletter

Transition is two years old We want to carryon counting on our readers supshyport whether through contributions of articles suggestions or just reading the publication (page 10)

Milestones ofTransition (page 10)

New Booksand WorkingPapers (page 12)

World BankllMF Aeenda (page 14)

Conference Diary (page 15)

Selected Articles (page 16)

April 1992

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Transitfon TI1e Wond BankCECSE

The unification ofGennany eliminated an important trading partner for all the CEE countries Once intra-CMEA trade flows had tc be paid in hard currency this trade was sharply reshyduced

The Soviet Union (and later the CIS states) was unable to switch trade to a hard currency basis both for adminisshytrative reasons and because of the countrys impending illiquidity Atshytempts to partially decentralize forshyeign trade and produce a surplus in trade with the CEE countries failed The USSRCIS was unable to export at levels sufficient to sustain the volume of its intraregional imports of previous years

Intra-CIS trade New foundashytions

Are there any lessons to be learned from the CMEA experience for the member states of the CIS What are the costs of destroying the fonner USSRs internal market It must be remembered that the distribution of productive capacities in the Soviet Union was often based on political grounds or on development objectives that ignored relative costs of producshytion The industrial structure was heavily monopolized and transporta~ tion costs were not accounted for Thus the volume of fonner interrepublic trade is not a useful measure of the economic benefits conferred by the unitary Soviet market any more than all CMEA trade represented mutually beneficial exchangesamongmembers

Trade among CIS member states would of course have to be based on principles of comparative advantage resulting in pressures to restructure production in each state to achieve international competitiveness Trade with the rest of the world would be placed on an equal footing with trade among the newly independent states By opening up the market through world trade the monopoly element in pricing would be reduced and more objective economic factors yould preshyvail In the long run the volume of trade could far exceed the level that would have been possible under a unishytary market With a wider industrial product profile emerging in each of the newly independent states opportunishyties for intra-industry trade would sur-

April 1992

face to supplement the existin~ intershyindustry exchanges

It is worth examining whether the CIS satisfies the requirements for an optishymal currency area Proponents of this theory point out that common currency lowers the transactions cost of exshychanges and thus promotes trade and specialization But if the CIS were to enter world markets as a sin~~le curshyrency area its more industrialized reshygions might prove to be uncompetitive at an exchange rate that also took into account its huge oil exports ThE conseshyquence would be a form of Dutch disshyease with massive unemployment in the industrialized regions The same would be true for agriculture Howshyever if each republic had its own curshyrency and its own exchange rate the rate could be set to reflect the countrys competitiveness in world markets

Of course nothing would prevent the creation of a regional market that would embrace several independent states that emerged from the USSR Past ties of language and trade as well as the existing infrastru9ture of roads pipe- lines and electrical grids suggest that a large volume of intraregional trade would be possible But this trade and the integration mechanism to support it mustbe created independently-not as part of the new system of nation states

While the above arguments favor a relatively laissez-faire approach to intra-CIS trade there are lessons to be learned from the CMEA experience The most important of these is to avoid trade being paid or cleared in hard currency This requirement could prove problematic because those exports from the CIS republics that are able to earn hard currency-fuels and raw materishyals-are controlled exclusively by the state This gives the state control of the means for paying for imports and the power to make import decisions Conshysequently before relatively strong conshyvertibl~ currencies can be tstablished some bilateral trade among enterprises of different CIS states ought to be pershymitted A two-tier system of hard curshyrency trade in fuels and raw materials supplemented by barter and clearing arrangements might be best for susshytaining trade in the face of different payment capabilities and rates of ecoshynomic transformation

2

Scramble to join the EC

As intraregional trade in Central and Eastern Europe declined the imporshytance of trade with Western Europe and particularly the EC rose perhaps more than correspondingly CEE polishycymakers view trade with the West as a source of economic discipline for their reforming economies as a spur to greater productivity and efficiency and as a source of technical know-how and capital as well as assistance needed to bring prosperity to the region Moreshyover a desire to reestablish a common European culture and the need to esshytablish new security links drew the region toward the West Clearly the economic integration of Central and Eastern Europe with the EC would also imply a de facto integration among the CEE countries How far and how fast integration with the West proshyceeds would thus also determine the pattern and pace ofintra-CEE integrashytion

CEE countries must penetrate EC markets for reasons that include but go well beyondthe expansion of commodshyity trade Poland Hungary and Czechoshyslovakia are attempting to combat inshyflation through a combination of reshystrictive monetary policies and tight fiscal policies that call for the governshyment to reduce its budgetary deficit or even to run a surplus The major stimushylus to economic growth and the reducmiddot tion in unemployment must come from the foreign trade sector through an expansion of exports On the strucshytural side the more Central Europe is able to find markets for such tradishytional industries as steel and textiles which played such a large role in its exports to the USSR the less the reshygion will need to restructure domestic production away from these sectors to new activities By salvaging some of this old industrial structure these counshytries can avoid high levels of structural unemployment and also reduce their need for capital to build new indusshytries

In any event all three countries are counting on increased western investshyment in their economies to playa mashyjor role in privatization and to bring in western technology and business expertise The countries attractiveness to western investors is no longer as amp

gateway to the former CMEA market t

Volume 3 Number 4

Transition The Wond BankCECSE

but rather as a base from which to supply West European markets This is particularly true for Japanese firms since they more than American and West European firms are willing to take a long-term view consistent with the gradual elimination of trade barshyriers between the three East Euroshypean countries and the EC A failure to reduce trade barriers quickly would then imply at best a deferral of westshyern investment in East Europe or at worst redirection of this investment possibly to the less developed memshybers of the EC such as Greece and Portugal

On the trade front Central and East Europeans believe that they must esshytablish a market presence in Western Europe as soon as possible This is partly because they have seen their share of developed country markets for basic manufactures eroded by newly industriali~ing countries (NICs) such as Korea and Taiwan The ECs recent expansion 0 include such countries as Greece Spain Portugal and the former GDR whose level of development and thus expon potential is similar to that of Eastern Europe has intensified this competition for the EC market The intensificition of EC integration through the 1992 Program and the potential benefits to CEE have inshycreased the urgency of becoming part of the integration process from the outshyset rathet than having to catch up after stror g trade and business relashytionships have been created in the newly inte-grated Western Europe

The deepel-integration of Poland Hunshygary and Czechoslovakia into the EC poses a n Imber of problems despite their assoeiation agreements Will the EC be wiFing to admit more member countries with relatively low incomes th us crea tinggreaterbudgetary strain s on the Community What abouteconoshymies with large but relatively ineffishycient agrarian sectors and with a large proportion of their industry in such sectors as steesectors in which the current EC members face painful reshystructurin g problems of their own

Avoiding a payments union

Let us return to those proposals that aim [to set up a post-CMEA payments union) to prevent further collapse of intraregil)nal and intramiddotCIS trade

Volume 3 Number 4

These proposals assume that hard curshyrency liquidity is the principal barrier to overcome the decline in trade that should be the result of the partners inability to finance trade flows The decline in demand caused by price reshyform is not considered an important factor Such thinking based largely on the experience of the European Payshyments Union poses a number ofprobshylems

bull It assumes that the collapse of intra-CMEA trade was largely due to a lack of financing to settle clearing imshybalances among members This asshysumption is not justifiable except in the limited sense that some form of financing might have kept import deshymand higher than it was But whether such a level of credit extension would have been self-sustaining prudent or feasible in the long run is unclear

bull Using a payments union to preshyvent a collapse in trade due to illiquid- shyity and using a payments union to achieve economic integration are two different things Although avoidingthe loss of trade and jobs due to financial constraints is a valid objective a paymiddot ments union can act as an integrating force inducing some members to preshyfer trade with other members of the union rather than with the rest of the world The pressure would be felt most by those members least able to com- pete on world markets and by all memshy

bers for goods they could not sell on world markets This would replicate the hard goods-soft goods problems of the old CMEAand hamper restructur ing of the region

bull The political feasibility of the scheme is doubtful Large debts exist between the CEE and members of the CIS Although the debts could be forshymally kept outside the scope of the payments unions they are nonetheshyless likely to weigh heavily in any decishysion to form a union Another political obstacle is the emerging conflicts beshytween Russia and the other republics over the role of the central organs inshyherited by the Russian Republic

Although the temptation to engineer general solutions to the regions probshylems is great it is unlikely that such broadly based proposals can be impleshymented in the near term The most important advice that may be given is that as prices are rationalized protecshytionist policies be eschewed as much as possible

Josef C BradD

The author is professor ofeconomics at Arizona State University This article is based on his paper Regional Integration in Eastern Eushyrope Prospects for Integration within the Remiddot gion and with the European Community n preshy

sented in April 1992 at the World Bank and CEPR Conference In Washington DC

Surgery

From the Czech dDily Rohac

3 April 1992

III

Tfcnsitfon

Reforming Socialism-or the Seeds of Destruction Excerpts from Janos Kornajs latest book

Accumulated tensions and conshytradictions force all socialist countries to move away from

classical socialism (see the figure for a description of causal connections beshytween the main features of the classishycal socialist system) The principal forces that work against the classical system and induce it to change are the accumulation of economic difficulties public dissatisfaction loss of confidence in the system by those in power and the outside [foreign] example

The move away from the classical sysshytem is a complex process that embraces several spheres of social activity There is a change in political structure ideshyology the distribution of property rights the relative importance ofvari-

Figure The Main Line of Causality

f

~ llLlIalDwl UndlYldeCi PreponderanelOOtftuan1 )Olr of oOIfion ot IIlI arlttmiddot of te ~thitbullbullucrltIC Lln1nl Oftd qUU1 I coodftOOft -Piny Itafa

ous coordination mechanisms the structure of economic growth the reshylation of supply and demand and so forth Variation from the classical sysshytem then can have many dimensions This analysis considers only two dishymensions however to simplifY the survey

bull The first dimension is the depth of change Referring back to the figure the closer a block is to the beginning of the causal chain the deeperthe change is the further the block the more sushyperficial the change

bull The second dimension is the radishycalismofchange A change in any block may be radical partial inconsiderable or even spuriousa surrogate action

~ 1 ~ laa1

PI In Foreld growtn- - ChtonlC _hoft-blQI4fllng O~nmy age ICO(Oy

LaoordllWI

PaltnIi Ilonlgllnd

Oomlnant ~n1luncent

01 tht

ehcll IOOIOQy

onluQ Soh budQO eonaltnl Wbullbullk 1)011 n 10

pUC

I I iI I

~nmp(oyrnnt

on h 100r Ylttm Iplelhe litllltlon

Ind rol 0 tonlon Hid

j The figure shows the main line of causality from left to right The arrows point out how each group of phenomena is influenced not only by the previous group of phenomena but by all the deeper factors directly or indirectly For instance one of the groups of phenomena in the last block---1he development and reproduction of chronic shortage--is not simply explained by such phenomena as the soft budget constraint or the weak responsiveness to prices among the explanatory factors that act directly is the preponderance of state ownership and bureaucratic coordination

Note The three points at the bottom of the blocks on the right hand side are intendemiddotd to denote that the blocks contain only examples not a full list SoufCe The author

Aprtll992 4

The World BankCECSE

Depth and radicalism of changes are examined in the table (page 5)

Tendency O The phenomenon at the top ofthe table has been labeled pershyfection of control In terms of depth it is directed at the middle of the causal chain to modify coordination and conshytrol Although it does not alter even in that sphere essential features of the eariierperiod of the classical system it rates as reform in the official propashyganda Butit is actually conserving the classical system The table continues with rGal reform processes numbered 1 to 6

TendRncy 1 Political liberalization afmiddot fects the deepest layer of causality by substantially altering the structure of power and the official ideology of the classical system It is also an essential condition for any appreciable change in the other spheres As long as the Communist party is in power the sysshytem can move away from the classical model only ifthe party makes the alter ation itself or at least tolerates it The party then either co-opts the change into the systems official ideology or makes an ideological concession middotmd ignores the phenomena that conflict with its idea This process of r~form does not take the change in the politishycal structure very far the liberalizamiddot tion is not consistent and does not develop fully Nor can there be a comshyprehensive and consistently radical transformation in the other spheres while the key feature of the old classishycal structure the Communist partys power remains

TendRncy 2 Revival of the private secmiddot tor causes a radical upheaval in the second deepest layer property relashytions (block 2) although only in a narshyrow segment This is the most imporshytant of the many phenomena associshyated with economic reform as it brings aboutgenuinechange An element alien to the socialist system appears in the band where private activity is pursued on the basis of private property It is

Volume 3 Number 4

Transitfon TI1e Wond BankCECSE

The unification ofGennany eliminated an important trading partner for all the CEE countries Once intra-CMEA trade flows had tc be paid in hard currency this trade was sharply reshyduced

The Soviet Union (and later the CIS states) was unable to switch trade to a hard currency basis both for adminisshytrative reasons and because of the countrys impending illiquidity Atshytempts to partially decentralize forshyeign trade and produce a surplus in trade with the CEE countries failed The USSRCIS was unable to export at levels sufficient to sustain the volume of its intraregional imports of previous years

Intra-CIS trade New foundashytions

Are there any lessons to be learned from the CMEA experience for the member states of the CIS What are the costs of destroying the fonner USSRs internal market It must be remembered that the distribution of productive capacities in the Soviet Union was often based on political grounds or on development objectives that ignored relative costs of producshytion The industrial structure was heavily monopolized and transporta~ tion costs were not accounted for Thus the volume of fonner interrepublic trade is not a useful measure of the economic benefits conferred by the unitary Soviet market any more than all CMEA trade represented mutually beneficial exchangesamongmembers

Trade among CIS member states would of course have to be based on principles of comparative advantage resulting in pressures to restructure production in each state to achieve international competitiveness Trade with the rest of the world would be placed on an equal footing with trade among the newly independent states By opening up the market through world trade the monopoly element in pricing would be reduced and more objective economic factors yould preshyvail In the long run the volume of trade could far exceed the level that would have been possible under a unishytary market With a wider industrial product profile emerging in each of the newly independent states opportunishyties for intra-industry trade would sur-

April 1992

face to supplement the existin~ intershyindustry exchanges

It is worth examining whether the CIS satisfies the requirements for an optishymal currency area Proponents of this theory point out that common currency lowers the transactions cost of exshychanges and thus promotes trade and specialization But if the CIS were to enter world markets as a sin~~le curshyrency area its more industrialized reshygions might prove to be uncompetitive at an exchange rate that also took into account its huge oil exports ThE conseshyquence would be a form of Dutch disshyease with massive unemployment in the industrialized regions The same would be true for agriculture Howshyever if each republic had its own curshyrency and its own exchange rate the rate could be set to reflect the countrys competitiveness in world markets

Of course nothing would prevent the creation of a regional market that would embrace several independent states that emerged from the USSR Past ties of language and trade as well as the existing infrastru9ture of roads pipe- lines and electrical grids suggest that a large volume of intraregional trade would be possible But this trade and the integration mechanism to support it mustbe created independently-not as part of the new system of nation states

While the above arguments favor a relatively laissez-faire approach to intra-CIS trade there are lessons to be learned from the CMEA experience The most important of these is to avoid trade being paid or cleared in hard currency This requirement could prove problematic because those exports from the CIS republics that are able to earn hard currency-fuels and raw materishyals-are controlled exclusively by the state This gives the state control of the means for paying for imports and the power to make import decisions Conshysequently before relatively strong conshyvertibl~ currencies can be tstablished some bilateral trade among enterprises of different CIS states ought to be pershymitted A two-tier system of hard curshyrency trade in fuels and raw materials supplemented by barter and clearing arrangements might be best for susshytaining trade in the face of different payment capabilities and rates of ecoshynomic transformation

2

Scramble to join the EC

As intraregional trade in Central and Eastern Europe declined the imporshytance of trade with Western Europe and particularly the EC rose perhaps more than correspondingly CEE polishycymakers view trade with the West as a source of economic discipline for their reforming economies as a spur to greater productivity and efficiency and as a source of technical know-how and capital as well as assistance needed to bring prosperity to the region Moreshyover a desire to reestablish a common European culture and the need to esshytablish new security links drew the region toward the West Clearly the economic integration of Central and Eastern Europe with the EC would also imply a de facto integration among the CEE countries How far and how fast integration with the West proshyceeds would thus also determine the pattern and pace ofintra-CEE integrashytion

CEE countries must penetrate EC markets for reasons that include but go well beyondthe expansion of commodshyity trade Poland Hungary and Czechoshyslovakia are attempting to combat inshyflation through a combination of reshystrictive monetary policies and tight fiscal policies that call for the governshyment to reduce its budgetary deficit or even to run a surplus The major stimushylus to economic growth and the reducmiddot tion in unemployment must come from the foreign trade sector through an expansion of exports On the strucshytural side the more Central Europe is able to find markets for such tradishytional industries as steel and textiles which played such a large role in its exports to the USSR the less the reshygion will need to restructure domestic production away from these sectors to new activities By salvaging some of this old industrial structure these counshytries can avoid high levels of structural unemployment and also reduce their need for capital to build new indusshytries

In any event all three countries are counting on increased western investshyment in their economies to playa mashyjor role in privatization and to bring in western technology and business expertise The countries attractiveness to western investors is no longer as amp

gateway to the former CMEA market t

Volume 3 Number 4

Transition The Wond BankCECSE

but rather as a base from which to supply West European markets This is particularly true for Japanese firms since they more than American and West European firms are willing to take a long-term view consistent with the gradual elimination of trade barshyriers between the three East Euroshypean countries and the EC A failure to reduce trade barriers quickly would then imply at best a deferral of westshyern investment in East Europe or at worst redirection of this investment possibly to the less developed memshybers of the EC such as Greece and Portugal

On the trade front Central and East Europeans believe that they must esshytablish a market presence in Western Europe as soon as possible This is partly because they have seen their share of developed country markets for basic manufactures eroded by newly industriali~ing countries (NICs) such as Korea and Taiwan The ECs recent expansion 0 include such countries as Greece Spain Portugal and the former GDR whose level of development and thus expon potential is similar to that of Eastern Europe has intensified this competition for the EC market The intensificition of EC integration through the 1992 Program and the potential benefits to CEE have inshycreased the urgency of becoming part of the integration process from the outshyset rathet than having to catch up after stror g trade and business relashytionships have been created in the newly inte-grated Western Europe

The deepel-integration of Poland Hunshygary and Czechoslovakia into the EC poses a n Imber of problems despite their assoeiation agreements Will the EC be wiFing to admit more member countries with relatively low incomes th us crea tinggreaterbudgetary strain s on the Community What abouteconoshymies with large but relatively ineffishycient agrarian sectors and with a large proportion of their industry in such sectors as steesectors in which the current EC members face painful reshystructurin g problems of their own

Avoiding a payments union

Let us return to those proposals that aim [to set up a post-CMEA payments union) to prevent further collapse of intraregil)nal and intramiddotCIS trade

Volume 3 Number 4

These proposals assume that hard curshyrency liquidity is the principal barrier to overcome the decline in trade that should be the result of the partners inability to finance trade flows The decline in demand caused by price reshyform is not considered an important factor Such thinking based largely on the experience of the European Payshyments Union poses a number ofprobshylems

bull It assumes that the collapse of intra-CMEA trade was largely due to a lack of financing to settle clearing imshybalances among members This asshysumption is not justifiable except in the limited sense that some form of financing might have kept import deshymand higher than it was But whether such a level of credit extension would have been self-sustaining prudent or feasible in the long run is unclear

bull Using a payments union to preshyvent a collapse in trade due to illiquid- shyity and using a payments union to achieve economic integration are two different things Although avoidingthe loss of trade and jobs due to financial constraints is a valid objective a paymiddot ments union can act as an integrating force inducing some members to preshyfer trade with other members of the union rather than with the rest of the world The pressure would be felt most by those members least able to com- pete on world markets and by all memshy

bers for goods they could not sell on world markets This would replicate the hard goods-soft goods problems of the old CMEAand hamper restructur ing of the region

bull The political feasibility of the scheme is doubtful Large debts exist between the CEE and members of the CIS Although the debts could be forshymally kept outside the scope of the payments unions they are nonetheshyless likely to weigh heavily in any decishysion to form a union Another political obstacle is the emerging conflicts beshytween Russia and the other republics over the role of the central organs inshyherited by the Russian Republic

Although the temptation to engineer general solutions to the regions probshylems is great it is unlikely that such broadly based proposals can be impleshymented in the near term The most important advice that may be given is that as prices are rationalized protecshytionist policies be eschewed as much as possible

Josef C BradD

The author is professor ofeconomics at Arizona State University This article is based on his paper Regional Integration in Eastern Eushyrope Prospects for Integration within the Remiddot gion and with the European Community n preshy

sented in April 1992 at the World Bank and CEPR Conference In Washington DC

Surgery

From the Czech dDily Rohac

3 April 1992

III

Tfcnsitfon

Reforming Socialism-or the Seeds of Destruction Excerpts from Janos Kornajs latest book

Accumulated tensions and conshytradictions force all socialist countries to move away from

classical socialism (see the figure for a description of causal connections beshytween the main features of the classishycal socialist system) The principal forces that work against the classical system and induce it to change are the accumulation of economic difficulties public dissatisfaction loss of confidence in the system by those in power and the outside [foreign] example

The move away from the classical sysshytem is a complex process that embraces several spheres of social activity There is a change in political structure ideshyology the distribution of property rights the relative importance ofvari-

Figure The Main Line of Causality

f

~ llLlIalDwl UndlYldeCi PreponderanelOOtftuan1 )Olr of oOIfion ot IIlI arlttmiddot of te ~thitbullbullucrltIC Lln1nl Oftd qUU1 I coodftOOft -Piny Itafa

ous coordination mechanisms the structure of economic growth the reshylation of supply and demand and so forth Variation from the classical sysshytem then can have many dimensions This analysis considers only two dishymensions however to simplifY the survey

bull The first dimension is the depth of change Referring back to the figure the closer a block is to the beginning of the causal chain the deeperthe change is the further the block the more sushyperficial the change

bull The second dimension is the radishycalismofchange A change in any block may be radical partial inconsiderable or even spuriousa surrogate action

~ 1 ~ laa1

PI In Foreld growtn- - ChtonlC _hoft-blQI4fllng O~nmy age ICO(Oy

LaoordllWI

PaltnIi Ilonlgllnd

Oomlnant ~n1luncent

01 tht

ehcll IOOIOQy

onluQ Soh budQO eonaltnl Wbullbullk 1)011 n 10

pUC

I I iI I

~nmp(oyrnnt

on h 100r Ylttm Iplelhe litllltlon

Ind rol 0 tonlon Hid

j The figure shows the main line of causality from left to right The arrows point out how each group of phenomena is influenced not only by the previous group of phenomena but by all the deeper factors directly or indirectly For instance one of the groups of phenomena in the last block---1he development and reproduction of chronic shortage--is not simply explained by such phenomena as the soft budget constraint or the weak responsiveness to prices among the explanatory factors that act directly is the preponderance of state ownership and bureaucratic coordination

Note The three points at the bottom of the blocks on the right hand side are intendemiddotd to denote that the blocks contain only examples not a full list SoufCe The author

Aprtll992 4

The World BankCECSE

Depth and radicalism of changes are examined in the table (page 5)

Tendency O The phenomenon at the top ofthe table has been labeled pershyfection of control In terms of depth it is directed at the middle of the causal chain to modify coordination and conshytrol Although it does not alter even in that sphere essential features of the eariierperiod of the classical system it rates as reform in the official propashyganda Butit is actually conserving the classical system The table continues with rGal reform processes numbered 1 to 6

TendRncy 1 Political liberalization afmiddot fects the deepest layer of causality by substantially altering the structure of power and the official ideology of the classical system It is also an essential condition for any appreciable change in the other spheres As long as the Communist party is in power the sysshytem can move away from the classical model only ifthe party makes the alter ation itself or at least tolerates it The party then either co-opts the change into the systems official ideology or makes an ideological concession middotmd ignores the phenomena that conflict with its idea This process of r~form does not take the change in the politishycal structure very far the liberalizamiddot tion is not consistent and does not develop fully Nor can there be a comshyprehensive and consistently radical transformation in the other spheres while the key feature of the old classishycal structure the Communist partys power remains

TendRncy 2 Revival of the private secmiddot tor causes a radical upheaval in the second deepest layer property relashytions (block 2) although only in a narshyrow segment This is the most imporshytant of the many phenomena associshyated with economic reform as it brings aboutgenuinechange An element alien to the socialist system appears in the band where private activity is pursued on the basis of private property It is

Volume 3 Number 4

Transition The Wond BankCECSE

but rather as a base from which to supply West European markets This is particularly true for Japanese firms since they more than American and West European firms are willing to take a long-term view consistent with the gradual elimination of trade barshyriers between the three East Euroshypean countries and the EC A failure to reduce trade barriers quickly would then imply at best a deferral of westshyern investment in East Europe or at worst redirection of this investment possibly to the less developed memshybers of the EC such as Greece and Portugal

On the trade front Central and East Europeans believe that they must esshytablish a market presence in Western Europe as soon as possible This is partly because they have seen their share of developed country markets for basic manufactures eroded by newly industriali~ing countries (NICs) such as Korea and Taiwan The ECs recent expansion 0 include such countries as Greece Spain Portugal and the former GDR whose level of development and thus expon potential is similar to that of Eastern Europe has intensified this competition for the EC market The intensificition of EC integration through the 1992 Program and the potential benefits to CEE have inshycreased the urgency of becoming part of the integration process from the outshyset rathet than having to catch up after stror g trade and business relashytionships have been created in the newly inte-grated Western Europe

The deepel-integration of Poland Hunshygary and Czechoslovakia into the EC poses a n Imber of problems despite their assoeiation agreements Will the EC be wiFing to admit more member countries with relatively low incomes th us crea tinggreaterbudgetary strain s on the Community What abouteconoshymies with large but relatively ineffishycient agrarian sectors and with a large proportion of their industry in such sectors as steesectors in which the current EC members face painful reshystructurin g problems of their own

Avoiding a payments union

Let us return to those proposals that aim [to set up a post-CMEA payments union) to prevent further collapse of intraregil)nal and intramiddotCIS trade

Volume 3 Number 4

These proposals assume that hard curshyrency liquidity is the principal barrier to overcome the decline in trade that should be the result of the partners inability to finance trade flows The decline in demand caused by price reshyform is not considered an important factor Such thinking based largely on the experience of the European Payshyments Union poses a number ofprobshylems

bull It assumes that the collapse of intra-CMEA trade was largely due to a lack of financing to settle clearing imshybalances among members This asshysumption is not justifiable except in the limited sense that some form of financing might have kept import deshymand higher than it was But whether such a level of credit extension would have been self-sustaining prudent or feasible in the long run is unclear

bull Using a payments union to preshyvent a collapse in trade due to illiquid- shyity and using a payments union to achieve economic integration are two different things Although avoidingthe loss of trade and jobs due to financial constraints is a valid objective a paymiddot ments union can act as an integrating force inducing some members to preshyfer trade with other members of the union rather than with the rest of the world The pressure would be felt most by those members least able to com- pete on world markets and by all memshy

bers for goods they could not sell on world markets This would replicate the hard goods-soft goods problems of the old CMEAand hamper restructur ing of the region

bull The political feasibility of the scheme is doubtful Large debts exist between the CEE and members of the CIS Although the debts could be forshymally kept outside the scope of the payments unions they are nonetheshyless likely to weigh heavily in any decishysion to form a union Another political obstacle is the emerging conflicts beshytween Russia and the other republics over the role of the central organs inshyherited by the Russian Republic

Although the temptation to engineer general solutions to the regions probshylems is great it is unlikely that such broadly based proposals can be impleshymented in the near term The most important advice that may be given is that as prices are rationalized protecshytionist policies be eschewed as much as possible

Josef C BradD

The author is professor ofeconomics at Arizona State University This article is based on his paper Regional Integration in Eastern Eushyrope Prospects for Integration within the Remiddot gion and with the European Community n preshy

sented in April 1992 at the World Bank and CEPR Conference In Washington DC

Surgery

From the Czech dDily Rohac

3 April 1992

III

Tfcnsitfon

Reforming Socialism-or the Seeds of Destruction Excerpts from Janos Kornajs latest book

Accumulated tensions and conshytradictions force all socialist countries to move away from

classical socialism (see the figure for a description of causal connections beshytween the main features of the classishycal socialist system) The principal forces that work against the classical system and induce it to change are the accumulation of economic difficulties public dissatisfaction loss of confidence in the system by those in power and the outside [foreign] example

The move away from the classical sysshytem is a complex process that embraces several spheres of social activity There is a change in political structure ideshyology the distribution of property rights the relative importance ofvari-

Figure The Main Line of Causality

f

~ llLlIalDwl UndlYldeCi PreponderanelOOtftuan1 )Olr of oOIfion ot IIlI arlttmiddot of te ~thitbullbullucrltIC Lln1nl Oftd qUU1 I coodftOOft -Piny Itafa

ous coordination mechanisms the structure of economic growth the reshylation of supply and demand and so forth Variation from the classical sysshytem then can have many dimensions This analysis considers only two dishymensions however to simplifY the survey

bull The first dimension is the depth of change Referring back to the figure the closer a block is to the beginning of the causal chain the deeperthe change is the further the block the more sushyperficial the change

bull The second dimension is the radishycalismofchange A change in any block may be radical partial inconsiderable or even spuriousa surrogate action

~ 1 ~ laa1

PI In Foreld growtn- - ChtonlC _hoft-blQI4fllng O~nmy age ICO(Oy

LaoordllWI

PaltnIi Ilonlgllnd

Oomlnant ~n1luncent

01 tht

ehcll IOOIOQy

onluQ Soh budQO eonaltnl Wbullbullk 1)011 n 10

pUC

I I iI I

~nmp(oyrnnt

on h 100r Ylttm Iplelhe litllltlon

Ind rol 0 tonlon Hid

j The figure shows the main line of causality from left to right The arrows point out how each group of phenomena is influenced not only by the previous group of phenomena but by all the deeper factors directly or indirectly For instance one of the groups of phenomena in the last block---1he development and reproduction of chronic shortage--is not simply explained by such phenomena as the soft budget constraint or the weak responsiveness to prices among the explanatory factors that act directly is the preponderance of state ownership and bureaucratic coordination

Note The three points at the bottom of the blocks on the right hand side are intendemiddotd to denote that the blocks contain only examples not a full list SoufCe The author

Aprtll992 4

The World BankCECSE

Depth and radicalism of changes are examined in the table (page 5)

Tendency O The phenomenon at the top ofthe table has been labeled pershyfection of control In terms of depth it is directed at the middle of the causal chain to modify coordination and conshytrol Although it does not alter even in that sphere essential features of the eariierperiod of the classical system it rates as reform in the official propashyganda Butit is actually conserving the classical system The table continues with rGal reform processes numbered 1 to 6

TendRncy 1 Political liberalization afmiddot fects the deepest layer of causality by substantially altering the structure of power and the official ideology of the classical system It is also an essential condition for any appreciable change in the other spheres As long as the Communist party is in power the sysshytem can move away from the classical model only ifthe party makes the alter ation itself or at least tolerates it The party then either co-opts the change into the systems official ideology or makes an ideological concession middotmd ignores the phenomena that conflict with its idea This process of r~form does not take the change in the politishycal structure very far the liberalizamiddot tion is not consistent and does not develop fully Nor can there be a comshyprehensive and consistently radical transformation in the other spheres while the key feature of the old classishycal structure the Communist partys power remains

TendRncy 2 Revival of the private secmiddot tor causes a radical upheaval in the second deepest layer property relashytions (block 2) although only in a narshyrow segment This is the most imporshytant of the many phenomena associshyated with economic reform as it brings aboutgenuinechange An element alien to the socialist system appears in the band where private activity is pursued on the basis of private property It is

Volume 3 Number 4

III

Tfcnsitfon

Reforming Socialism-or the Seeds of Destruction Excerpts from Janos Kornajs latest book

Accumulated tensions and conshytradictions force all socialist countries to move away from

classical socialism (see the figure for a description of causal connections beshytween the main features of the classishycal socialist system) The principal forces that work against the classical system and induce it to change are the accumulation of economic difficulties public dissatisfaction loss of confidence in the system by those in power and the outside [foreign] example

The move away from the classical sysshytem is a complex process that embraces several spheres of social activity There is a change in political structure ideshyology the distribution of property rights the relative importance ofvari-

Figure The Main Line of Causality

f

~ llLlIalDwl UndlYldeCi PreponderanelOOtftuan1 )Olr of oOIfion ot IIlI arlttmiddot of te ~thitbullbullucrltIC Lln1nl Oftd qUU1 I coodftOOft -Piny Itafa

ous coordination mechanisms the structure of economic growth the reshylation of supply and demand and so forth Variation from the classical sysshytem then can have many dimensions This analysis considers only two dishymensions however to simplifY the survey

bull The first dimension is the depth of change Referring back to the figure the closer a block is to the beginning of the causal chain the deeperthe change is the further the block the more sushyperficial the change

bull The second dimension is the radishycalismofchange A change in any block may be radical partial inconsiderable or even spuriousa surrogate action

~ 1 ~ laa1

PI In Foreld growtn- - ChtonlC _hoft-blQI4fllng O~nmy age ICO(Oy

LaoordllWI

PaltnIi Ilonlgllnd

Oomlnant ~n1luncent

01 tht

ehcll IOOIOQy

onluQ Soh budQO eonaltnl Wbullbullk 1)011 n 10

pUC

I I iI I

~nmp(oyrnnt

on h 100r Ylttm Iplelhe litllltlon

Ind rol 0 tonlon Hid

j The figure shows the main line of causality from left to right The arrows point out how each group of phenomena is influenced not only by the previous group of phenomena but by all the deeper factors directly or indirectly For instance one of the groups of phenomena in the last block---1he development and reproduction of chronic shortage--is not simply explained by such phenomena as the soft budget constraint or the weak responsiveness to prices among the explanatory factors that act directly is the preponderance of state ownership and bureaucratic coordination

Note The three points at the bottom of the blocks on the right hand side are intendemiddotd to denote that the blocks contain only examples not a full list SoufCe The author

Aprtll992 4

The World BankCECSE

Depth and radicalism of changes are examined in the table (page 5)

Tendency O The phenomenon at the top ofthe table has been labeled pershyfection of control In terms of depth it is directed at the middle of the causal chain to modify coordination and conshytrol Although it does not alter even in that sphere essential features of the eariierperiod of the classical system it rates as reform in the official propashyganda Butit is actually conserving the classical system The table continues with rGal reform processes numbered 1 to 6

TendRncy 1 Political liberalization afmiddot fects the deepest layer of causality by substantially altering the structure of power and the official ideology of the classical system It is also an essential condition for any appreciable change in the other spheres As long as the Communist party is in power the sysshytem can move away from the classical model only ifthe party makes the alter ation itself or at least tolerates it The party then either co-opts the change into the systems official ideology or makes an ideological concession middotmd ignores the phenomena that conflict with its idea This process of r~form does not take the change in the politishycal structure very far the liberalizamiddot tion is not consistent and does not develop fully Nor can there be a comshyprehensive and consistently radical transformation in the other spheres while the key feature of the old classishycal structure the Communist partys power remains

TendRncy 2 Revival of the private secmiddot tor causes a radical upheaval in the second deepest layer property relashytions (block 2) although only in a narshyrow segment This is the most imporshytant of the many phenomena associshyated with economic reform as it brings aboutgenuinechange An element alien to the socialist system appears in the band where private activity is pursued on the basis of private property It is

Volume 3 Number 4

Transition The Wond BankCECSE

unable to fuse completely with other parts of the system The political sysshytem though more liberal than its classhysical predecessor is unwilling and un- able to tolerate free development ofthe private sector and places tight conshystraints on the operation and expanshysion of the private sector

Tendency 3 Self-managemel1t also brings a change in property relations (block 2) but the change is far less radical than the one caused by the revival of the private sector In block 3 the introduction of self-management entails appreciable change in thefonns of coordination and partial abandonshyment of centralized control The origin of this self-management (that is imposhysition by rentral bureaucratic comshymand) and its day-to-day operation link it with the power structure which differs only in part from the classical version

Tendency 4 The refonn deriving from the ideas of market socialism causes significant changes in blocks 3 and 4 the coordination mechanism Theblueshyprint does not however question eishyther the key feature in block 1 the Communist partys monopoly ofpower or the key feature in block 2 the domishynance of public ownership Theessence ofthe idea rlere is to link public ownershyship with marKet coordination within the prevailing political structure The command eCQnomy is totally or parshytially eliminated increasing the aushytonomy of publicly owned finns Imshyportant classical doctrine is dropped from the official ideology-that is the premise that central planning and bushyreaucratic coordination is superior to market co()rdination and can replace it Howeveuromiddotr there can be no radical changes in blocks 3 and 4 higher offishycials in the bureaucracy are neither willing nor able to abdicate their rule over the public sector Under the preshyvailing political structure there is no escape from bureaucratic microcontrol constant intervention in finns affairs and the pr1edominance of vertical subshyordination over a horizontal depenshydence on the market

Tendency 6 The series of partial price refonns brIGgs changes in blocks 3 and 4 The introduction of price refonns is propelled by the combined effect of tendencies 1 to 4 For example the

Table The Depth and Radicalism of the Changes ~----~~------------~----------

Degree of Tendency Depth radicalism

o middotPerfection of control Block 3 coordination 1 Political liberalization Block 1 power and ideology 2 Revival of private sector Block 2 property

3 Self-management Blocks 3 and 4 coordination and behavior

4 Market socialism Blocks 3 and 4 coordination and behavior

5 Price reforms Blocks 3 and 4 coordination and behavior

6 Macro tensions Blocks 4 and 5 behavior and economic phenomena

No appreciable change Moderate or middling Radical but only in a narrow segment Middling

Moderate or middling

Moderate

Middling

Giving Up Eating for Fear of Choking

Excerpts from an article published on Febshyruary 24th in the Beijing daily Remin Ribao (official organ of the Chinese Communist Party)

The first problem is whether or not there is anything worth borrowing from the euroCOnomic policies and legislation purshysued by capitalist countries Many of these policies anci laws are detrimental to workers anci are therefore opposed by the working class An example is taxamiddot tion On the other hanci] several centushyries ago capitalist countries established different forms ofspecial economic zones (SEZ) under different names in line with their own need to open up to the outside world They shouldbe used as a reference in our countrys efforts to build SEZs

The seconci problem is whether somemiddot thingcan be absorbed from modern bourshygeois economic theories for reference Modern bourgeois euroCOnomics is the ecomiddot nomics the monopoly bourgeois uses to oppose Marxism and serve the capitalist system at a time when the contemporary international worlurs movement and Marxist ideology are spreading widely and when capitalist economic crises are deepening Its theoretical system is antiscientific anci should be criticized But we should understand tlwt rnodern bourgeoiseuroCOnomicsalso comprises somemiddot thing which portrays the objective law of largemiddotscale socialized production We should draw experience from this Some ofits viewpoints and analytical methods can also be taken for reierence such as its expositions on economic management improving euroCOnomic results anci quantishytative analysis Even some rnodern bourmiddot geois economic concepts such as microshy

economics and macroeconomics can also be used in Marrist economics with the exception of its concept of production relationS

The third problem is whether capitalist methods are being used in Chinas curmiddot rent economic structural reform (such as the implementation of the contract sysshytem the leasing system the bid-tenciermiddot ing system and the merger system as well as issuing ofstocks) Ifthe metlwds used in the capitalist countries were all labeled as capitalism anci opposed this would be as ridiculous as some people who wonted to demolish railroads left over from Czarist Russia after the Octomiddot ber Revolution because they said they were bourgeois railroads

The fourth problem is whether opening up to the world will be affected by capital ismanci whether the socialist founciation will be shaken Giving up eating for fear ofchoking is not a way to solve problems Ifcnpitalist influence refers to some people Iwving blind faith in foreign things bemiddot cause ofthe introduction offoretgn capishytal advanced technology and advanced scientific management we are duty bound to educate these people to overmiddot come their wrong ideas We should not I

however refuse the introduction of for eign capital anci advanced technology i because of this Capital and technology themselves do not have a class nature

Capitalism is a very important historical period ofhuman social-dellelopment hismiddot tory It has its own laws of emergence development and extinction We should I

neither Iwve blind faith in nor exclude I

this social formation

Volume 3 Number 4 5 April 1992

Transffon me World BankCECSE

revival of the private sector is accomshypanied by the appearance of market prices in some segments of the economy The changes inspired by marketsocialshyism give firms a greater role in price setting However numerous elements of the official ideology remain the same and several nonmarket principles of pricing and taxation are conserved The bureaucracy does not want to reshylinquish the power stemmingfrom censhytral price fixing policy The political climate is such that the leadership cannot bring itself to introduce comshyprehensive price liberalization or even to undertake comprehensive price reshyform

Tendency 6 Combined emergence of macro tensions characteristic of the reform process occurs in block 4 beshyhavior of the participants in the economy and block 5 long-term ecoshy

nomic phenomena The process of reshyform-through specific lines of transshymission-heightens certain tensions wage pressures nmawayinvestm1mts budget defici ts inflation chronic shortshyages indebtedness and so forth

Reform destroys the coherence of the classical system and proves incapable of establishing a new order in its place None of the old principles and moral postulates can be retained unaltered How without ideological confusion can one square faith in public ownership with tolerance and even encourageshymentofthe private sector extol central planning while abandoning it or recshyoncile traditional disparagemen t of the market with current arguments on its behalf Previously people were urged to make sacrifices and observe discishypline but during the reform process materialism the practice of not movshy

ing a muscle without pay hedonism and adoption of the values of the conshysumer society have become more comshymon behavior The puritanism and asceticism of the professed revolutionshyary are accounted as grotesque anachshyronism

In the long term reform erodes the foundations of the classical socialist system undermining its power strucshyture and its control over ideas and morals In doing so it clears the way for a real change of the system

The author isprofessorofeconomics at Harvard University and tluJ Hungarian Academy ofSci ences His book The Socialist System The Political Economy of Communism was pubmiddot lisluJd in April 1992 by Princeton University Press and Orford University Press

EBRO Cooperation jnstead c)f Rivalry with the World Bank An interview with EBRDs Rolf B Westling

T heyoungestoftheinternational regional banks the European

Bank for Reconstruction and Development (EBRD) has announced that its total commitment to projects in Central and Eastern Europe as loans and equity investments reached about $800 million (643 million ecu) by the end of ApriL Outside investors have added almost$2 billion to these projects This is not a bad start for a year-old institution As a profit-seeking institushytion however the EBRD has to look for profitable investments fail-safe projects (a loan to the Hungarian GM car plant is a good example) still numshyber relatively few in this region that also embraces the states of the exshyUSSR This dilemma surfaced in Budapest during the first annual meetshyingofthe EBRD the banks shareholdshyers gave a cold shoulder to President Jacques Attalis suggestion to set up a soft loan fund for financing conversion of the CIS military industries The IFC the private sector arm of the World Bank is also active in financing and investing in profitable ventures in the region so certain competition is un-

April 1992

avoidable Transition editor Richard Hirschler attended the Budapest meetshying and asked EBRDs Senior Country Manager Rolf B Westling-inv()lved in developing links between the intershynational finance institutions-about measures to coordinate the EBRDs activity with the World Bank

Q During the Budapest meeting rushymors surfaced about a certain rivalry between the World Bankandthe EBRD How wouidyoucharacterize theEBRDs relationship to the bigger brother

A Without doubt the World Bank is a venerable institution that has gained massive experience in the pastdecades we are still in the process ofbuilding up our operations But this should not lead to rivalry On the contrary it makes a lot of sense to make the most of resources through coordination of our efforts especially when it comes to cofinancingopportunities in public secshytors of the member states devel()ping infrastructure and particularly parshyticipating in energy transport teleshyphone and environmental projects of

6

the post-communist economies We should not be seen as competitors in the market that is certainly not very constructive A coordinated approach would benefit us and therecipientcounshytries as well Providingconflictingtech nical assistance for example could lead to disastrous consequences

Q To mention one specific example I heard World Bank staff complaining about the EBRD offering assistance to complete half-finished nuclear power

Volume 3 Number 4

~~ ~------------------------------------ Transition lhe World BankCECSE

stationsin CzechosclJakia while World fonnerly state-owned assets in Hunshy involvement could be either in providshyBankexpertswerestilldebatingwhdlrer gary have been transferred to private ing technical advisory services or in it was safe to instaU additional nuclear hands (Foreign investments were reshy making capital investments when reactors in tire lrearl of~ntralEurope sponsible for 85-90 percent of this 10 privatization takes place Is this complaint justifilaquol ~ percent) Hungarian officials still beshy

lieve that the initial goal of achieving a Q EBRD experts when assailed for A I am not aware of that particular 50 percent privatization ratio by the being too cautious in assisting Central case However part of the problem end of 1993 is attainable and the govshy and Eastern Europe usually argue could be that a coherent nuclear enshy ernment decided to speed up the proshy just show us viable projects and we are ergy policy is only gradually emerging cess As to our policy of privatization ready to finance tlrem Some critics Right now we are setting up a nuclear EBRD conveyed a message to the govshy claim that by selecting investment tarshypoweradvisorygroupwithhighlyqualishy ernments in the region confirming that gets in the private sector EBRDgoes for tied scientists to prepare a report on it would like to be associated with the low-risk high-grade investments putshythe safety issues of the CEE nuclear process particularly with theprivatizashy ting money into companies with impecshypower stations President Attali himshy tion of various util~ties transport comshy cable financial records while ignoring self in his opening address to the anshy panies power generation plants teleshy risky but in tire long term profitable nual meeting called for shutting down phone companies and the like EBRDs projects Is this criticism justified 16 nuclear power plants in the region as soon as possible Another 60 nuclear EBRD Operations-The Results of the First Year plants need substantial rehabilitation Loans and equity mvestments for an estimatedcost of$lO billion and

Bank IUflds TOlalmust at least temporarily be disconshycommil1ed In-estmenr

nected from the grid We are well aware Country DaIB approved Proiset TyP6 (BCU millian) (BCU million that altel11ative sources have to be

Poland 25 June WEK Poznan (Bank of Poznan) Loan 3729 6712developed to till the widening gap beshy Dlslrlcl healing enletprlsetween energy production and consumpshy Hungary 24 September PetOfi Nyomba At Packaging Loan 491 1174 tion In Bulgaria we are financing a CSFR 24 September Czechoslovakia Investment Equity 746 11186 new conventional lignite-burning Corporation Inc~

Aegional 24 September NM8IEuropean Bank Loan 2983 7458power genjration plant which will reshyCenlra Europe Agency Line place the hazardous Kozludoi nuclear Une of credit

power station USSR 26 November Par1lter Drilling Company Loan 928 1443 Drilling company In Siberia

Q Anotlremiddot issue that could generate USSR 2S November Enhanced Digital NelWorllt Loan 4~85 10~25 TelecommunlcaUonstension in tire lending policies of rival Poland 2S November Polska Telefonla Komorkowa Loan 44~75 13424

agencies is tire ongoing tlreoretical demiddot Cellular telephonebate--with its direct political implicashy Poland 2S November Lodom Cold slorage Loan 164 1073 tions-on what to do with tire dominatshy Romania 18 December Aom Telecom Telecommunlcallons Loan 14200 54880

Hungary 18 December Hunganan Telecommunications Loan 9088 18710ingstate industries a legacy oftire nowshyCompany Telecommunicationsdefunct socialism Should internashy Hungary 18 December Microsystem At Equity 224 671

tional finance institutions provide asshy Computet systems company sistance to post-socialist governments Romania 18 December GEC Alsthom-IMGB Loan 2300 14874

for restructuring tire obsolete finanshy Power-genetatlng equipment Poland 18 December tBG Food Processing Loan 526 1400shycially sJwky indebted state-ow nedcomshy

Food manufacturerspanUs in order to make tlrem more CSFR 18 December Cokoladovny Food manufacture Equity 24~ 10 17403 attractivetopotential domestic and forshy Poland 27 January National Bank of Poland Loan 4890 eign buyer~ Or shouldgolJernments be Banking Centre Buildings

Poland 27 January National Bank of Poland Equity 2~2D 8700encouraged to get rid of tire subsidyshyBanking Centre Bulldlngagulping inefficient industrialmonsters Hungary 14 FebnJary General Motors Hungary Loan 6140 246~ 13

as fast as possible sell them gilJe tlrem Automotive manufacturing away for vouclrers or inecessary liqshy CSFR 2S February Czechoslowanska Aerolinie (CSA) Equity 2240 11200

uidate them Alrlln Regional 23 March Societe GeneraleJEBRD Central Loan 1860 3720

Europe Agency Line Un of creditA What we can see is that the three Bulgaria 23 March Maritzll East II Power Generation Loan 4000 11400 Central European countries Hungary Hungary 28 April Westel Radiotelefon KIt Loan 810 6480 Czechoslolakia and Poland are takshy Cellular telecommunication

Poland 28 April ABB Dolmel Generators Loan 540 870ing different approaches toward Hungary 28 April Fusion Investment Company Equity 32D 1215privatization Hungary opted for a Franchised Burger King restaurants

gradual approach the other two counshy Poland 28 April PUbrex-Ringnes Soft Drink Loan 565 1850 tries for mass privatization Progress Bottling plant has been slower than expected in Hunshy Total to 30 April 1992 64336 221481

gary though faster than in the two bull CiJculalllltl at 31 December 1991 exchange rales other countries About 10 percent of SouraiI EBRDs annual reDOrt with updates from me editOr

VokJme 3 NurrOer 4 7 April 1992

Transffon me World BankCECSE

revival of the private sector is accomshypanied by the appearance of market prices in some segments of the economy The changes inspired by marketsocialshyism give firms a greater role in price setting However numerous elements of the official ideology remain the same and several nonmarket principles of pricing and taxation are conserved The bureaucracy does not want to reshylinquish the power stemmingfrom censhytral price fixing policy The political climate is such that the leadership cannot bring itself to introduce comshyprehensive price liberalization or even to undertake comprehensive price reshyform

Tendency 6 Combined emergence of macro tensions characteristic of the reform process occurs in block 4 beshyhavior of the participants in the economy and block 5 long-term ecoshy

nomic phenomena The process of reshyform-through specific lines of transshymission-heightens certain tensions wage pressures nmawayinvestm1mts budget defici ts inflation chronic shortshyages indebtedness and so forth

Reform destroys the coherence of the classical system and proves incapable of establishing a new order in its place None of the old principles and moral postulates can be retained unaltered How without ideological confusion can one square faith in public ownership with tolerance and even encourageshymentofthe private sector extol central planning while abandoning it or recshyoncile traditional disparagemen t of the market with current arguments on its behalf Previously people were urged to make sacrifices and observe discishypline but during the reform process materialism the practice of not movshy

ing a muscle without pay hedonism and adoption of the values of the conshysumer society have become more comshymon behavior The puritanism and asceticism of the professed revolutionshyary are accounted as grotesque anachshyronism

In the long term reform erodes the foundations of the classical socialist system undermining its power strucshyture and its control over ideas and morals In doing so it clears the way for a real change of the system

The author isprofessorofeconomics at Harvard University and tluJ Hungarian Academy ofSci ences His book The Socialist System The Political Economy of Communism was pubmiddot lisluJd in April 1992 by Princeton University Press and Orford University Press

EBRO Cooperation jnstead c)f Rivalry with the World Bank An interview with EBRDs Rolf B Westling

T heyoungestoftheinternational regional banks the European

Bank for Reconstruction and Development (EBRD) has announced that its total commitment to projects in Central and Eastern Europe as loans and equity investments reached about $800 million (643 million ecu) by the end of ApriL Outside investors have added almost$2 billion to these projects This is not a bad start for a year-old institution As a profit-seeking institushytion however the EBRD has to look for profitable investments fail-safe projects (a loan to the Hungarian GM car plant is a good example) still numshyber relatively few in this region that also embraces the states of the exshyUSSR This dilemma surfaced in Budapest during the first annual meetshyingofthe EBRD the banks shareholdshyers gave a cold shoulder to President Jacques Attalis suggestion to set up a soft loan fund for financing conversion of the CIS military industries The IFC the private sector arm of the World Bank is also active in financing and investing in profitable ventures in the region so certain competition is un-

April 1992

avoidable Transition editor Richard Hirschler attended the Budapest meetshying and asked EBRDs Senior Country Manager Rolf B Westling-inv()lved in developing links between the intershynational finance institutions-about measures to coordinate the EBRDs activity with the World Bank

Q During the Budapest meeting rushymors surfaced about a certain rivalry between the World Bankandthe EBRD How wouidyoucharacterize theEBRDs relationship to the bigger brother

A Without doubt the World Bank is a venerable institution that has gained massive experience in the pastdecades we are still in the process ofbuilding up our operations But this should not lead to rivalry On the contrary it makes a lot of sense to make the most of resources through coordination of our efforts especially when it comes to cofinancingopportunities in public secshytors of the member states devel()ping infrastructure and particularly parshyticipating in energy transport teleshyphone and environmental projects of

6

the post-communist economies We should not be seen as competitors in the market that is certainly not very constructive A coordinated approach would benefit us and therecipientcounshytries as well Providingconflictingtech nical assistance for example could lead to disastrous consequences

Q To mention one specific example I heard World Bank staff complaining about the EBRD offering assistance to complete half-finished nuclear power

Volume 3 Number 4

~~ ~------------------------------------ Transition lhe World BankCECSE

stationsin CzechosclJakia while World fonnerly state-owned assets in Hunshy involvement could be either in providshyBankexpertswerestilldebatingwhdlrer gary have been transferred to private ing technical advisory services or in it was safe to instaU additional nuclear hands (Foreign investments were reshy making capital investments when reactors in tire lrearl of~ntralEurope sponsible for 85-90 percent of this 10 privatization takes place Is this complaint justifilaquol ~ percent) Hungarian officials still beshy

lieve that the initial goal of achieving a Q EBRD experts when assailed for A I am not aware of that particular 50 percent privatization ratio by the being too cautious in assisting Central case However part of the problem end of 1993 is attainable and the govshy and Eastern Europe usually argue could be that a coherent nuclear enshy ernment decided to speed up the proshy just show us viable projects and we are ergy policy is only gradually emerging cess As to our policy of privatization ready to finance tlrem Some critics Right now we are setting up a nuclear EBRD conveyed a message to the govshy claim that by selecting investment tarshypoweradvisorygroupwithhighlyqualishy ernments in the region confirming that gets in the private sector EBRDgoes for tied scientists to prepare a report on it would like to be associated with the low-risk high-grade investments putshythe safety issues of the CEE nuclear process particularly with theprivatizashy ting money into companies with impecshypower stations President Attali himshy tion of various util~ties transport comshy cable financial records while ignoring self in his opening address to the anshy panies power generation plants teleshy risky but in tire long term profitable nual meeting called for shutting down phone companies and the like EBRDs projects Is this criticism justified 16 nuclear power plants in the region as soon as possible Another 60 nuclear EBRD Operations-The Results of the First Year plants need substantial rehabilitation Loans and equity mvestments for an estimatedcost of$lO billion and

Bank IUflds TOlalmust at least temporarily be disconshycommil1ed In-estmenr

nected from the grid We are well aware Country DaIB approved Proiset TyP6 (BCU millian) (BCU million that altel11ative sources have to be

Poland 25 June WEK Poznan (Bank of Poznan) Loan 3729 6712developed to till the widening gap beshy Dlslrlcl healing enletprlsetween energy production and consumpshy Hungary 24 September PetOfi Nyomba At Packaging Loan 491 1174 tion In Bulgaria we are financing a CSFR 24 September Czechoslovakia Investment Equity 746 11186 new conventional lignite-burning Corporation Inc~

Aegional 24 September NM8IEuropean Bank Loan 2983 7458power genjration plant which will reshyCenlra Europe Agency Line place the hazardous Kozludoi nuclear Une of credit

power station USSR 26 November Par1lter Drilling Company Loan 928 1443 Drilling company In Siberia

Q Anotlremiddot issue that could generate USSR 2S November Enhanced Digital NelWorllt Loan 4~85 10~25 TelecommunlcaUonstension in tire lending policies of rival Poland 2S November Polska Telefonla Komorkowa Loan 44~75 13424

agencies is tire ongoing tlreoretical demiddot Cellular telephonebate--with its direct political implicashy Poland 2S November Lodom Cold slorage Loan 164 1073 tions-on what to do with tire dominatshy Romania 18 December Aom Telecom Telecommunlcallons Loan 14200 54880

Hungary 18 December Hunganan Telecommunications Loan 9088 18710ingstate industries a legacy oftire nowshyCompany Telecommunicationsdefunct socialism Should internashy Hungary 18 December Microsystem At Equity 224 671

tional finance institutions provide asshy Computet systems company sistance to post-socialist governments Romania 18 December GEC Alsthom-IMGB Loan 2300 14874

for restructuring tire obsolete finanshy Power-genetatlng equipment Poland 18 December tBG Food Processing Loan 526 1400shycially sJwky indebted state-ow nedcomshy

Food manufacturerspanUs in order to make tlrem more CSFR 18 December Cokoladovny Food manufacture Equity 24~ 10 17403 attractivetopotential domestic and forshy Poland 27 January National Bank of Poland Loan 4890 eign buyer~ Or shouldgolJernments be Banking Centre Buildings

Poland 27 January National Bank of Poland Equity 2~2D 8700encouraged to get rid of tire subsidyshyBanking Centre Bulldlngagulping inefficient industrialmonsters Hungary 14 FebnJary General Motors Hungary Loan 6140 246~ 13

as fast as possible sell them gilJe tlrem Automotive manufacturing away for vouclrers or inecessary liqshy CSFR 2S February Czechoslowanska Aerolinie (CSA) Equity 2240 11200

uidate them Alrlln Regional 23 March Societe GeneraleJEBRD Central Loan 1860 3720

Europe Agency Line Un of creditA What we can see is that the three Bulgaria 23 March Maritzll East II Power Generation Loan 4000 11400 Central European countries Hungary Hungary 28 April Westel Radiotelefon KIt Loan 810 6480 Czechoslolakia and Poland are takshy Cellular telecommunication

Poland 28 April ABB Dolmel Generators Loan 540 870ing different approaches toward Hungary 28 April Fusion Investment Company Equity 32D 1215privatization Hungary opted for a Franchised Burger King restaurants

gradual approach the other two counshy Poland 28 April PUbrex-Ringnes Soft Drink Loan 565 1850 tries for mass privatization Progress Bottling plant has been slower than expected in Hunshy Total to 30 April 1992 64336 221481

gary though faster than in the two bull CiJculalllltl at 31 December 1991 exchange rales other countries About 10 percent of SouraiI EBRDs annual reDOrt with updates from me editOr

VokJme 3 NurrOer 4 7 April 1992

~~ ~------------------------------------ Transition lhe World BankCECSE

stationsin CzechosclJakia while World fonnerly state-owned assets in Hunshy involvement could be either in providshyBankexpertswerestilldebatingwhdlrer gary have been transferred to private ing technical advisory services or in it was safe to instaU additional nuclear hands (Foreign investments were reshy making capital investments when reactors in tire lrearl of~ntralEurope sponsible for 85-90 percent of this 10 privatization takes place Is this complaint justifilaquol ~ percent) Hungarian officials still beshy

lieve that the initial goal of achieving a Q EBRD experts when assailed for A I am not aware of that particular 50 percent privatization ratio by the being too cautious in assisting Central case However part of the problem end of 1993 is attainable and the govshy and Eastern Europe usually argue could be that a coherent nuclear enshy ernment decided to speed up the proshy just show us viable projects and we are ergy policy is only gradually emerging cess As to our policy of privatization ready to finance tlrem Some critics Right now we are setting up a nuclear EBRD conveyed a message to the govshy claim that by selecting investment tarshypoweradvisorygroupwithhighlyqualishy ernments in the region confirming that gets in the private sector EBRDgoes for tied scientists to prepare a report on it would like to be associated with the low-risk high-grade investments putshythe safety issues of the CEE nuclear process particularly with theprivatizashy ting money into companies with impecshypower stations President Attali himshy tion of various util~ties transport comshy cable financial records while ignoring self in his opening address to the anshy panies power generation plants teleshy risky but in tire long term profitable nual meeting called for shutting down phone companies and the like EBRDs projects Is this criticism justified 16 nuclear power plants in the region as soon as possible Another 60 nuclear EBRD Operations-The Results of the First Year plants need substantial rehabilitation Loans and equity mvestments for an estimatedcost of$lO billion and

Bank IUflds TOlalmust at least temporarily be disconshycommil1ed In-estmenr

nected from the grid We are well aware Country DaIB approved Proiset TyP6 (BCU millian) (BCU million that altel11ative sources have to be

Poland 25 June WEK Poznan (Bank of Poznan) Loan 3729 6712developed to till the widening gap beshy Dlslrlcl healing enletprlsetween energy production and consumpshy Hungary 24 September PetOfi Nyomba At Packaging Loan 491 1174 tion In Bulgaria we are financing a CSFR 24 September Czechoslovakia Investment Equity 746 11186 new conventional lignite-burning Corporation Inc~

Aegional 24 September NM8IEuropean Bank Loan 2983 7458power genjration plant which will reshyCenlra Europe Agency Line place the hazardous Kozludoi nuclear Une of credit

power station USSR 26 November Par1lter Drilling Company Loan 928 1443 Drilling company In Siberia

Q Anotlremiddot issue that could generate USSR 2S November Enhanced Digital NelWorllt Loan 4~85 10~25 TelecommunlcaUonstension in tire lending policies of rival Poland 2S November Polska Telefonla Komorkowa Loan 44~75 13424

agencies is tire ongoing tlreoretical demiddot Cellular telephonebate--with its direct political implicashy Poland 2S November Lodom Cold slorage Loan 164 1073 tions-on what to do with tire dominatshy Romania 18 December Aom Telecom Telecommunlcallons Loan 14200 54880

Hungary 18 December Hunganan Telecommunications Loan 9088 18710ingstate industries a legacy oftire nowshyCompany Telecommunicationsdefunct socialism Should internashy Hungary 18 December Microsystem At Equity 224 671

tional finance institutions provide asshy Computet systems company sistance to post-socialist governments Romania 18 December GEC Alsthom-IMGB Loan 2300 14874

for restructuring tire obsolete finanshy Power-genetatlng equipment Poland 18 December tBG Food Processing Loan 526 1400shycially sJwky indebted state-ow nedcomshy

Food manufacturerspanUs in order to make tlrem more CSFR 18 December Cokoladovny Food manufacture Equity 24~ 10 17403 attractivetopotential domestic and forshy Poland 27 January National Bank of Poland Loan 4890 eign buyer~ Or shouldgolJernments be Banking Centre Buildings

Poland 27 January National Bank of Poland Equity 2~2D 8700encouraged to get rid of tire subsidyshyBanking Centre Bulldlngagulping inefficient industrialmonsters Hungary 14 FebnJary General Motors Hungary Loan 6140 246~ 13

as fast as possible sell them gilJe tlrem Automotive manufacturing away for vouclrers or inecessary liqshy CSFR 2S February Czechoslowanska Aerolinie (CSA) Equity 2240 11200

uidate them Alrlln Regional 23 March Societe GeneraleJEBRD Central Loan 1860 3720

Europe Agency Line Un of creditA What we can see is that the three Bulgaria 23 March Maritzll East II Power Generation Loan 4000 11400 Central European countries Hungary Hungary 28 April Westel Radiotelefon KIt Loan 810 6480 Czechoslolakia and Poland are takshy Cellular telecommunication

Poland 28 April ABB Dolmel Generators Loan 540 870ing different approaches toward Hungary 28 April Fusion Investment Company Equity 32D 1215privatization Hungary opted for a Franchised Burger King restaurants

gradual approach the other two counshy Poland 28 April PUbrex-Ringnes Soft Drink Loan 565 1850 tries for mass privatization Progress Bottling plant has been slower than expected in Hunshy Total to 30 April 1992 64336 221481

gary though faster than in the two bull CiJculalllltl at 31 December 1991 exchange rales other countries About 10 percent of SouraiI EBRDs annual reDOrt with updates from me editOr

VokJme 3 NurrOer 4 7 April 1992

Transfflon The Wond BankCECSE

A It is difficult to identify good bankshyable projects)n these countries Still we are in an advantageous position together with other international inshystitutions we have a catalytic role in selectingand developing viable projects in the private sector If our lending were anything buton a full commercial basis commercial banks would not be able to join hands with us And you should be aware that in our lending policy weare trying to arrange as much cofinancing as possible

Q The IFC is opeurorating on similar policy principles Will the EBRD coopshyerate or compeurote with the IFC

A Two of the 24 EBRD projects anshynounced sofar involve cofinancingwith the World Bank that is the IFC The credit line to Bank of Poznan to supshyport district heating enterprises (our share is $50 million) is cofinanced by a $20 million loan from the World Bank The IFC is expected to add a loan of$15

million to our $10 million loan to the Hungarian Westel Telefon Kft Moreshy

over in Poland we are working toshygether with the IFC in a telhnical assistance project the Polish Business Advisory Servite Im convinced that there will be many more cofillanced deals in the future Smaller projects would not benefit from having both institutions on board But cooperating on major projects makes sense not only because ofjoillt financing butalso because more eyes see more both instishytutions could benefit from joint evalushyations joint appraisals

Q What are the major achievements and what are the major hurdles of coordinating your lending policy and investment policy with the World Bank

A The various financial institutionsshyincluding the World Bank and the EBRD-have already started a regushylar exchange of information The repshyresentatives meet every three months at alternating locations Last Novemshyber the European Investment Bank hosted a meeting in Luxembourg and

in March the European Community welcomed invitees to Brussels The Juneconference in Basel will be hosted by the BIS A general pattern for the conduct ofthese meetings is gradually evolving Currently every institution is entitled to send some advance mateshyrial on their pipeline projects and planned technical assistance These plans are then made available to parmiddot ticipants without requiring any formiddot mal scrutiny The agenda instead emshybraces topics of general interest such as macroeconomic and microeconomic developments in the countries of Europes eastern half

In the future the EBRD and the World Bank could send major missions sishymultaneously to Central and Eastern Europe the Baltic or member states of the CIS helping both the host counshytries and the institutions to carry out more efficient operations Coordinashytion at the grass-roots level should therefore be developed between counshyterparts responsible for the same counshytry or the same sector

Albanias Agenda Prevent an Economic Disaster A new government took office in Albania on April 29 luackd by Prime MiniJJter Aleksander Meksi a noted archaeologist and a member oftke Managing Council and Presidency of tke Albanian Demomiddot cratic Party (ADP) The gouernment in which tke ADP holds 15 portfolios out of 19 has to deal with an ertremely difficult economic situation With a drop in GDP of55 percent last year per capita GDP in 1991 was around $350 tke leuel prevailshying in Indonesia and Sri Lanka (At the January 1992official exchange rate of50 lek $11991 GDPwasaround$1 billion)

Unemployment reacked 35 percent durshying the last quarterof1991 andcould top 50 percent by tke end oftke first quarter of1992 (Tke total labor force is around 15 millionoutofa totalpopulationof32 million) The rural-urban population ratio previously 65 to 35 has reversed itselffor tke first time si nee tlu war (to 30 to 70) as people Ud tlu towns Around 5 percent oftke populationUd tke country in 1991 only to be repatriated from Italy (50000)andtkenGreece(JOOOOO) With virtually tke entire population suruiving on emergency foreign food aid living standards have fallen below those of Kasooo tke poorest area of tke former Yugoslav federation

Laying tke foundation for a real agricul tural output recovery ckpends on rEsoiving without delay remaining ownership quesshytions Fifty percent ofthe 13 million acres of arable farmland-designated for privatization by the Land Law of July 1991-was provisionally distributed In 1991 wken tke collectivized system enckd in chaos output fell by 50 percent with even worse ckclines for certain products notably the main export cash crop tobacco (60 percent)

Industrial output which accounted for 46 percent ofGDP and 28 percent of employshyment in 1989middot90 collapsed in 1991 due mostly to raw material and energy shortshyages Declines in output for 1991 ranged from 45 percent to 70 percent Mining and processingofthe country s naturalntSources (notably chromium ore and ferrochrome) which provilks virtually all hard currency export ecrnings dropped dramatically in 1991 with chromium ore output no more than a third andpossibly only a quarter of the 500000 tons prodllad in 1990

With an inflation rate of01JU 600 percent last year hyperinflation iJJ a danger in 1992 The lele dollar erzhange rate was devalued from 61 to 30 1 last September and furtker reduced to tke present rate of

SOlin January The real market lek dollar rate iJJ over 200 1 and is rising by about 10 percent a month

Tke countrys hard currency foregn debt now stands at $600 million double he 1989 figure Most of it is in the form of govemmentguaranteedshortterm track credits provided by commercial banks with Italy and Germany tke main credi tors Presently with official reserues al most depleted a de facto debt seruicing moratoriumetistswithaformalrescked uling expected later thi~ year

Albanias prospects in the longer term are more faoorable Germany in par ticular iJJ interested in developing its majorEuropean source ofchromium ore Major German Italian and US intermiddot ests are also inuolved in offshore oil exmiddot ploration in tke Adriatic which could proue to be Albanias economic saluation if forecasts of reserve size prove correct More immediately the economy needs about $200 million a year in aid and credits until at least 1995 and probably up to 2000

Based on a recent report from Oxford Analytica London

Aprtll992 8 Volume 3 Number 4

Tronsitfon The World BankCECSE

Quotation of the Month Oil and Agriculture The Payoff Will Be Large Wilfried Thalwitz on the Banks operations in the former USSR

The political and economic manageshyment of the major successor states of the Soviet Union is dead serious about moving to a market economy This is not an attempt to bamboozle the West an attempt simply to obtain some money to get over the next year They are totally convinced that their future as members of the international com~ munity and the future of their people depend on very significant reformsshypainful as they may be That doesnt mean that [these leaders] are not also aware of the risks

The political risk will be significant implied in the extent and depth of output dedine In Russia output deshyclined more than 10 percent last year In the first months of 1992 output dropped a further 12 percent-pershyhaps even more Industrial production dropped more than did other sectors A reduction in economic activity of this proportion compares only with the deshycline experienced by the West during the Great Depression

Whatcan the World Bank doThe first actions of the Bank will be geared toward alleviating import constraints in areas where we can get the quickest and largest payoff We hope that durshying the next 12 months we will be able to commit something like $25 billion about halfof which could go to Russia in line with the relative size of that country compared with the others There will be a general import rehashybilitation operation for Russia when the other republics are ready were prepared to implement similar proshygrams At this stage negotiations about import alleviation loans are most adshyvanced with the Baltic countries Kyrgyzstan and Kazakhstan and preparation has started in Ukraine and Armenia For fiscal year 1995shywhich is not all that far away as it begins in July 1994-we hope to be able to commit about $45 billion to $5 billion to the successor states of the Soviet Union The first slew of operashytionsis thus a general import rehabilishytation program

VolUme 3 Number 4

We wOllld like then to quickly move to a second generation ofoperations whose structural and policy elements are still to be agreed on I refer in particular to oil and agriculture Why Because the payoff is going to be large That is the payoff certainly will be large if in Russhysia and Kazakhstan (this is where the oil is) the policy framework and the structure can be altered so that both investors and producers respond That means that the price of crude oil has to be high enough to provide adequate production incentive and mustbe taxed in such a way as to provide the governshyment with appropriate budget income without violating the producers incenmiddot tive for increased output Its the old wisdom about saving the goose thats going to lay the eggs

Production incentive in agriculture can be reinvigorated with a change in relashytive prices More important losses can be substantially reduced At present about 10million tons of grain are wasted annually because of the absence of deshycent seed treatment Even more losses occur during transportation storage and harvesting We hope that signifimiddot cant impetus can be created for more production and reduction of losses

through the restructuring and privatization of the entire chain that serves agriculture

Russia has a chance through its oil wealth to escape its current predicamiddot ment rather quickly For the other new states it is a little more difficult If you take all the trade that occurred beshytween the various republics under the roof of the old Soviet Union and if you put all that trade at world market prices which would normally be the case for independent nations trading with each other Russia would end up having a very significant trade surmiddot plus the equivalent of about $20 bilshylion The poorer republics will not be able to earn the foreign exchange to buy all that stuff and the result will be a very substantial reduction in trade in the territory of the formerSoviet Union Much of the brunt ofthat reduction will have tobe bome by the other republics In other words their adjustment load in the longer run is at least as heavy as is Russias probably even heavier

Excerpts from a recent press conlerence by

Wilfried Thalwitz Vice President of the World Bank during the April Development Commitmiddot tee meeting in Washington DC

-------------~-------------~------~~

9 April 1992

Tronsltfon The Wond BcnkCECSE

Milestones of Transition The UN Economic Commission for Europe (ECE) criticized Western govshyernments which so far have failed to meet the challenge of change in the former Soviet bloc and have proshyvided little genuine aid In its annual report on European economies released in mid-April the ECE said the ecoshynomic decline across the former comshymunist states appears to be on the scale of the depression of the 1930s TheECE said GDPin the Soviet Union fell dramatically in 1991 with a further steep decline probable in 1992 while

across Central and Eastern ]~urope output fell an average of around 14 percen t in 1991 after a 10 percen t fall in 1990 The UN economists see a posshysible recovery soon in Poland and Hunshygary but fear a general collaps~ of the reform process in the region as political support for change fades

Poland urged the G-7 to guarantee trade in Eastern Europe to prevent economic collapse and a spread of ethshynic violence Finance Minister Plndrzej Olechowski said the G-7 summit in

Munich in July should agree to use credit guarantees to maintain trade between former Soviet republics and former Soviet bloc countries in Eastern Europe

Mongolia which previously conducted nearly all of its trade with Comecon countries experienced a 50 percent drop in trade last year to about $750 million according to the minister of trade and industry Shipments of oil from the former Soviet Union have been suspended since December partly

Why This Newsletter A Note to our Readers Why this newsletter asked the inshy Alan Gelb head ofthe Socialist Econoshytroductory issue of Transition two mies Reform Unit looking back on the years ago in April 1990 The newshy short history ofthis newsletter asserts born publication didnt hesitate to answer that question it wanted to The unit was established in response to become a useful instrument for disshy rapid and momentous events taking seminating information experience place in Central and Eastern Europe facts and data on socialist econoshy Researchers studying these changes did mies The newsletter was launched not have enough time to disseminate as part of the Socialist Economies their findings in scientiflCjoumals beshyReform Unit (CECSE) ofthe World fore being overtaken by those very events Bank set up in January 1990 to Thus we decided on a monthly newsletshyencourage and initiate research on ter as a vehicle to quickly present anashythe socialist economies and to beshy lytical work and inform readers ofcurshycome a clearinghouse ofinformation rent important events forthcoming in the Bank seminars conferences all of them reshy

lated to the transformation process We It is diffkult to say whether it was targeteda readership that is both within good planning or sheer luck but and outside the Bank As our huge history became a major player proshy organization-about 6000 employeesshymoting our fledgling publication is rather compartmentalized we The dramatic domino effect of thought the newsletter could bea useful Gorbachevs glasnost policy sudshy forum for staff to learn of related reshydenly gave the people ofCentral and search activities and country experishyEastern Europe a once-in-a-lifetime ences and o discuss controversial isshychance to end decades ofmisguided sues ofthe economic reform process We socialand economic engineeringand have tried to communicate work gomg to develop democratic institutions on in the Bank to outside readenr and to and a market economy based on bring results of outside research into private initiative Nobodycouldforeshy the World Bank The rapid growth in see then that in barely 18 months the circulation has proven the value ofsuch Soviet Union would become history an agile form ofpublication and that in two years the new successhysor states would join the Bretton One challenge ahead is to increase disshyWoods institutions By this time tribution in countries where post middotsocialmiddot most of the once socialist economies ist economic changes are accelerating have become post-socialist econoshy and where the Bank is increasingly acshymies and the newsletters title Transhy tive Another challenge is that the Volshysition describesa surprisingly wideshy ume ofanalytical research work on transhyspread phenomenon sition has exploded recently together

with the number ofcountries in transhysition As a consequence there is now an overload ofpotential material for the newsletter ~

Lets not forget the first editor ofthe publication Matyas Vince who played a major part in defining the newsletters profile and its approprimiddot ate layout He returned to Hungary aftereditug the first four issues leavshying behind a small but viable infant

We also express appreciation to our authors (including manyoperational staff who have contributed to this newsletter with articles or comments and to readers who supported us by sending information on forthcoming conferences or even cartoons and jokes

To meet the requests ofmany readers we shall list past feature artictes in an index to be published in May

Finally what the current editor can offer is to maintain the newsletter as afresh and consumable product and try to keep our readers as well inmiddot formed as possible on a mere 16 pages a month We feel the heat ofthe proverbial Chinese curse live in inmiddot teresting times

Richard Hirschler Editor

Apr111992 10 Volume 3 Number 4

Transfflon The Wand BankCECSE

because of confusion over which Russhysian entity should sign the contract International donors pledged $150 million last year to finance emergency imports and will meet again in May to consider soft loans to meet the countrys medium-term needs including infrashystructure promotion of exports and import substitution

Bulgarias parliament passed a law April 23 privatizing state and municishypal property over the next two years Enterprises will be converted into joint-stock companies which will eishyther be sold at auctions (mainly small firms) or transferred to new state holdshying companies It will be possible for firms to be owned by both private and state holding company shareholders Shares of the state holding compashynies can be sold to private individuals or companies within two years Up to 20 percent of a firms capital can be sold to employees as cheaper nonvotshying shares Foreign and Bulgarian citishyzens can participate in privatization on an equal footing State income from selling enterprises will be allocated to social funds (30 percent) foreign debt repayment (40 percent) indemnities to former owners (20 percent) and development of agriculture (10 pershycent)

Some 180 mayors and members oflocal governments from the Danube region of Slovakia and Hungary and experts from several countries met in Czechoshyslovakia in late April to discuss the planned Gabcikovo-N agyrnaroshydroshyelectric power plant They noted the danger of a loss of drinking water reshyserves (affecting almost five million people) and other environmental probshylems linked to the dams completion They demanded that work be halted immediately and thatan effort be made to restore the section of the Danube already damaged The Worldwide Fund for Nature said in Vienna that it will warn international banks not to fishynance the project (The joint Hungarshyian-Czechoslovak project was agreed to in 1977 by the two then-communist governments) Hungary has suspended construction of the dam and wants to abrogate the related treaty because of environmental damage the Slovak side however wants to go ahead with the projE~t citing significant costs alshyready incurred

VokJrna 3 NufT1be( 4

The Romanian government would start distributing in May free vouchers (representing 30 percent of ownership of state-run industries) to be used by the public to buy shares in soon-to-be privatized industries announced Prime Minister Theodor Stolojan The govshyernment would remove 25 percent of remainingstate subsidies on consumer products (The gradual removal of subshysidies began in November 1990 and all are to be cut by theend ofl993) Stoloj an announced that the government would devalue the Romanian leu to stimulate exports but warned of prospective unshyemployment Accordingto official data released in early April 42 percent of the more than 22 million Romanian citizens now live beneath the official poverty line Official unemployment figures stand at 4 percent but are expected to rise significantly

Officials of five North Asian counshytries met in Beijing to discuss a UN plan to jointly create a free-trade zone and to set up a consultative group on investment to explore international interest in the 400-square-mile Tumen River delta port and industrial comshyplex a development project that inshyvolves China North and South Korea Mongolia and Russia It will stretch from Vladivostok in Russia to Chongjin in North Korea and Hunch un in China The five nations agreed to conduct a $35 million 18-month study

The Czechoslovak State Bank says the countrys gross national product fell 33 percent in the first three months

of this year compared withlhe final three months of 1991 Prices increased on average by 1 percent in January 05 percent in February and04 percent in March

The federal parliament of Czechosloshyvakia has adopted a series of new tax laws-modeled on European Commushynity practice-which will broaden the tax base and put state finances on a sounder footing The new taxes-inshycluding value added tax personal and company income taxes real estate taxes inheritance- and gift taxes and environment taxes-will come into efshyfect in January 1993 An across-theshyboard 45 percent tax rate will apply to all businesses compared with the curshyrent 40 percent rate for joint foreignshyCzechoslovak ventures and 55 percent for solely Czechoslovak businesses

China plans to introduce sales and inheritance taxes Jin Xin director of the State Administration of Taxation announced that the taxation adminisshytration would be split into three deshypartments for collection management and inspection and the tax code would be altered China has vowed to gain control of its civil service by 1995 as partofa drive to reinvigorate economic reforms It will slash the size of its lumbering inefficient government inshystitutions implement a grading sysshytem for civil servants and refonn pay systems Under the refonns adminisshytrations at provincial city county and township levels would have to be trimmed and modified

From hI Munich douy Suddeutsche Zeitung

11 April 199

---------------------------------------------------------------shyTransi110n The Wond BankCECSE

New Books and Working Papers bull The CECSE unit of the World Bank regrets that it is unable to supply the publications listed

Working Paper Briefs

Alfredo Thorne Issues in ReformingFinancialSysshytems inEasternEurope-The Case of Bulgaria The World Bank Policy Research WPS 882 Washington DC 199242 p Atailable from Lanha Ly The World Bank Rm H-907I Tel (202) 473middot 7352

The author uses Bulgaria to illustrate the problems experienced by the forshymerly centrally planned economies when reforming their financial sysshytems There are two alternative strat shyegies for privatization

bull One strategy is to restructure banks clean up their bad portfolios recapitalize them and keep them pubshylicly owned until enterprise pri shyvatization is complete Banks would play a passive role in enterprise prishyvatization

bull A second strategy is preferable quick privatization of a group ofbanks linked to enterprise privatization The privatized banks would allocate credit exclusively to creditworthy enterprises A second group of banks privatized at a slower pace would participate as investment funds in the restructuring and privatization of state-owned enshyterprises

In Bulgaria 59 common commercial banks (CCB) could be privatized foishylowing their merger into five to six medium-size banks Eight specialized commercial banks (SCB) already enshygaged in long-term investment finance could be converted into investment funds Before privatization loans classhysified as bad loans should be removed from the portfolio and transferred to a new specialized collecting institution or should be guaranteed by the state and kept as off-balance-sheet items with the banks Authorities should reshyquire investors to comply with theminishymum capital criteria by bringing i1 fresh money to provide a team ofexpeshyrienced bankers to lend exclusively to the private sector to restrict lending to the banks own sharehold~rs and to

April 1992

comply with a loan concentration limit to be defined in the new Banking Law

Csaba Csaki Transformation of Agriculture in Central and Eastern Europe and the Former USSR-Major Policy Issues and Perspectives The World Bank Policy Research WPS 888 Washington DC 199232 p Auauable from Cicely Spooner Rm Nmiddot8039 Tel (202) 473-0464

Gangzhan Fu and others Unemployment in Urban China An Analysis of Survey Data from Shanghai ChinaProgranVSTICERD CPo 21 Lonshydon School ofEconomics London 1992 40p

The authors analyze the unemployshyment problem in Chinas largest city based on a survey conducted in late 1989 The average unemployment rate in the city is 2 percent very low by international standards Unemployshyment is above average for the young primarily the school leavers and for former state employees (In Shanghai the state sector accounted for around three-quarters of the new jobs in 1990 and employed 78 percent of the 51 million wage-earning workers)

The unemployed in Shanghai rely heavily on family and on occasional work for support only a small proporshytion receive benefits from the state Since 1986 all state-owned enterprises have been rfquired to pay 1 percent of their total wage bill to an unemployshyment insurance fund managed by the local labor service center and banked at the local branch ofthe Peoples Bank Benefits restricted to permanent and contract employees are based on avershyage wage during th e previous two years of employment For people employed five years or more benefits can reach 75 percent offormer wages in the first year and 50 percent in the stcond year Unemployment in urban areas could worsen as loss-making entershyprises are forced into bankruptcy and enterprises are encouraged to shed excess labor

12

Other recent China Program STICERD papers

Liqing Xu Robin Sherbourne and Xue Mei Industrial Development and Remiddot form in Changzhou City A Case Study CP 20 London School of Economics London 1992 49 p

Stephen Howes Purchasing Power Infant Mortalshyity and Literacy in China and Inshydia A Provincial Analysis CPo 19 London School of Economics London 1992

Athar Hussain Peter Lanjouw and Nicholas Stern Income Inequalities in China Evishydence from Household Survey Data CPo 18 London School of Economics London 199140 p

Stephen Howes and Peter Lanjouw RegionalVariations in LivingStanmiddot dards in Urban China CPo 17 London School of Economics London 199162 p Avauable from Leila Alberici China Program The Deuelopment amponomics Research Program London School of Economics Houghton St London WC2A 2AE Tel (4471) 405middot7686 ext 3290

IMF Economic Review Common Issuesand Interrepublic Relations in the Former USSR IMF Washington DC 199255 p

The total volUllle of interrepublican trade fell by at least 15 percent in 1991 according to the Russian authorities Early this year the decline acce lerated and deliveries from Russia ro other republics in January were only 70-75 percent of the January 1991 level The drop in trade is the result of export restrictions imposed by the republics shaken confidence in the ruble and the breakdown of the ruble payment mechanism

Maintainingtrading links between the republics is essential to avoid a major

Volume3 Nurrbef 4

shy _------------------------------------shyTransition The World BonkCECSE

disruption of economic activity during the transitional period A decentraImiddot ized market-based trading-system asshysumes a greater coordination ofpricing policy and the elimination of interrepublic trade barriers Within the ruble zone a coherent monetary policy and fiscal stabilization should be implemented To coordinate monetary policy the states involved should agree without delay on ground rules for setshytinginterest rates exchange rates reshyserve requirements and credit lines common commitment to responsible

bull fiscal policies and fair procedures to manage the note issue introducing new currencies and settling claims on rubles including the disposal of ruble banknotes

Over the longerterm new interrepublic institutions related to trade payment systems and inter-central bank clearshying could bolster coordination of monshyetary fiscal and trade policies Repubshylics that choose to leave the ruble area could still benefit from participating in those institutions (As of March 1992 Moldova UKraine and the three Balshytic states have announced intentions to issue their own currencies Belarus has requestad that its supply of ruble notes be stamped by the Russian aushythorities Kyrghyzstan plans to move to its own currency after some 18 months The other states prefer to stay in the rubl~l zone) Early departure from the ruble zone could be costly and frictions in monetary arrangements might lead to unnecessary disruptions in interrepublic trade Establishing a multilateral clearing facility between the mhle-hlsed and non-mble-based central banks could reap some benshyefits asserts the paper

(Between September 1991 and March 1992 IMF staff visited states of the former Souiet Crnion to review steps required for membership they collected economic citlta to process these states applications and to provide policy admiddot vice The above economic reuiew is one ofthe publications prepared following these visits I

Other recently published economic reshyviews ofthe IMF

The Economy of the Former USSR in 1991 103 p Russian Federation 115 p Belorus forthcoming Ukraine 69

Volume 3 ~Jumber 4

p Estonia 76 p Latvia 69 p Lithuania 73 p

BB Aghevli E Borensztein and T van der Willingen Stabilization and Structural Reshyform in the Czech and Slovak Fedmiddot eral Republic First Stage IMF Washington DC 199246 p Available from IMF Publication Services 700 19th Street NW Washington DC 20431 Tel (202) 623-7430 ax (202) 623middot7201

Other Working Papers

Peter Murrell An Antidote to Shock Therapy An EvolutionaryApproach to the East European Economic Transition The Woodrow Wilson Center East European Studies Occasional Papers No 37_ Washington DC 199242 p Available through written request to Occasional Papers WWC EES 370 LEnanl Promenade Suite 704 Washington DC 20024-2518

Karen Anderson and Jonathan Halperin Through a Glass Clearly Finding EvaluatingandUsingBusiness Inmiddot formation from the Soviet Region Special Library Association Occasional Paper Series No3 Washington DC

199265 p Information Jane Taylor tel (202) 234middot4700 ax (202) 265middot9317

Simon Johnson Heidi Kroll and Mark Horton New Banks in the Former Soviet Union How Do They Operate Available rom Simon Johnson TN Fuqua School ofBusiness Duke Uniuersity Durham NC 27706 Tel (919) 6oumiddot78i7 ax (919)681shy6244

K Gatslos Privatization in Hungary Past Present and Future CEPR London DPS 642 1992

Barry Eichengreen and Marc Uzan The Marshall Plan Economic Efmiddot fects and Implications for Eastern Europe and the Former USSR CEPR London DPS 638199262 p

Laszlo Halpern and Istvan P Szekely Export Supplyand Import Demand in Hungary (An Econometric Analysis for 1968middot1989) CEPR London DPS 620 1992 18 p

13

Gerard Roland and Thierry Verdier Privatization in Eastern Europe hTeversibility and Critical Mass Effects CEPR London DPS 612 199239 p

To order CEPR Discussion Papers Centre (or Economic PoIicy Research 6 Duke of York Street London SW1Y 6LA L Tel (4471 930shy2963

New Books

Michael P Claudon and Tamar L Gutner eds Putting Food on What Was the Soviet Table (Collection of papers presented at the Geonomics Seminar on Soviet Agriculshyture October 17-20 1991) New York University Press New York and London 1992 141 p

William Reisinger Energy and the Soviet Bloc Allimiddot ance Politics After Stalin Cornell University Press Ithaca ~Y-

1992 184 p

Robert A Lewis and Robert R Churchill Geographic PerspectivesofSoviet Central Asia Rolltledge Press New York 1992 323 p

Simon Powell Agricultural Reform in China From Communes to Commodity Economy 1978middot1990 Manchester University Press New YorkManchester (UK) 1992231 p

China Statistical Yearbook-1991 State Statistical Bureau of China Beijing 1992

Frederic L Pryor The Red and the Green The Rise and Fall of Collectivized Agriculmiddot ture in Marxist Regimes Princeton University Press Princeton 1992 Information Princeton Unitersily Press 51 William St Princeton NJ 08540middot5237

April 1992

-Tronsfflon The World BankCECSE

World BankIMF Agenda

IMFSupport for Russian Privatshyization

Russia laW1ched a program in Nizhny Novgorod (formerly Gorki) in early April to privatize more than 2000 small-scale statemiddotowned enterprises The International Finance Corporashytion ClFC) designed the program which entails auctioning off cafes shops and stores to Russian citizens Under the plan any Russian can register as a potential buyer of an enterprise The sellmiddotoff includes an installment-payshyment system to enable employees to purchase the enterprises for which they work The IFC has also begun work on a pilot program to privatize enterprises in the food and energy sectors and to convert defense industries into facilimiddot ties that will produce consumer goods NizhnyNovgorod is Russias third largshyest city

Longer List for ESAF

The IMF has added 11 countries to the list of member states eligible for funds from the Enhanced Structural Adjust-

ment Facility (ESAF) Among them Albania Angola Mongolia and Nicashyragua will now be eligible for the IMFs concessionalloans

IMF Support to Czechoslovakia

The IMF approved a $322 million standshyby credit to Czechoslovakia in early April The money will be available to support economic reforms and privatization The IMFpraised the sigshynificant progress Czechoslovakia achieved last year in liberalizing its economy taminginflation and improvshying its trade position

bulland to Bulgaria

The IMF approved a $212 million stand-by credit to Bulgaria over the next 12 months in support of the governments economic and financial program The 1992 program includes reducing the monthly inflation rate to 2 percent by the end of the year conshytaining the decline of output to about 4 percent and increasing imports by 9 percent this year Remaining restricmiddot

New Chapter in Bretton Woods Twins History Russia andother republtcs othpound ormer USSR were provisionally admitud to the IMF and the World Bank on 27 April (For procedural reasons AzerbaijanS applicDtions to both inshystitutions were denied 08 WQ8 Turkmenistans applicDtion for pdmission to the World Banll bull Bothcountries are likely to become provisional members in May however) The 15 republics will have a combined share in the IMFof476 percent ofuhich Russw will have 3 percent

The IS states together will control 505 permiddot cent of the World Banlls shares of which

Russia will have 292 perrcnL

Authorized capital from tlut World Bank and the IDA was increased in April to enable the republICS of the former Sov~t Union to purshychase shares allocated to them The total aumiddot thoriud capitat of1448500 shares equivashylent to$17474 billion WQ8 increased by 77159 shares equivalent w $93 billion represtntmiddot ing 505 percent of the World Bahks shares Gfthe 15countr~sRussiawill havethelarg est number ofshares 44795 giving the COUll

try a voting power of 292 percent Thu will put Russia on a par with Canada India Italy and Saudi Arabia

Share subscriptions of the new membera of the World Bank

Armenia 1139 Lithuania 1507 Azerbaijan 1646 Moldova 1368 Belarus 3323 Russian Fed 44795 Estonia 923 Tajikistan 1060 Georgia 1584 Turkmenistan ~337

Kazakhstan 2985 Ukraine 10908 Kyrgyzstan 1107 Uzbekistan 2193 Latvia 1384

Total 77159

Approval by tlut republics legislatures is still required for full admission in tMse organizamiddot tions In order to become members tM countriu will need to pay in a total of $540 miUion of capital Membership will make the former Scshyviet republicseltgible to receive $65 billion to $9 billion yearly from the IMF and total lending from both institutions could reach $40 billion during the nat four years Tht rnajority ofthis lending is likely to go to Russia for whom $45 billion in IMF and World Banlc aid was pledged by the Gmiddot 7 industrialized countries on 1 April MF membership will cilso unlocJc otMrforms of

tions on sale of agricultural land are to be lifted

World Bank Loans to China

The World Bank is lending $310 milshylion to China to finance the expansion of the Zouxian thermal power plant The addition of two generating units will help alleviate power shortages in Shandong Province and promote ecoshynomic development in the region The loan will also finance a study on minishymizing air pollution

and to Hungary

The World Bank has approved a $200 million loan to Hungary for privatization and structural renewal Finance Minister Mihaly Kupa and Hungarian Central Bank President Akos Bod Peter signed at accord in Washington with Bank officials forreshypayment of the loan over a period of 15 years Another $100 million loan was also signed it is to support domestic trade specifically product market deshyvelopment in Hungary

G-7largess including $6 billion for a roble stabilization fund $25 billion in debt defermiddot ral and $11 biJlion ingovernment middotwmiddotgovernmiddot ment aid

The World Bank anticipaus making its first loan for about $500 million to Russia this summer for the purchaseofessential Imports By the end of this year according to a Bank spokesperson total loan cmmitments could reach $15 billion By the end of 1994 Bank loan commitments to the republics could be between $4 billion and $5 billion a year (see page 9) Lending would start with a roughly $4 billion IMF loan w Russia perhaps as early as June

Tlut IMPs Interim Committee durtng its Washington meeting called for a prompt implementation of IMF-backed reforms in the former Souiet Union It also called or the provision of adequate technical assistance and financial support for such programs and to help finance a stabilizatLOn und or the ruble provided that conditIOns are appromiddot priaU

April 1992 14 Volume 3 Number 4

Transition The World BarnltCECSE

Conference Diary

Transition-DevelopmentEconomics May 11 Berlin Germany

Workshop at the Berghof Institute of the Free University of Berlin entitled PostmiddotSocialist Transition from a Deshyvelopment Economics Point of View The workshop incorporates theinsights of early development economics parshyticularly Albert Hirschmans unbalshyanced growth doctrine into the theory of post-socialist transition It will focus on the selfmiddot propelling reform sequence that is whether starting an initial shock (Poland Russia) could generate moshymentum strong enough to continue in an evolutionary way Topics also inshyclude savings intermediation and inshyvestment behavior and challenges of foreign trade liberalization Information Yeugeny Kuznetsou Center for Inmiddot ternational Studies Cornell University 180 Uris Hall Ithaca NY 14853-7601 Tel (607) 255middot 6484

Privatization and Market Mechashynisms A Comparative Approach May 14-15 Budapest Hungary

Organized by the Association Internatiol1ale de Droit Economique (Internatic nal Association for Economic Law) in collaboration with the Hungarshyian Association for the lrotection of Industrial Property The discussion brings togf~ther leading academics and policymakers from the public and prishyvate sector in different countries Four workshops will discuss legal requireshyments in a iUnctioning market economy technique~ofprivatization social rights and privatization and sectoral aspects of privati2ation (telecommunications financial system) InforfUltion General Secretarial of AIDE Place Montelquieu 3 1348 Lourain La Neuue Belgium Tei32middot10middot47middot39middot70ax32middot1()47-39middot 45

Taxation in Eastern Europe May 15-16 Cambridge UK

Workshop organized by the Centre for Economic Policy Research London as part of their research program Ecoshynomic Transformation of Eastern Eushyrope Topics include instability and

VolJme 3 NulTOef 4

uncertainty of the fiscal position durshying transition the case of Poland tax reforms in Poland and Czechoslovashykia ownership and taxation in transishytional economies Information Centre for Economic Policy Remiddot search 6 Duke of York Street London SWIY 6LA 1 Tel (4471) 930middot2963 fax (4471) 930middot 8454

CIS Food Crisis May 17-20 Middlebury Vermont US

Geonomics Spring Seminar limited to about 50 people The seminar will assess the findings of a survey conshyducted in early April in Russia Ukraine and Kazahkstan About 700 private farmers and collective and state farm managers were interviewed about their attitudes toward and the impact of agrarian reform in the three states The survey was conducted unmiddot der the direction of Vera Matusevich Russian professor of agrobusiness management After analyzing the surshyvey data and considering background papers in panel discussions recomshymendations will be made in the followshying areas food affordability and availshyability interrepublic trade and relashytions the role of the West Information George Bellerose Editor Geonomics Institute 14 Hillcrest Auenue Middlebury IT 05753-6116 Tel (802) 388middot 9619 fax (802) 388middot9627

Competition and Regulation in Transition Jule 8-9 London UK

International conference sponsored by the London Business Schools CenshymforBusiness Strategy and the ESRC East-West Initiative The conference will analyze emerging competition polishycies and regulatory frameworks for utilities in the post-socialist econoshymies It will bring together practitioshyners from ministries and regulatory agencies to set out their plans for comment by representatives of intershynational funding agencies as well as Western academic observers Speakshyers on competition policy include high officials from Hungary the Slovak Republic and Germany regulation policy experts from Poland Czechoshy

15

slovakia the World Bank (Timothy Nulty) and the EBRD will address the conference Information Eleanor Burke London Business School Sussex Place Regents Park London NWI 4SA England Tel (4471) 262-5050 ext 440

To Learn from the Experiences of Brazil and Argentina June 23-25 Buenos Aires Argentina

Workshop entitled Long-run Indusshytrial Policy in Short-run Crisis Manshyagement Recent Lessons from Brazil and Argentina and Their Applications for Transformation in the Russian Fedmiddot eration Under the auspices of the Social Science Research Council (New York) the workshop will explore ecoshynomic and political implications of nonmarginal industrial downsizing in Latin America and Russia Participants from Russia South America and the United States will discuss failures of Latin American imports substitution policy and the prospects for success of thenewinterventionism which seeks to guide the market not replace it Information Yeugeny Kuznetsou Center for International Studies Cornell University 180 Uris Hall Ithaca NY 14853middot7601 Tel (607) 255-6484

~-

Perhaps we could l8P1ace the BerliD

Wall with a screen

From the Financial Times

April 1992

c=oo

Transition The Wond BankCECSE

Staff may contact the Joint BankmiddotFund Library 202middot623- 7054BIBLIOGRAPHY OF SELECTED ARTICLES

Post-Socialist Economies

Holzmann Robert Budgetary Issues of Subsidy -Reduction When Movshying from Pian to Market_ Girozentrale Quartalshefte (Austria) 26 No 457 -80 1990

Qian YingyiEquityEfficiencyand Incentives in a Large Economy Journal of Comparative Economics (US) 1627-46 March 1992

Rose Richard Toward a Civil EconomyJournalofDemocracy(US) Vol 3213-26 April 1992

Sundararajan V Central Banking Reforms in Formerly Planned Economies Finance andDevelopment IMFIWorld BankClnternational) 2910shy13 March 1992

Yin Xiangkang Demand and Shortmiddot age ofDurable Consumer Goods in Socialist CountriesApplied Economshyics (UK) 24219-25 February 1992

CIS and the Baltic States

Cole John PRepublicsofthe Former USSR in the Context of a United Europe and New World Order Soshyviet Geography (US) 32587-603 Noshyvember 1991

Johnson Chesmiddotter Public Finance for the New Order Succeeding the USSRmiddot Government Finance Review (US) 817-21 February 1992

Johnson Simon and Heidi Kroll Manashygerial Strategies for Spontaneous Privatization Soviet Economy (US) 7281-316 October-December 1991

Kagalovsky Konstantin Prospects for a Capitalist Russia EconomicAffairs (UK) 1226-28 November 1991 An interview with Dr Konstantin Kagalovsky (adviser to Boris Yeltsin) by Harry Phibbs

Kase Robert D Petroleum Perestroika Columbia Journal of

World Business (US) 26[16]-28 Winter 1992

Moltz James Clay Commonwealth Ecoshynomics in Perspective Lessons from the East Asian Model Soviet Economy (US) 7342-63 OctobermiddotDecember 1991

Padovano Fabio Budget Deficit in the Soviet Economic System Origins and Perspectives Economia Delle Scelte Pubbliche (Italy) No 1991-1[ 41J56 1991

Reiner Thomas A Land and Housing in the USSRduringthe GorbachevYears Soviet Geography (US) 32683-700 Deshycember 1991

Salameh Mamdouh G Soviet Oil Indusmiddot try in Mid-I9910pec Review Organizashytion of Petroleum Exporting CountriesClnshyternational) 15379-88 Winter 19H

CEE

Akhmeduev A Destatization and the Development of Forms of Property Problems ofamponomicsAJournal ofTransshylations (US) 3435-44 December 1991

Alter Rolf New Challenge in Eastern Europe bwestment and Restructurmiddot ing Intereconomics Review of Internashytional Trade and Development (Gennany) 2716-19 January-February 1992

Antowska-Bartosiewicz I wonaand Witol d Malecki Brady Plan and the Polish Debt Reduction Soviet and Eastern European Foreign Trade (US) 27[24]-43 Fall 1991

Feinberg Richard E Paltry Aid to Censhytral Europe Challenge (US) 3536-43 January-February 1992

Geipel Gary L A Tom~z Jarmoozko and Seymour E Goodman Information Technologies and East European Somiddot cieties East European Politics and Socishyeties EEPS (US) 5394-438 Fall 1991

Gowan Peter Old Medicine New Bottles Western Policy Toward East Central Europe World Policy Journal

(US) 9[1]-33 Winter 1991-92

Poland Financial Times Survey ImiddotX (UX) April 28 1992

Sachs Jeffrey Building a Market Economy in Poland ScientificAmerishycan (US) 26634-40 March 1992

Stephens Clifford and Gavin Gray Personnel Problems [in CEE counshytries] Central European (UK) 1020shy33 March 1992

Valencia Matthew Czech Republic The Road to Reform Central Euroshypean (UK) 1020-33 March 1992

Asia

Beresford Melanie and Lyn Fraser Political Economy of the Environshyment in Vietnam Journal ofContem porary Asia (Philippines) 22 No 13shy19 1992

Gongwen Fang Integrating Socialmiddot ist Public Ownership with the Comshymodity Economy Social Sciences in China (China) 1313-22 January 1992

Pike Douglas Vietnam in 1992 The Turning Point Asian Survey (US) 3274-81 January 1992

Shim Jae Hoon Price of Unity [in Korea] Far Eastern Economic Review (Hong Kong) 15554-61 March 261992

Africa

Merten Marianne Nation in Transimiddot tion [Mozambique]Al7-ica Economic Digest (UK) 13p5 January 27-rebshyruary 9 1992

Robson Emma Conservation Through Human Development [in Madagascar] World Development (UK) 510-15 January 1992

Salih Hamid Ethiopia Economic Prospects_ Sudanow (Sudan) 17p25 January 1992

TRANSITION is a regular publication of the World Banks Socialist Economic Refonn Unit The fIndings views and interpretations published in the articles are those of the authors and should not be attributed to the World Bank or its affiliated organizations Nor do any of the interpretations or conclusions necessarily represent official policy of the World Bank or (If its Executive Directors or the countries they represent Richard Hirschler is the editor and production manager Desktoppingis by Mary Mahy for the Policy Research Dissemination Center To be on the distribution list send name and address to Richard Hirschler Room N-6027 The World Bank 1818 H S~t NW Washington DC 20433 orcall (202)473-6982 or fax (202) 676-0439 Infonnationon upcoming conferences on 8Odalisteconomies indication of subjects ofspecial interest to our readers letters to the editor and any other reader contributions are appreciatEd

April 1992 16 Volume 3 Number 4

Tronsltfon The Wond BcnkCECSE

Milestones of Transition The UN Economic Commission for Europe (ECE) criticized Western govshyernments which so far have failed to meet the challenge of change in the former Soviet bloc and have proshyvided little genuine aid In its annual report on European economies released in mid-April the ECE said the ecoshynomic decline across the former comshymunist states appears to be on the scale of the depression of the 1930s TheECE said GDPin the Soviet Union fell dramatically in 1991 with a further steep decline probable in 1992 while

across Central and Eastern ]~urope output fell an average of around 14 percen t in 1991 after a 10 percen t fall in 1990 The UN economists see a posshysible recovery soon in Poland and Hunshygary but fear a general collaps~ of the reform process in the region as political support for change fades

Poland urged the G-7 to guarantee trade in Eastern Europe to prevent economic collapse and a spread of ethshynic violence Finance Minister Plndrzej Olechowski said the G-7 summit in

Munich in July should agree to use credit guarantees to maintain trade between former Soviet republics and former Soviet bloc countries in Eastern Europe

Mongolia which previously conducted nearly all of its trade with Comecon countries experienced a 50 percent drop in trade last year to about $750 million according to the minister of trade and industry Shipments of oil from the former Soviet Union have been suspended since December partly

Why This Newsletter A Note to our Readers Why this newsletter asked the inshy Alan Gelb head ofthe Socialist Econoshytroductory issue of Transition two mies Reform Unit looking back on the years ago in April 1990 The newshy short history ofthis newsletter asserts born publication didnt hesitate to answer that question it wanted to The unit was established in response to become a useful instrument for disshy rapid and momentous events taking seminating information experience place in Central and Eastern Europe facts and data on socialist econoshy Researchers studying these changes did mies The newsletter was launched not have enough time to disseminate as part of the Socialist Economies their findings in scientiflCjoumals beshyReform Unit (CECSE) ofthe World fore being overtaken by those very events Bank set up in January 1990 to Thus we decided on a monthly newsletshyencourage and initiate research on ter as a vehicle to quickly present anashythe socialist economies and to beshy lytical work and inform readers ofcurshycome a clearinghouse ofinformation rent important events forthcoming in the Bank seminars conferences all of them reshy

lated to the transformation process We It is diffkult to say whether it was targeteda readership that is both within good planning or sheer luck but and outside the Bank As our huge history became a major player proshy organization-about 6000 employeesshymoting our fledgling publication is rather compartmentalized we The dramatic domino effect of thought the newsletter could bea useful Gorbachevs glasnost policy sudshy forum for staff to learn of related reshydenly gave the people ofCentral and search activities and country experishyEastern Europe a once-in-a-lifetime ences and o discuss controversial isshychance to end decades ofmisguided sues ofthe economic reform process We socialand economic engineeringand have tried to communicate work gomg to develop democratic institutions on in the Bank to outside readenr and to and a market economy based on bring results of outside research into private initiative Nobodycouldforeshy the World Bank The rapid growth in see then that in barely 18 months the circulation has proven the value ofsuch Soviet Union would become history an agile form ofpublication and that in two years the new successhysor states would join the Bretton One challenge ahead is to increase disshyWoods institutions By this time tribution in countries where post middotsocialmiddot most of the once socialist economies ist economic changes are accelerating have become post-socialist econoshy and where the Bank is increasingly acshymies and the newsletters title Transhy tive Another challenge is that the Volshysition describesa surprisingly wideshy ume ofanalytical research work on transhyspread phenomenon sition has exploded recently together

with the number ofcountries in transhysition As a consequence there is now an overload ofpotential material for the newsletter ~

Lets not forget the first editor ofthe publication Matyas Vince who played a major part in defining the newsletters profile and its approprimiddot ate layout He returned to Hungary aftereditug the first four issues leavshying behind a small but viable infant

We also express appreciation to our authors (including manyoperational staff who have contributed to this newsletter with articles or comments and to readers who supported us by sending information on forthcoming conferences or even cartoons and jokes

To meet the requests ofmany readers we shall list past feature artictes in an index to be published in May

Finally what the current editor can offer is to maintain the newsletter as afresh and consumable product and try to keep our readers as well inmiddot formed as possible on a mere 16 pages a month We feel the heat ofthe proverbial Chinese curse live in inmiddot teresting times

Richard Hirschler Editor

Apr111992 10 Volume 3 Number 4

Transfflon The Wand BankCECSE

because of confusion over which Russhysian entity should sign the contract International donors pledged $150 million last year to finance emergency imports and will meet again in May to consider soft loans to meet the countrys medium-term needs including infrashystructure promotion of exports and import substitution

Bulgarias parliament passed a law April 23 privatizing state and municishypal property over the next two years Enterprises will be converted into joint-stock companies which will eishyther be sold at auctions (mainly small firms) or transferred to new state holdshying companies It will be possible for firms to be owned by both private and state holding company shareholders Shares of the state holding compashynies can be sold to private individuals or companies within two years Up to 20 percent of a firms capital can be sold to employees as cheaper nonvotshying shares Foreign and Bulgarian citishyzens can participate in privatization on an equal footing State income from selling enterprises will be allocated to social funds (30 percent) foreign debt repayment (40 percent) indemnities to former owners (20 percent) and development of agriculture (10 pershycent)

Some 180 mayors and members oflocal governments from the Danube region of Slovakia and Hungary and experts from several countries met in Czechoshyslovakia in late April to discuss the planned Gabcikovo-N agyrnaroshydroshyelectric power plant They noted the danger of a loss of drinking water reshyserves (affecting almost five million people) and other environmental probshylems linked to the dams completion They demanded that work be halted immediately and thatan effort be made to restore the section of the Danube already damaged The Worldwide Fund for Nature said in Vienna that it will warn international banks not to fishynance the project (The joint Hungarshyian-Czechoslovak project was agreed to in 1977 by the two then-communist governments) Hungary has suspended construction of the dam and wants to abrogate the related treaty because of environmental damage the Slovak side however wants to go ahead with the projE~t citing significant costs alshyready incurred

VokJrna 3 NufT1be( 4

The Romanian government would start distributing in May free vouchers (representing 30 percent of ownership of state-run industries) to be used by the public to buy shares in soon-to-be privatized industries announced Prime Minister Theodor Stolojan The govshyernment would remove 25 percent of remainingstate subsidies on consumer products (The gradual removal of subshysidies began in November 1990 and all are to be cut by theend ofl993) Stoloj an announced that the government would devalue the Romanian leu to stimulate exports but warned of prospective unshyemployment Accordingto official data released in early April 42 percent of the more than 22 million Romanian citizens now live beneath the official poverty line Official unemployment figures stand at 4 percent but are expected to rise significantly

Officials of five North Asian counshytries met in Beijing to discuss a UN plan to jointly create a free-trade zone and to set up a consultative group on investment to explore international interest in the 400-square-mile Tumen River delta port and industrial comshyplex a development project that inshyvolves China North and South Korea Mongolia and Russia It will stretch from Vladivostok in Russia to Chongjin in North Korea and Hunch un in China The five nations agreed to conduct a $35 million 18-month study

The Czechoslovak State Bank says the countrys gross national product fell 33 percent in the first three months

of this year compared withlhe final three months of 1991 Prices increased on average by 1 percent in January 05 percent in February and04 percent in March

The federal parliament of Czechosloshyvakia has adopted a series of new tax laws-modeled on European Commushynity practice-which will broaden the tax base and put state finances on a sounder footing The new taxes-inshycluding value added tax personal and company income taxes real estate taxes inheritance- and gift taxes and environment taxes-will come into efshyfect in January 1993 An across-theshyboard 45 percent tax rate will apply to all businesses compared with the curshyrent 40 percent rate for joint foreignshyCzechoslovak ventures and 55 percent for solely Czechoslovak businesses

China plans to introduce sales and inheritance taxes Jin Xin director of the State Administration of Taxation announced that the taxation adminisshytration would be split into three deshypartments for collection management and inspection and the tax code would be altered China has vowed to gain control of its civil service by 1995 as partofa drive to reinvigorate economic reforms It will slash the size of its lumbering inefficient government inshystitutions implement a grading sysshytem for civil servants and refonn pay systems Under the refonns adminisshytrations at provincial city county and township levels would have to be trimmed and modified

From hI Munich douy Suddeutsche Zeitung

11 April 199

---------------------------------------------------------------shyTransi110n The Wond BankCECSE

New Books and Working Papers bull The CECSE unit of the World Bank regrets that it is unable to supply the publications listed

Working Paper Briefs

Alfredo Thorne Issues in ReformingFinancialSysshytems inEasternEurope-The Case of Bulgaria The World Bank Policy Research WPS 882 Washington DC 199242 p Atailable from Lanha Ly The World Bank Rm H-907I Tel (202) 473middot 7352

The author uses Bulgaria to illustrate the problems experienced by the forshymerly centrally planned economies when reforming their financial sysshytems There are two alternative strat shyegies for privatization

bull One strategy is to restructure banks clean up their bad portfolios recapitalize them and keep them pubshylicly owned until enterprise pri shyvatization is complete Banks would play a passive role in enterprise prishyvatization

bull A second strategy is preferable quick privatization of a group ofbanks linked to enterprise privatization The privatized banks would allocate credit exclusively to creditworthy enterprises A second group of banks privatized at a slower pace would participate as investment funds in the restructuring and privatization of state-owned enshyterprises

In Bulgaria 59 common commercial banks (CCB) could be privatized foishylowing their merger into five to six medium-size banks Eight specialized commercial banks (SCB) already enshygaged in long-term investment finance could be converted into investment funds Before privatization loans classhysified as bad loans should be removed from the portfolio and transferred to a new specialized collecting institution or should be guaranteed by the state and kept as off-balance-sheet items with the banks Authorities should reshyquire investors to comply with theminishymum capital criteria by bringing i1 fresh money to provide a team ofexpeshyrienced bankers to lend exclusively to the private sector to restrict lending to the banks own sharehold~rs and to

April 1992

comply with a loan concentration limit to be defined in the new Banking Law

Csaba Csaki Transformation of Agriculture in Central and Eastern Europe and the Former USSR-Major Policy Issues and Perspectives The World Bank Policy Research WPS 888 Washington DC 199232 p Auauable from Cicely Spooner Rm Nmiddot8039 Tel (202) 473-0464

Gangzhan Fu and others Unemployment in Urban China An Analysis of Survey Data from Shanghai ChinaProgranVSTICERD CPo 21 Lonshydon School ofEconomics London 1992 40p

The authors analyze the unemployshyment problem in Chinas largest city based on a survey conducted in late 1989 The average unemployment rate in the city is 2 percent very low by international standards Unemployshyment is above average for the young primarily the school leavers and for former state employees (In Shanghai the state sector accounted for around three-quarters of the new jobs in 1990 and employed 78 percent of the 51 million wage-earning workers)

The unemployed in Shanghai rely heavily on family and on occasional work for support only a small proporshytion receive benefits from the state Since 1986 all state-owned enterprises have been rfquired to pay 1 percent of their total wage bill to an unemployshyment insurance fund managed by the local labor service center and banked at the local branch ofthe Peoples Bank Benefits restricted to permanent and contract employees are based on avershyage wage during th e previous two years of employment For people employed five years or more benefits can reach 75 percent offormer wages in the first year and 50 percent in the stcond year Unemployment in urban areas could worsen as loss-making entershyprises are forced into bankruptcy and enterprises are encouraged to shed excess labor

12

Other recent China Program STICERD papers

Liqing Xu Robin Sherbourne and Xue Mei Industrial Development and Remiddot form in Changzhou City A Case Study CP 20 London School of Economics London 1992 49 p

Stephen Howes Purchasing Power Infant Mortalshyity and Literacy in China and Inshydia A Provincial Analysis CPo 19 London School of Economics London 1992

Athar Hussain Peter Lanjouw and Nicholas Stern Income Inequalities in China Evishydence from Household Survey Data CPo 18 London School of Economics London 199140 p

Stephen Howes and Peter Lanjouw RegionalVariations in LivingStanmiddot dards in Urban China CPo 17 London School of Economics London 199162 p Avauable from Leila Alberici China Program The Deuelopment amponomics Research Program London School of Economics Houghton St London WC2A 2AE Tel (4471) 405middot7686 ext 3290

IMF Economic Review Common Issuesand Interrepublic Relations in the Former USSR IMF Washington DC 199255 p

The total volUllle of interrepublican trade fell by at least 15 percent in 1991 according to the Russian authorities Early this year the decline acce lerated and deliveries from Russia ro other republics in January were only 70-75 percent of the January 1991 level The drop in trade is the result of export restrictions imposed by the republics shaken confidence in the ruble and the breakdown of the ruble payment mechanism

Maintainingtrading links between the republics is essential to avoid a major

Volume3 Nurrbef 4

shy _------------------------------------shyTransition The World BonkCECSE

disruption of economic activity during the transitional period A decentraImiddot ized market-based trading-system asshysumes a greater coordination ofpricing policy and the elimination of interrepublic trade barriers Within the ruble zone a coherent monetary policy and fiscal stabilization should be implemented To coordinate monetary policy the states involved should agree without delay on ground rules for setshytinginterest rates exchange rates reshyserve requirements and credit lines common commitment to responsible

bull fiscal policies and fair procedures to manage the note issue introducing new currencies and settling claims on rubles including the disposal of ruble banknotes

Over the longerterm new interrepublic institutions related to trade payment systems and inter-central bank clearshying could bolster coordination of monshyetary fiscal and trade policies Repubshylics that choose to leave the ruble area could still benefit from participating in those institutions (As of March 1992 Moldova UKraine and the three Balshytic states have announced intentions to issue their own currencies Belarus has requestad that its supply of ruble notes be stamped by the Russian aushythorities Kyrghyzstan plans to move to its own currency after some 18 months The other states prefer to stay in the rubl~l zone) Early departure from the ruble zone could be costly and frictions in monetary arrangements might lead to unnecessary disruptions in interrepublic trade Establishing a multilateral clearing facility between the mhle-hlsed and non-mble-based central banks could reap some benshyefits asserts the paper

(Between September 1991 and March 1992 IMF staff visited states of the former Souiet Crnion to review steps required for membership they collected economic citlta to process these states applications and to provide policy admiddot vice The above economic reuiew is one ofthe publications prepared following these visits I

Other recently published economic reshyviews ofthe IMF

The Economy of the Former USSR in 1991 103 p Russian Federation 115 p Belorus forthcoming Ukraine 69

Volume 3 ~Jumber 4

p Estonia 76 p Latvia 69 p Lithuania 73 p

BB Aghevli E Borensztein and T van der Willingen Stabilization and Structural Reshyform in the Czech and Slovak Fedmiddot eral Republic First Stage IMF Washington DC 199246 p Available from IMF Publication Services 700 19th Street NW Washington DC 20431 Tel (202) 623-7430 ax (202) 623middot7201

Other Working Papers

Peter Murrell An Antidote to Shock Therapy An EvolutionaryApproach to the East European Economic Transition The Woodrow Wilson Center East European Studies Occasional Papers No 37_ Washington DC 199242 p Available through written request to Occasional Papers WWC EES 370 LEnanl Promenade Suite 704 Washington DC 20024-2518

Karen Anderson and Jonathan Halperin Through a Glass Clearly Finding EvaluatingandUsingBusiness Inmiddot formation from the Soviet Region Special Library Association Occasional Paper Series No3 Washington DC

199265 p Information Jane Taylor tel (202) 234middot4700 ax (202) 265middot9317

Simon Johnson Heidi Kroll and Mark Horton New Banks in the Former Soviet Union How Do They Operate Available rom Simon Johnson TN Fuqua School ofBusiness Duke Uniuersity Durham NC 27706 Tel (919) 6oumiddot78i7 ax (919)681shy6244

K Gatslos Privatization in Hungary Past Present and Future CEPR London DPS 642 1992

Barry Eichengreen and Marc Uzan The Marshall Plan Economic Efmiddot fects and Implications for Eastern Europe and the Former USSR CEPR London DPS 638199262 p

Laszlo Halpern and Istvan P Szekely Export Supplyand Import Demand in Hungary (An Econometric Analysis for 1968middot1989) CEPR London DPS 620 1992 18 p

13

Gerard Roland and Thierry Verdier Privatization in Eastern Europe hTeversibility and Critical Mass Effects CEPR London DPS 612 199239 p

To order CEPR Discussion Papers Centre (or Economic PoIicy Research 6 Duke of York Street London SW1Y 6LA L Tel (4471 930shy2963

New Books

Michael P Claudon and Tamar L Gutner eds Putting Food on What Was the Soviet Table (Collection of papers presented at the Geonomics Seminar on Soviet Agriculshyture October 17-20 1991) New York University Press New York and London 1992 141 p

William Reisinger Energy and the Soviet Bloc Allimiddot ance Politics After Stalin Cornell University Press Ithaca ~Y-

1992 184 p

Robert A Lewis and Robert R Churchill Geographic PerspectivesofSoviet Central Asia Rolltledge Press New York 1992 323 p

Simon Powell Agricultural Reform in China From Communes to Commodity Economy 1978middot1990 Manchester University Press New YorkManchester (UK) 1992231 p

China Statistical Yearbook-1991 State Statistical Bureau of China Beijing 1992

Frederic L Pryor The Red and the Green The Rise and Fall of Collectivized Agriculmiddot ture in Marxist Regimes Princeton University Press Princeton 1992 Information Princeton Unitersily Press 51 William St Princeton NJ 08540middot5237

April 1992

-Tronsfflon The World BankCECSE

World BankIMF Agenda

IMFSupport for Russian Privatshyization

Russia laW1ched a program in Nizhny Novgorod (formerly Gorki) in early April to privatize more than 2000 small-scale statemiddotowned enterprises The International Finance Corporashytion ClFC) designed the program which entails auctioning off cafes shops and stores to Russian citizens Under the plan any Russian can register as a potential buyer of an enterprise The sellmiddotoff includes an installment-payshyment system to enable employees to purchase the enterprises for which they work The IFC has also begun work on a pilot program to privatize enterprises in the food and energy sectors and to convert defense industries into facilimiddot ties that will produce consumer goods NizhnyNovgorod is Russias third largshyest city

Longer List for ESAF

The IMF has added 11 countries to the list of member states eligible for funds from the Enhanced Structural Adjust-

ment Facility (ESAF) Among them Albania Angola Mongolia and Nicashyragua will now be eligible for the IMFs concessionalloans

IMF Support to Czechoslovakia

The IMF approved a $322 million standshyby credit to Czechoslovakia in early April The money will be available to support economic reforms and privatization The IMFpraised the sigshynificant progress Czechoslovakia achieved last year in liberalizing its economy taminginflation and improvshying its trade position

bulland to Bulgaria

The IMF approved a $212 million stand-by credit to Bulgaria over the next 12 months in support of the governments economic and financial program The 1992 program includes reducing the monthly inflation rate to 2 percent by the end of the year conshytaining the decline of output to about 4 percent and increasing imports by 9 percent this year Remaining restricmiddot

New Chapter in Bretton Woods Twins History Russia andother republtcs othpound ormer USSR were provisionally admitud to the IMF and the World Bank on 27 April (For procedural reasons AzerbaijanS applicDtions to both inshystitutions were denied 08 WQ8 Turkmenistans applicDtion for pdmission to the World Banll bull Bothcountries are likely to become provisional members in May however) The 15 republics will have a combined share in the IMFof476 percent ofuhich Russw will have 3 percent

The IS states together will control 505 permiddot cent of the World Banlls shares of which

Russia will have 292 perrcnL

Authorized capital from tlut World Bank and the IDA was increased in April to enable the republICS of the former Sov~t Union to purshychase shares allocated to them The total aumiddot thoriud capitat of1448500 shares equivashylent to$17474 billion WQ8 increased by 77159 shares equivalent w $93 billion represtntmiddot ing 505 percent of the World Bahks shares Gfthe 15countr~sRussiawill havethelarg est number ofshares 44795 giving the COUll

try a voting power of 292 percent Thu will put Russia on a par with Canada India Italy and Saudi Arabia

Share subscriptions of the new membera of the World Bank

Armenia 1139 Lithuania 1507 Azerbaijan 1646 Moldova 1368 Belarus 3323 Russian Fed 44795 Estonia 923 Tajikistan 1060 Georgia 1584 Turkmenistan ~337

Kazakhstan 2985 Ukraine 10908 Kyrgyzstan 1107 Uzbekistan 2193 Latvia 1384

Total 77159

Approval by tlut republics legislatures is still required for full admission in tMse organizamiddot tions In order to become members tM countriu will need to pay in a total of $540 miUion of capital Membership will make the former Scshyviet republicseltgible to receive $65 billion to $9 billion yearly from the IMF and total lending from both institutions could reach $40 billion during the nat four years Tht rnajority ofthis lending is likely to go to Russia for whom $45 billion in IMF and World Banlc aid was pledged by the Gmiddot 7 industrialized countries on 1 April MF membership will cilso unlocJc otMrforms of

tions on sale of agricultural land are to be lifted

World Bank Loans to China

The World Bank is lending $310 milshylion to China to finance the expansion of the Zouxian thermal power plant The addition of two generating units will help alleviate power shortages in Shandong Province and promote ecoshynomic development in the region The loan will also finance a study on minishymizing air pollution

and to Hungary

The World Bank has approved a $200 million loan to Hungary for privatization and structural renewal Finance Minister Mihaly Kupa and Hungarian Central Bank President Akos Bod Peter signed at accord in Washington with Bank officials forreshypayment of the loan over a period of 15 years Another $100 million loan was also signed it is to support domestic trade specifically product market deshyvelopment in Hungary

G-7largess including $6 billion for a roble stabilization fund $25 billion in debt defermiddot ral and $11 biJlion ingovernment middotwmiddotgovernmiddot ment aid

The World Bank anticipaus making its first loan for about $500 million to Russia this summer for the purchaseofessential Imports By the end of this year according to a Bank spokesperson total loan cmmitments could reach $15 billion By the end of 1994 Bank loan commitments to the republics could be between $4 billion and $5 billion a year (see page 9) Lending would start with a roughly $4 billion IMF loan w Russia perhaps as early as June

Tlut IMPs Interim Committee durtng its Washington meeting called for a prompt implementation of IMF-backed reforms in the former Souiet Union It also called or the provision of adequate technical assistance and financial support for such programs and to help finance a stabilizatLOn und or the ruble provided that conditIOns are appromiddot priaU

April 1992 14 Volume 3 Number 4

Transition The World BarnltCECSE

Conference Diary

Transition-DevelopmentEconomics May 11 Berlin Germany

Workshop at the Berghof Institute of the Free University of Berlin entitled PostmiddotSocialist Transition from a Deshyvelopment Economics Point of View The workshop incorporates theinsights of early development economics parshyticularly Albert Hirschmans unbalshyanced growth doctrine into the theory of post-socialist transition It will focus on the selfmiddot propelling reform sequence that is whether starting an initial shock (Poland Russia) could generate moshymentum strong enough to continue in an evolutionary way Topics also inshyclude savings intermediation and inshyvestment behavior and challenges of foreign trade liberalization Information Yeugeny Kuznetsou Center for Inmiddot ternational Studies Cornell University 180 Uris Hall Ithaca NY 14853-7601 Tel (607) 255middot 6484

Privatization and Market Mechashynisms A Comparative Approach May 14-15 Budapest Hungary

Organized by the Association Internatiol1ale de Droit Economique (Internatic nal Association for Economic Law) in collaboration with the Hungarshyian Association for the lrotection of Industrial Property The discussion brings togf~ther leading academics and policymakers from the public and prishyvate sector in different countries Four workshops will discuss legal requireshyments in a iUnctioning market economy technique~ofprivatization social rights and privatization and sectoral aspects of privati2ation (telecommunications financial system) InforfUltion General Secretarial of AIDE Place Montelquieu 3 1348 Lourain La Neuue Belgium Tei32middot10middot47middot39middot70ax32middot1()47-39middot 45

Taxation in Eastern Europe May 15-16 Cambridge UK

Workshop organized by the Centre for Economic Policy Research London as part of their research program Ecoshynomic Transformation of Eastern Eushyrope Topics include instability and

VolJme 3 NulTOef 4

uncertainty of the fiscal position durshying transition the case of Poland tax reforms in Poland and Czechoslovashykia ownership and taxation in transishytional economies Information Centre for Economic Policy Remiddot search 6 Duke of York Street London SWIY 6LA 1 Tel (4471) 930middot2963 fax (4471) 930middot 8454

CIS Food Crisis May 17-20 Middlebury Vermont US

Geonomics Spring Seminar limited to about 50 people The seminar will assess the findings of a survey conshyducted in early April in Russia Ukraine and Kazahkstan About 700 private farmers and collective and state farm managers were interviewed about their attitudes toward and the impact of agrarian reform in the three states The survey was conducted unmiddot der the direction of Vera Matusevich Russian professor of agrobusiness management After analyzing the surshyvey data and considering background papers in panel discussions recomshymendations will be made in the followshying areas food affordability and availshyability interrepublic trade and relashytions the role of the West Information George Bellerose Editor Geonomics Institute 14 Hillcrest Auenue Middlebury IT 05753-6116 Tel (802) 388middot 9619 fax (802) 388middot9627

Competition and Regulation in Transition Jule 8-9 London UK

International conference sponsored by the London Business Schools CenshymforBusiness Strategy and the ESRC East-West Initiative The conference will analyze emerging competition polishycies and regulatory frameworks for utilities in the post-socialist econoshymies It will bring together practitioshyners from ministries and regulatory agencies to set out their plans for comment by representatives of intershynational funding agencies as well as Western academic observers Speakshyers on competition policy include high officials from Hungary the Slovak Republic and Germany regulation policy experts from Poland Czechoshy

15

slovakia the World Bank (Timothy Nulty) and the EBRD will address the conference Information Eleanor Burke London Business School Sussex Place Regents Park London NWI 4SA England Tel (4471) 262-5050 ext 440

To Learn from the Experiences of Brazil and Argentina June 23-25 Buenos Aires Argentina

Workshop entitled Long-run Indusshytrial Policy in Short-run Crisis Manshyagement Recent Lessons from Brazil and Argentina and Their Applications for Transformation in the Russian Fedmiddot eration Under the auspices of the Social Science Research Council (New York) the workshop will explore ecoshynomic and political implications of nonmarginal industrial downsizing in Latin America and Russia Participants from Russia South America and the United States will discuss failures of Latin American imports substitution policy and the prospects for success of thenewinterventionism which seeks to guide the market not replace it Information Yeugeny Kuznetsou Center for International Studies Cornell University 180 Uris Hall Ithaca NY 14853middot7601 Tel (607) 255-6484

~-

Perhaps we could l8P1ace the BerliD

Wall with a screen

From the Financial Times

April 1992

c=oo

Transition The Wond BankCECSE

Staff may contact the Joint BankmiddotFund Library 202middot623- 7054BIBLIOGRAPHY OF SELECTED ARTICLES

Post-Socialist Economies

Holzmann Robert Budgetary Issues of Subsidy -Reduction When Movshying from Pian to Market_ Girozentrale Quartalshefte (Austria) 26 No 457 -80 1990

Qian YingyiEquityEfficiencyand Incentives in a Large Economy Journal of Comparative Economics (US) 1627-46 March 1992

Rose Richard Toward a Civil EconomyJournalofDemocracy(US) Vol 3213-26 April 1992

Sundararajan V Central Banking Reforms in Formerly Planned Economies Finance andDevelopment IMFIWorld BankClnternational) 2910shy13 March 1992

Yin Xiangkang Demand and Shortmiddot age ofDurable Consumer Goods in Socialist CountriesApplied Economshyics (UK) 24219-25 February 1992

CIS and the Baltic States

Cole John PRepublicsofthe Former USSR in the Context of a United Europe and New World Order Soshyviet Geography (US) 32587-603 Noshyvember 1991

Johnson Chesmiddotter Public Finance for the New Order Succeeding the USSRmiddot Government Finance Review (US) 817-21 February 1992

Johnson Simon and Heidi Kroll Manashygerial Strategies for Spontaneous Privatization Soviet Economy (US) 7281-316 October-December 1991

Kagalovsky Konstantin Prospects for a Capitalist Russia EconomicAffairs (UK) 1226-28 November 1991 An interview with Dr Konstantin Kagalovsky (adviser to Boris Yeltsin) by Harry Phibbs

Kase Robert D Petroleum Perestroika Columbia Journal of

World Business (US) 26[16]-28 Winter 1992

Moltz James Clay Commonwealth Ecoshynomics in Perspective Lessons from the East Asian Model Soviet Economy (US) 7342-63 OctobermiddotDecember 1991

Padovano Fabio Budget Deficit in the Soviet Economic System Origins and Perspectives Economia Delle Scelte Pubbliche (Italy) No 1991-1[ 41J56 1991

Reiner Thomas A Land and Housing in the USSRduringthe GorbachevYears Soviet Geography (US) 32683-700 Deshycember 1991

Salameh Mamdouh G Soviet Oil Indusmiddot try in Mid-I9910pec Review Organizashytion of Petroleum Exporting CountriesClnshyternational) 15379-88 Winter 19H

CEE

Akhmeduev A Destatization and the Development of Forms of Property Problems ofamponomicsAJournal ofTransshylations (US) 3435-44 December 1991

Alter Rolf New Challenge in Eastern Europe bwestment and Restructurmiddot ing Intereconomics Review of Internashytional Trade and Development (Gennany) 2716-19 January-February 1992

Antowska-Bartosiewicz I wonaand Witol d Malecki Brady Plan and the Polish Debt Reduction Soviet and Eastern European Foreign Trade (US) 27[24]-43 Fall 1991

Feinberg Richard E Paltry Aid to Censhytral Europe Challenge (US) 3536-43 January-February 1992

Geipel Gary L A Tom~z Jarmoozko and Seymour E Goodman Information Technologies and East European Somiddot cieties East European Politics and Socishyeties EEPS (US) 5394-438 Fall 1991

Gowan Peter Old Medicine New Bottles Western Policy Toward East Central Europe World Policy Journal

(US) 9[1]-33 Winter 1991-92

Poland Financial Times Survey ImiddotX (UX) April 28 1992

Sachs Jeffrey Building a Market Economy in Poland ScientificAmerishycan (US) 26634-40 March 1992

Stephens Clifford and Gavin Gray Personnel Problems [in CEE counshytries] Central European (UK) 1020shy33 March 1992

Valencia Matthew Czech Republic The Road to Reform Central Euroshypean (UK) 1020-33 March 1992

Asia

Beresford Melanie and Lyn Fraser Political Economy of the Environshyment in Vietnam Journal ofContem porary Asia (Philippines) 22 No 13shy19 1992

Gongwen Fang Integrating Socialmiddot ist Public Ownership with the Comshymodity Economy Social Sciences in China (China) 1313-22 January 1992

Pike Douglas Vietnam in 1992 The Turning Point Asian Survey (US) 3274-81 January 1992

Shim Jae Hoon Price of Unity [in Korea] Far Eastern Economic Review (Hong Kong) 15554-61 March 261992

Africa

Merten Marianne Nation in Transimiddot tion [Mozambique]Al7-ica Economic Digest (UK) 13p5 January 27-rebshyruary 9 1992

Robson Emma Conservation Through Human Development [in Madagascar] World Development (UK) 510-15 January 1992

Salih Hamid Ethiopia Economic Prospects_ Sudanow (Sudan) 17p25 January 1992

TRANSITION is a regular publication of the World Banks Socialist Economic Refonn Unit The fIndings views and interpretations published in the articles are those of the authors and should not be attributed to the World Bank or its affiliated organizations Nor do any of the interpretations or conclusions necessarily represent official policy of the World Bank or (If its Executive Directors or the countries they represent Richard Hirschler is the editor and production manager Desktoppingis by Mary Mahy for the Policy Research Dissemination Center To be on the distribution list send name and address to Richard Hirschler Room N-6027 The World Bank 1818 H S~t NW Washington DC 20433 orcall (202)473-6982 or fax (202) 676-0439 Infonnationon upcoming conferences on 8Odalisteconomies indication of subjects ofspecial interest to our readers letters to the editor and any other reader contributions are appreciatEd

April 1992 16 Volume 3 Number 4

Transfflon The Wand BankCECSE

because of confusion over which Russhysian entity should sign the contract International donors pledged $150 million last year to finance emergency imports and will meet again in May to consider soft loans to meet the countrys medium-term needs including infrashystructure promotion of exports and import substitution

Bulgarias parliament passed a law April 23 privatizing state and municishypal property over the next two years Enterprises will be converted into joint-stock companies which will eishyther be sold at auctions (mainly small firms) or transferred to new state holdshying companies It will be possible for firms to be owned by both private and state holding company shareholders Shares of the state holding compashynies can be sold to private individuals or companies within two years Up to 20 percent of a firms capital can be sold to employees as cheaper nonvotshying shares Foreign and Bulgarian citishyzens can participate in privatization on an equal footing State income from selling enterprises will be allocated to social funds (30 percent) foreign debt repayment (40 percent) indemnities to former owners (20 percent) and development of agriculture (10 pershycent)

Some 180 mayors and members oflocal governments from the Danube region of Slovakia and Hungary and experts from several countries met in Czechoshyslovakia in late April to discuss the planned Gabcikovo-N agyrnaroshydroshyelectric power plant They noted the danger of a loss of drinking water reshyserves (affecting almost five million people) and other environmental probshylems linked to the dams completion They demanded that work be halted immediately and thatan effort be made to restore the section of the Danube already damaged The Worldwide Fund for Nature said in Vienna that it will warn international banks not to fishynance the project (The joint Hungarshyian-Czechoslovak project was agreed to in 1977 by the two then-communist governments) Hungary has suspended construction of the dam and wants to abrogate the related treaty because of environmental damage the Slovak side however wants to go ahead with the projE~t citing significant costs alshyready incurred

VokJrna 3 NufT1be( 4

The Romanian government would start distributing in May free vouchers (representing 30 percent of ownership of state-run industries) to be used by the public to buy shares in soon-to-be privatized industries announced Prime Minister Theodor Stolojan The govshyernment would remove 25 percent of remainingstate subsidies on consumer products (The gradual removal of subshysidies began in November 1990 and all are to be cut by theend ofl993) Stoloj an announced that the government would devalue the Romanian leu to stimulate exports but warned of prospective unshyemployment Accordingto official data released in early April 42 percent of the more than 22 million Romanian citizens now live beneath the official poverty line Official unemployment figures stand at 4 percent but are expected to rise significantly

Officials of five North Asian counshytries met in Beijing to discuss a UN plan to jointly create a free-trade zone and to set up a consultative group on investment to explore international interest in the 400-square-mile Tumen River delta port and industrial comshyplex a development project that inshyvolves China North and South Korea Mongolia and Russia It will stretch from Vladivostok in Russia to Chongjin in North Korea and Hunch un in China The five nations agreed to conduct a $35 million 18-month study

The Czechoslovak State Bank says the countrys gross national product fell 33 percent in the first three months

of this year compared withlhe final three months of 1991 Prices increased on average by 1 percent in January 05 percent in February and04 percent in March

The federal parliament of Czechosloshyvakia has adopted a series of new tax laws-modeled on European Commushynity practice-which will broaden the tax base and put state finances on a sounder footing The new taxes-inshycluding value added tax personal and company income taxes real estate taxes inheritance- and gift taxes and environment taxes-will come into efshyfect in January 1993 An across-theshyboard 45 percent tax rate will apply to all businesses compared with the curshyrent 40 percent rate for joint foreignshyCzechoslovak ventures and 55 percent for solely Czechoslovak businesses

China plans to introduce sales and inheritance taxes Jin Xin director of the State Administration of Taxation announced that the taxation adminisshytration would be split into three deshypartments for collection management and inspection and the tax code would be altered China has vowed to gain control of its civil service by 1995 as partofa drive to reinvigorate economic reforms It will slash the size of its lumbering inefficient government inshystitutions implement a grading sysshytem for civil servants and refonn pay systems Under the refonns adminisshytrations at provincial city county and township levels would have to be trimmed and modified

From hI Munich douy Suddeutsche Zeitung

11 April 199

---------------------------------------------------------------shyTransi110n The Wond BankCECSE

New Books and Working Papers bull The CECSE unit of the World Bank regrets that it is unable to supply the publications listed

Working Paper Briefs

Alfredo Thorne Issues in ReformingFinancialSysshytems inEasternEurope-The Case of Bulgaria The World Bank Policy Research WPS 882 Washington DC 199242 p Atailable from Lanha Ly The World Bank Rm H-907I Tel (202) 473middot 7352

The author uses Bulgaria to illustrate the problems experienced by the forshymerly centrally planned economies when reforming their financial sysshytems There are two alternative strat shyegies for privatization

bull One strategy is to restructure banks clean up their bad portfolios recapitalize them and keep them pubshylicly owned until enterprise pri shyvatization is complete Banks would play a passive role in enterprise prishyvatization

bull A second strategy is preferable quick privatization of a group ofbanks linked to enterprise privatization The privatized banks would allocate credit exclusively to creditworthy enterprises A second group of banks privatized at a slower pace would participate as investment funds in the restructuring and privatization of state-owned enshyterprises

In Bulgaria 59 common commercial banks (CCB) could be privatized foishylowing their merger into five to six medium-size banks Eight specialized commercial banks (SCB) already enshygaged in long-term investment finance could be converted into investment funds Before privatization loans classhysified as bad loans should be removed from the portfolio and transferred to a new specialized collecting institution or should be guaranteed by the state and kept as off-balance-sheet items with the banks Authorities should reshyquire investors to comply with theminishymum capital criteria by bringing i1 fresh money to provide a team ofexpeshyrienced bankers to lend exclusively to the private sector to restrict lending to the banks own sharehold~rs and to

April 1992

comply with a loan concentration limit to be defined in the new Banking Law

Csaba Csaki Transformation of Agriculture in Central and Eastern Europe and the Former USSR-Major Policy Issues and Perspectives The World Bank Policy Research WPS 888 Washington DC 199232 p Auauable from Cicely Spooner Rm Nmiddot8039 Tel (202) 473-0464

Gangzhan Fu and others Unemployment in Urban China An Analysis of Survey Data from Shanghai ChinaProgranVSTICERD CPo 21 Lonshydon School ofEconomics London 1992 40p

The authors analyze the unemployshyment problem in Chinas largest city based on a survey conducted in late 1989 The average unemployment rate in the city is 2 percent very low by international standards Unemployshyment is above average for the young primarily the school leavers and for former state employees (In Shanghai the state sector accounted for around three-quarters of the new jobs in 1990 and employed 78 percent of the 51 million wage-earning workers)

The unemployed in Shanghai rely heavily on family and on occasional work for support only a small proporshytion receive benefits from the state Since 1986 all state-owned enterprises have been rfquired to pay 1 percent of their total wage bill to an unemployshyment insurance fund managed by the local labor service center and banked at the local branch ofthe Peoples Bank Benefits restricted to permanent and contract employees are based on avershyage wage during th e previous two years of employment For people employed five years or more benefits can reach 75 percent offormer wages in the first year and 50 percent in the stcond year Unemployment in urban areas could worsen as loss-making entershyprises are forced into bankruptcy and enterprises are encouraged to shed excess labor

12

Other recent China Program STICERD papers

Liqing Xu Robin Sherbourne and Xue Mei Industrial Development and Remiddot form in Changzhou City A Case Study CP 20 London School of Economics London 1992 49 p

Stephen Howes Purchasing Power Infant Mortalshyity and Literacy in China and Inshydia A Provincial Analysis CPo 19 London School of Economics London 1992

Athar Hussain Peter Lanjouw and Nicholas Stern Income Inequalities in China Evishydence from Household Survey Data CPo 18 London School of Economics London 199140 p

Stephen Howes and Peter Lanjouw RegionalVariations in LivingStanmiddot dards in Urban China CPo 17 London School of Economics London 199162 p Avauable from Leila Alberici China Program The Deuelopment amponomics Research Program London School of Economics Houghton St London WC2A 2AE Tel (4471) 405middot7686 ext 3290

IMF Economic Review Common Issuesand Interrepublic Relations in the Former USSR IMF Washington DC 199255 p

The total volUllle of interrepublican trade fell by at least 15 percent in 1991 according to the Russian authorities Early this year the decline acce lerated and deliveries from Russia ro other republics in January were only 70-75 percent of the January 1991 level The drop in trade is the result of export restrictions imposed by the republics shaken confidence in the ruble and the breakdown of the ruble payment mechanism

Maintainingtrading links between the republics is essential to avoid a major

Volume3 Nurrbef 4

shy _------------------------------------shyTransition The World BonkCECSE

disruption of economic activity during the transitional period A decentraImiddot ized market-based trading-system asshysumes a greater coordination ofpricing policy and the elimination of interrepublic trade barriers Within the ruble zone a coherent monetary policy and fiscal stabilization should be implemented To coordinate monetary policy the states involved should agree without delay on ground rules for setshytinginterest rates exchange rates reshyserve requirements and credit lines common commitment to responsible

bull fiscal policies and fair procedures to manage the note issue introducing new currencies and settling claims on rubles including the disposal of ruble banknotes

Over the longerterm new interrepublic institutions related to trade payment systems and inter-central bank clearshying could bolster coordination of monshyetary fiscal and trade policies Repubshylics that choose to leave the ruble area could still benefit from participating in those institutions (As of March 1992 Moldova UKraine and the three Balshytic states have announced intentions to issue their own currencies Belarus has requestad that its supply of ruble notes be stamped by the Russian aushythorities Kyrghyzstan plans to move to its own currency after some 18 months The other states prefer to stay in the rubl~l zone) Early departure from the ruble zone could be costly and frictions in monetary arrangements might lead to unnecessary disruptions in interrepublic trade Establishing a multilateral clearing facility between the mhle-hlsed and non-mble-based central banks could reap some benshyefits asserts the paper

(Between September 1991 and March 1992 IMF staff visited states of the former Souiet Crnion to review steps required for membership they collected economic citlta to process these states applications and to provide policy admiddot vice The above economic reuiew is one ofthe publications prepared following these visits I

Other recently published economic reshyviews ofthe IMF

The Economy of the Former USSR in 1991 103 p Russian Federation 115 p Belorus forthcoming Ukraine 69

Volume 3 ~Jumber 4

p Estonia 76 p Latvia 69 p Lithuania 73 p

BB Aghevli E Borensztein and T van der Willingen Stabilization and Structural Reshyform in the Czech and Slovak Fedmiddot eral Republic First Stage IMF Washington DC 199246 p Available from IMF Publication Services 700 19th Street NW Washington DC 20431 Tel (202) 623-7430 ax (202) 623middot7201

Other Working Papers

Peter Murrell An Antidote to Shock Therapy An EvolutionaryApproach to the East European Economic Transition The Woodrow Wilson Center East European Studies Occasional Papers No 37_ Washington DC 199242 p Available through written request to Occasional Papers WWC EES 370 LEnanl Promenade Suite 704 Washington DC 20024-2518

Karen Anderson and Jonathan Halperin Through a Glass Clearly Finding EvaluatingandUsingBusiness Inmiddot formation from the Soviet Region Special Library Association Occasional Paper Series No3 Washington DC

199265 p Information Jane Taylor tel (202) 234middot4700 ax (202) 265middot9317

Simon Johnson Heidi Kroll and Mark Horton New Banks in the Former Soviet Union How Do They Operate Available rom Simon Johnson TN Fuqua School ofBusiness Duke Uniuersity Durham NC 27706 Tel (919) 6oumiddot78i7 ax (919)681shy6244

K Gatslos Privatization in Hungary Past Present and Future CEPR London DPS 642 1992

Barry Eichengreen and Marc Uzan The Marshall Plan Economic Efmiddot fects and Implications for Eastern Europe and the Former USSR CEPR London DPS 638199262 p

Laszlo Halpern and Istvan P Szekely Export Supplyand Import Demand in Hungary (An Econometric Analysis for 1968middot1989) CEPR London DPS 620 1992 18 p

13

Gerard Roland and Thierry Verdier Privatization in Eastern Europe hTeversibility and Critical Mass Effects CEPR London DPS 612 199239 p

To order CEPR Discussion Papers Centre (or Economic PoIicy Research 6 Duke of York Street London SW1Y 6LA L Tel (4471 930shy2963

New Books

Michael P Claudon and Tamar L Gutner eds Putting Food on What Was the Soviet Table (Collection of papers presented at the Geonomics Seminar on Soviet Agriculshyture October 17-20 1991) New York University Press New York and London 1992 141 p

William Reisinger Energy and the Soviet Bloc Allimiddot ance Politics After Stalin Cornell University Press Ithaca ~Y-

1992 184 p

Robert A Lewis and Robert R Churchill Geographic PerspectivesofSoviet Central Asia Rolltledge Press New York 1992 323 p

Simon Powell Agricultural Reform in China From Communes to Commodity Economy 1978middot1990 Manchester University Press New YorkManchester (UK) 1992231 p

China Statistical Yearbook-1991 State Statistical Bureau of China Beijing 1992

Frederic L Pryor The Red and the Green The Rise and Fall of Collectivized Agriculmiddot ture in Marxist Regimes Princeton University Press Princeton 1992 Information Princeton Unitersily Press 51 William St Princeton NJ 08540middot5237

April 1992

-Tronsfflon The World BankCECSE

World BankIMF Agenda

IMFSupport for Russian Privatshyization

Russia laW1ched a program in Nizhny Novgorod (formerly Gorki) in early April to privatize more than 2000 small-scale statemiddotowned enterprises The International Finance Corporashytion ClFC) designed the program which entails auctioning off cafes shops and stores to Russian citizens Under the plan any Russian can register as a potential buyer of an enterprise The sellmiddotoff includes an installment-payshyment system to enable employees to purchase the enterprises for which they work The IFC has also begun work on a pilot program to privatize enterprises in the food and energy sectors and to convert defense industries into facilimiddot ties that will produce consumer goods NizhnyNovgorod is Russias third largshyest city

Longer List for ESAF

The IMF has added 11 countries to the list of member states eligible for funds from the Enhanced Structural Adjust-

ment Facility (ESAF) Among them Albania Angola Mongolia and Nicashyragua will now be eligible for the IMFs concessionalloans

IMF Support to Czechoslovakia

The IMF approved a $322 million standshyby credit to Czechoslovakia in early April The money will be available to support economic reforms and privatization The IMFpraised the sigshynificant progress Czechoslovakia achieved last year in liberalizing its economy taminginflation and improvshying its trade position

bulland to Bulgaria

The IMF approved a $212 million stand-by credit to Bulgaria over the next 12 months in support of the governments economic and financial program The 1992 program includes reducing the monthly inflation rate to 2 percent by the end of the year conshytaining the decline of output to about 4 percent and increasing imports by 9 percent this year Remaining restricmiddot

New Chapter in Bretton Woods Twins History Russia andother republtcs othpound ormer USSR were provisionally admitud to the IMF and the World Bank on 27 April (For procedural reasons AzerbaijanS applicDtions to both inshystitutions were denied 08 WQ8 Turkmenistans applicDtion for pdmission to the World Banll bull Bothcountries are likely to become provisional members in May however) The 15 republics will have a combined share in the IMFof476 percent ofuhich Russw will have 3 percent

The IS states together will control 505 permiddot cent of the World Banlls shares of which

Russia will have 292 perrcnL

Authorized capital from tlut World Bank and the IDA was increased in April to enable the republICS of the former Sov~t Union to purshychase shares allocated to them The total aumiddot thoriud capitat of1448500 shares equivashylent to$17474 billion WQ8 increased by 77159 shares equivalent w $93 billion represtntmiddot ing 505 percent of the World Bahks shares Gfthe 15countr~sRussiawill havethelarg est number ofshares 44795 giving the COUll

try a voting power of 292 percent Thu will put Russia on a par with Canada India Italy and Saudi Arabia

Share subscriptions of the new membera of the World Bank

Armenia 1139 Lithuania 1507 Azerbaijan 1646 Moldova 1368 Belarus 3323 Russian Fed 44795 Estonia 923 Tajikistan 1060 Georgia 1584 Turkmenistan ~337

Kazakhstan 2985 Ukraine 10908 Kyrgyzstan 1107 Uzbekistan 2193 Latvia 1384

Total 77159

Approval by tlut republics legislatures is still required for full admission in tMse organizamiddot tions In order to become members tM countriu will need to pay in a total of $540 miUion of capital Membership will make the former Scshyviet republicseltgible to receive $65 billion to $9 billion yearly from the IMF and total lending from both institutions could reach $40 billion during the nat four years Tht rnajority ofthis lending is likely to go to Russia for whom $45 billion in IMF and World Banlc aid was pledged by the Gmiddot 7 industrialized countries on 1 April MF membership will cilso unlocJc otMrforms of

tions on sale of agricultural land are to be lifted

World Bank Loans to China

The World Bank is lending $310 milshylion to China to finance the expansion of the Zouxian thermal power plant The addition of two generating units will help alleviate power shortages in Shandong Province and promote ecoshynomic development in the region The loan will also finance a study on minishymizing air pollution

and to Hungary

The World Bank has approved a $200 million loan to Hungary for privatization and structural renewal Finance Minister Mihaly Kupa and Hungarian Central Bank President Akos Bod Peter signed at accord in Washington with Bank officials forreshypayment of the loan over a period of 15 years Another $100 million loan was also signed it is to support domestic trade specifically product market deshyvelopment in Hungary

G-7largess including $6 billion for a roble stabilization fund $25 billion in debt defermiddot ral and $11 biJlion ingovernment middotwmiddotgovernmiddot ment aid

The World Bank anticipaus making its first loan for about $500 million to Russia this summer for the purchaseofessential Imports By the end of this year according to a Bank spokesperson total loan cmmitments could reach $15 billion By the end of 1994 Bank loan commitments to the republics could be between $4 billion and $5 billion a year (see page 9) Lending would start with a roughly $4 billion IMF loan w Russia perhaps as early as June

Tlut IMPs Interim Committee durtng its Washington meeting called for a prompt implementation of IMF-backed reforms in the former Souiet Union It also called or the provision of adequate technical assistance and financial support for such programs and to help finance a stabilizatLOn und or the ruble provided that conditIOns are appromiddot priaU

April 1992 14 Volume 3 Number 4

Transition The World BarnltCECSE

Conference Diary

Transition-DevelopmentEconomics May 11 Berlin Germany

Workshop at the Berghof Institute of the Free University of Berlin entitled PostmiddotSocialist Transition from a Deshyvelopment Economics Point of View The workshop incorporates theinsights of early development economics parshyticularly Albert Hirschmans unbalshyanced growth doctrine into the theory of post-socialist transition It will focus on the selfmiddot propelling reform sequence that is whether starting an initial shock (Poland Russia) could generate moshymentum strong enough to continue in an evolutionary way Topics also inshyclude savings intermediation and inshyvestment behavior and challenges of foreign trade liberalization Information Yeugeny Kuznetsou Center for Inmiddot ternational Studies Cornell University 180 Uris Hall Ithaca NY 14853-7601 Tel (607) 255middot 6484

Privatization and Market Mechashynisms A Comparative Approach May 14-15 Budapest Hungary

Organized by the Association Internatiol1ale de Droit Economique (Internatic nal Association for Economic Law) in collaboration with the Hungarshyian Association for the lrotection of Industrial Property The discussion brings togf~ther leading academics and policymakers from the public and prishyvate sector in different countries Four workshops will discuss legal requireshyments in a iUnctioning market economy technique~ofprivatization social rights and privatization and sectoral aspects of privati2ation (telecommunications financial system) InforfUltion General Secretarial of AIDE Place Montelquieu 3 1348 Lourain La Neuue Belgium Tei32middot10middot47middot39middot70ax32middot1()47-39middot 45

Taxation in Eastern Europe May 15-16 Cambridge UK

Workshop organized by the Centre for Economic Policy Research London as part of their research program Ecoshynomic Transformation of Eastern Eushyrope Topics include instability and

VolJme 3 NulTOef 4

uncertainty of the fiscal position durshying transition the case of Poland tax reforms in Poland and Czechoslovashykia ownership and taxation in transishytional economies Information Centre for Economic Policy Remiddot search 6 Duke of York Street London SWIY 6LA 1 Tel (4471) 930middot2963 fax (4471) 930middot 8454

CIS Food Crisis May 17-20 Middlebury Vermont US

Geonomics Spring Seminar limited to about 50 people The seminar will assess the findings of a survey conshyducted in early April in Russia Ukraine and Kazahkstan About 700 private farmers and collective and state farm managers were interviewed about their attitudes toward and the impact of agrarian reform in the three states The survey was conducted unmiddot der the direction of Vera Matusevich Russian professor of agrobusiness management After analyzing the surshyvey data and considering background papers in panel discussions recomshymendations will be made in the followshying areas food affordability and availshyability interrepublic trade and relashytions the role of the West Information George Bellerose Editor Geonomics Institute 14 Hillcrest Auenue Middlebury IT 05753-6116 Tel (802) 388middot 9619 fax (802) 388middot9627

Competition and Regulation in Transition Jule 8-9 London UK

International conference sponsored by the London Business Schools CenshymforBusiness Strategy and the ESRC East-West Initiative The conference will analyze emerging competition polishycies and regulatory frameworks for utilities in the post-socialist econoshymies It will bring together practitioshyners from ministries and regulatory agencies to set out their plans for comment by representatives of intershynational funding agencies as well as Western academic observers Speakshyers on competition policy include high officials from Hungary the Slovak Republic and Germany regulation policy experts from Poland Czechoshy

15

slovakia the World Bank (Timothy Nulty) and the EBRD will address the conference Information Eleanor Burke London Business School Sussex Place Regents Park London NWI 4SA England Tel (4471) 262-5050 ext 440

To Learn from the Experiences of Brazil and Argentina June 23-25 Buenos Aires Argentina

Workshop entitled Long-run Indusshytrial Policy in Short-run Crisis Manshyagement Recent Lessons from Brazil and Argentina and Their Applications for Transformation in the Russian Fedmiddot eration Under the auspices of the Social Science Research Council (New York) the workshop will explore ecoshynomic and political implications of nonmarginal industrial downsizing in Latin America and Russia Participants from Russia South America and the United States will discuss failures of Latin American imports substitution policy and the prospects for success of thenewinterventionism which seeks to guide the market not replace it Information Yeugeny Kuznetsou Center for International Studies Cornell University 180 Uris Hall Ithaca NY 14853middot7601 Tel (607) 255-6484

~-

Perhaps we could l8P1ace the BerliD

Wall with a screen

From the Financial Times

April 1992

c=oo

Transition The Wond BankCECSE

Staff may contact the Joint BankmiddotFund Library 202middot623- 7054BIBLIOGRAPHY OF SELECTED ARTICLES

Post-Socialist Economies

Holzmann Robert Budgetary Issues of Subsidy -Reduction When Movshying from Pian to Market_ Girozentrale Quartalshefte (Austria) 26 No 457 -80 1990

Qian YingyiEquityEfficiencyand Incentives in a Large Economy Journal of Comparative Economics (US) 1627-46 March 1992

Rose Richard Toward a Civil EconomyJournalofDemocracy(US) Vol 3213-26 April 1992

Sundararajan V Central Banking Reforms in Formerly Planned Economies Finance andDevelopment IMFIWorld BankClnternational) 2910shy13 March 1992

Yin Xiangkang Demand and Shortmiddot age ofDurable Consumer Goods in Socialist CountriesApplied Economshyics (UK) 24219-25 February 1992

CIS and the Baltic States

Cole John PRepublicsofthe Former USSR in the Context of a United Europe and New World Order Soshyviet Geography (US) 32587-603 Noshyvember 1991

Johnson Chesmiddotter Public Finance for the New Order Succeeding the USSRmiddot Government Finance Review (US) 817-21 February 1992

Johnson Simon and Heidi Kroll Manashygerial Strategies for Spontaneous Privatization Soviet Economy (US) 7281-316 October-December 1991

Kagalovsky Konstantin Prospects for a Capitalist Russia EconomicAffairs (UK) 1226-28 November 1991 An interview with Dr Konstantin Kagalovsky (adviser to Boris Yeltsin) by Harry Phibbs

Kase Robert D Petroleum Perestroika Columbia Journal of

World Business (US) 26[16]-28 Winter 1992

Moltz James Clay Commonwealth Ecoshynomics in Perspective Lessons from the East Asian Model Soviet Economy (US) 7342-63 OctobermiddotDecember 1991

Padovano Fabio Budget Deficit in the Soviet Economic System Origins and Perspectives Economia Delle Scelte Pubbliche (Italy) No 1991-1[ 41J56 1991

Reiner Thomas A Land and Housing in the USSRduringthe GorbachevYears Soviet Geography (US) 32683-700 Deshycember 1991

Salameh Mamdouh G Soviet Oil Indusmiddot try in Mid-I9910pec Review Organizashytion of Petroleum Exporting CountriesClnshyternational) 15379-88 Winter 19H

CEE

Akhmeduev A Destatization and the Development of Forms of Property Problems ofamponomicsAJournal ofTransshylations (US) 3435-44 December 1991

Alter Rolf New Challenge in Eastern Europe bwestment and Restructurmiddot ing Intereconomics Review of Internashytional Trade and Development (Gennany) 2716-19 January-February 1992

Antowska-Bartosiewicz I wonaand Witol d Malecki Brady Plan and the Polish Debt Reduction Soviet and Eastern European Foreign Trade (US) 27[24]-43 Fall 1991

Feinberg Richard E Paltry Aid to Censhytral Europe Challenge (US) 3536-43 January-February 1992

Geipel Gary L A Tom~z Jarmoozko and Seymour E Goodman Information Technologies and East European Somiddot cieties East European Politics and Socishyeties EEPS (US) 5394-438 Fall 1991

Gowan Peter Old Medicine New Bottles Western Policy Toward East Central Europe World Policy Journal

(US) 9[1]-33 Winter 1991-92

Poland Financial Times Survey ImiddotX (UX) April 28 1992

Sachs Jeffrey Building a Market Economy in Poland ScientificAmerishycan (US) 26634-40 March 1992

Stephens Clifford and Gavin Gray Personnel Problems [in CEE counshytries] Central European (UK) 1020shy33 March 1992

Valencia Matthew Czech Republic The Road to Reform Central Euroshypean (UK) 1020-33 March 1992

Asia

Beresford Melanie and Lyn Fraser Political Economy of the Environshyment in Vietnam Journal ofContem porary Asia (Philippines) 22 No 13shy19 1992

Gongwen Fang Integrating Socialmiddot ist Public Ownership with the Comshymodity Economy Social Sciences in China (China) 1313-22 January 1992

Pike Douglas Vietnam in 1992 The Turning Point Asian Survey (US) 3274-81 January 1992

Shim Jae Hoon Price of Unity [in Korea] Far Eastern Economic Review (Hong Kong) 15554-61 March 261992

Africa

Merten Marianne Nation in Transimiddot tion [Mozambique]Al7-ica Economic Digest (UK) 13p5 January 27-rebshyruary 9 1992

Robson Emma Conservation Through Human Development [in Madagascar] World Development (UK) 510-15 January 1992

Salih Hamid Ethiopia Economic Prospects_ Sudanow (Sudan) 17p25 January 1992

TRANSITION is a regular publication of the World Banks Socialist Economic Refonn Unit The fIndings views and interpretations published in the articles are those of the authors and should not be attributed to the World Bank or its affiliated organizations Nor do any of the interpretations or conclusions necessarily represent official policy of the World Bank or (If its Executive Directors or the countries they represent Richard Hirschler is the editor and production manager Desktoppingis by Mary Mahy for the Policy Research Dissemination Center To be on the distribution list send name and address to Richard Hirschler Room N-6027 The World Bank 1818 H S~t NW Washington DC 20433 orcall (202)473-6982 or fax (202) 676-0439 Infonnationon upcoming conferences on 8Odalisteconomies indication of subjects ofspecial interest to our readers letters to the editor and any other reader contributions are appreciatEd

April 1992 16 Volume 3 Number 4

---------------------------------------------------------------shyTransi110n The Wond BankCECSE

New Books and Working Papers bull The CECSE unit of the World Bank regrets that it is unable to supply the publications listed

Working Paper Briefs

Alfredo Thorne Issues in ReformingFinancialSysshytems inEasternEurope-The Case of Bulgaria The World Bank Policy Research WPS 882 Washington DC 199242 p Atailable from Lanha Ly The World Bank Rm H-907I Tel (202) 473middot 7352

The author uses Bulgaria to illustrate the problems experienced by the forshymerly centrally planned economies when reforming their financial sysshytems There are two alternative strat shyegies for privatization

bull One strategy is to restructure banks clean up their bad portfolios recapitalize them and keep them pubshylicly owned until enterprise pri shyvatization is complete Banks would play a passive role in enterprise prishyvatization

bull A second strategy is preferable quick privatization of a group ofbanks linked to enterprise privatization The privatized banks would allocate credit exclusively to creditworthy enterprises A second group of banks privatized at a slower pace would participate as investment funds in the restructuring and privatization of state-owned enshyterprises

In Bulgaria 59 common commercial banks (CCB) could be privatized foishylowing their merger into five to six medium-size banks Eight specialized commercial banks (SCB) already enshygaged in long-term investment finance could be converted into investment funds Before privatization loans classhysified as bad loans should be removed from the portfolio and transferred to a new specialized collecting institution or should be guaranteed by the state and kept as off-balance-sheet items with the banks Authorities should reshyquire investors to comply with theminishymum capital criteria by bringing i1 fresh money to provide a team ofexpeshyrienced bankers to lend exclusively to the private sector to restrict lending to the banks own sharehold~rs and to

April 1992

comply with a loan concentration limit to be defined in the new Banking Law

Csaba Csaki Transformation of Agriculture in Central and Eastern Europe and the Former USSR-Major Policy Issues and Perspectives The World Bank Policy Research WPS 888 Washington DC 199232 p Auauable from Cicely Spooner Rm Nmiddot8039 Tel (202) 473-0464

Gangzhan Fu and others Unemployment in Urban China An Analysis of Survey Data from Shanghai ChinaProgranVSTICERD CPo 21 Lonshydon School ofEconomics London 1992 40p

The authors analyze the unemployshyment problem in Chinas largest city based on a survey conducted in late 1989 The average unemployment rate in the city is 2 percent very low by international standards Unemployshyment is above average for the young primarily the school leavers and for former state employees (In Shanghai the state sector accounted for around three-quarters of the new jobs in 1990 and employed 78 percent of the 51 million wage-earning workers)

The unemployed in Shanghai rely heavily on family and on occasional work for support only a small proporshytion receive benefits from the state Since 1986 all state-owned enterprises have been rfquired to pay 1 percent of their total wage bill to an unemployshyment insurance fund managed by the local labor service center and banked at the local branch ofthe Peoples Bank Benefits restricted to permanent and contract employees are based on avershyage wage during th e previous two years of employment For people employed five years or more benefits can reach 75 percent offormer wages in the first year and 50 percent in the stcond year Unemployment in urban areas could worsen as loss-making entershyprises are forced into bankruptcy and enterprises are encouraged to shed excess labor

12

Other recent China Program STICERD papers

Liqing Xu Robin Sherbourne and Xue Mei Industrial Development and Remiddot form in Changzhou City A Case Study CP 20 London School of Economics London 1992 49 p

Stephen Howes Purchasing Power Infant Mortalshyity and Literacy in China and Inshydia A Provincial Analysis CPo 19 London School of Economics London 1992

Athar Hussain Peter Lanjouw and Nicholas Stern Income Inequalities in China Evishydence from Household Survey Data CPo 18 London School of Economics London 199140 p

Stephen Howes and Peter Lanjouw RegionalVariations in LivingStanmiddot dards in Urban China CPo 17 London School of Economics London 199162 p Avauable from Leila Alberici China Program The Deuelopment amponomics Research Program London School of Economics Houghton St London WC2A 2AE Tel (4471) 405middot7686 ext 3290

IMF Economic Review Common Issuesand Interrepublic Relations in the Former USSR IMF Washington DC 199255 p

The total volUllle of interrepublican trade fell by at least 15 percent in 1991 according to the Russian authorities Early this year the decline acce lerated and deliveries from Russia ro other republics in January were only 70-75 percent of the January 1991 level The drop in trade is the result of export restrictions imposed by the republics shaken confidence in the ruble and the breakdown of the ruble payment mechanism

Maintainingtrading links between the republics is essential to avoid a major

Volume3 Nurrbef 4

shy _------------------------------------shyTransition The World BonkCECSE

disruption of economic activity during the transitional period A decentraImiddot ized market-based trading-system asshysumes a greater coordination ofpricing policy and the elimination of interrepublic trade barriers Within the ruble zone a coherent monetary policy and fiscal stabilization should be implemented To coordinate monetary policy the states involved should agree without delay on ground rules for setshytinginterest rates exchange rates reshyserve requirements and credit lines common commitment to responsible

bull fiscal policies and fair procedures to manage the note issue introducing new currencies and settling claims on rubles including the disposal of ruble banknotes

Over the longerterm new interrepublic institutions related to trade payment systems and inter-central bank clearshying could bolster coordination of monshyetary fiscal and trade policies Repubshylics that choose to leave the ruble area could still benefit from participating in those institutions (As of March 1992 Moldova UKraine and the three Balshytic states have announced intentions to issue their own currencies Belarus has requestad that its supply of ruble notes be stamped by the Russian aushythorities Kyrghyzstan plans to move to its own currency after some 18 months The other states prefer to stay in the rubl~l zone) Early departure from the ruble zone could be costly and frictions in monetary arrangements might lead to unnecessary disruptions in interrepublic trade Establishing a multilateral clearing facility between the mhle-hlsed and non-mble-based central banks could reap some benshyefits asserts the paper

(Between September 1991 and March 1992 IMF staff visited states of the former Souiet Crnion to review steps required for membership they collected economic citlta to process these states applications and to provide policy admiddot vice The above economic reuiew is one ofthe publications prepared following these visits I

Other recently published economic reshyviews ofthe IMF

The Economy of the Former USSR in 1991 103 p Russian Federation 115 p Belorus forthcoming Ukraine 69

Volume 3 ~Jumber 4

p Estonia 76 p Latvia 69 p Lithuania 73 p

BB Aghevli E Borensztein and T van der Willingen Stabilization and Structural Reshyform in the Czech and Slovak Fedmiddot eral Republic First Stage IMF Washington DC 199246 p Available from IMF Publication Services 700 19th Street NW Washington DC 20431 Tel (202) 623-7430 ax (202) 623middot7201

Other Working Papers

Peter Murrell An Antidote to Shock Therapy An EvolutionaryApproach to the East European Economic Transition The Woodrow Wilson Center East European Studies Occasional Papers No 37_ Washington DC 199242 p Available through written request to Occasional Papers WWC EES 370 LEnanl Promenade Suite 704 Washington DC 20024-2518

Karen Anderson and Jonathan Halperin Through a Glass Clearly Finding EvaluatingandUsingBusiness Inmiddot formation from the Soviet Region Special Library Association Occasional Paper Series No3 Washington DC

199265 p Information Jane Taylor tel (202) 234middot4700 ax (202) 265middot9317

Simon Johnson Heidi Kroll and Mark Horton New Banks in the Former Soviet Union How Do They Operate Available rom Simon Johnson TN Fuqua School ofBusiness Duke Uniuersity Durham NC 27706 Tel (919) 6oumiddot78i7 ax (919)681shy6244

K Gatslos Privatization in Hungary Past Present and Future CEPR London DPS 642 1992

Barry Eichengreen and Marc Uzan The Marshall Plan Economic Efmiddot fects and Implications for Eastern Europe and the Former USSR CEPR London DPS 638199262 p

Laszlo Halpern and Istvan P Szekely Export Supplyand Import Demand in Hungary (An Econometric Analysis for 1968middot1989) CEPR London DPS 620 1992 18 p

13

Gerard Roland and Thierry Verdier Privatization in Eastern Europe hTeversibility and Critical Mass Effects CEPR London DPS 612 199239 p

To order CEPR Discussion Papers Centre (or Economic PoIicy Research 6 Duke of York Street London SW1Y 6LA L Tel (4471 930shy2963

New Books

Michael P Claudon and Tamar L Gutner eds Putting Food on What Was the Soviet Table (Collection of papers presented at the Geonomics Seminar on Soviet Agriculshyture October 17-20 1991) New York University Press New York and London 1992 141 p

William Reisinger Energy and the Soviet Bloc Allimiddot ance Politics After Stalin Cornell University Press Ithaca ~Y-

1992 184 p

Robert A Lewis and Robert R Churchill Geographic PerspectivesofSoviet Central Asia Rolltledge Press New York 1992 323 p

Simon Powell Agricultural Reform in China From Communes to Commodity Economy 1978middot1990 Manchester University Press New YorkManchester (UK) 1992231 p

China Statistical Yearbook-1991 State Statistical Bureau of China Beijing 1992

Frederic L Pryor The Red and the Green The Rise and Fall of Collectivized Agriculmiddot ture in Marxist Regimes Princeton University Press Princeton 1992 Information Princeton Unitersily Press 51 William St Princeton NJ 08540middot5237

April 1992

-Tronsfflon The World BankCECSE

World BankIMF Agenda

IMFSupport for Russian Privatshyization

Russia laW1ched a program in Nizhny Novgorod (formerly Gorki) in early April to privatize more than 2000 small-scale statemiddotowned enterprises The International Finance Corporashytion ClFC) designed the program which entails auctioning off cafes shops and stores to Russian citizens Under the plan any Russian can register as a potential buyer of an enterprise The sellmiddotoff includes an installment-payshyment system to enable employees to purchase the enterprises for which they work The IFC has also begun work on a pilot program to privatize enterprises in the food and energy sectors and to convert defense industries into facilimiddot ties that will produce consumer goods NizhnyNovgorod is Russias third largshyest city

Longer List for ESAF

The IMF has added 11 countries to the list of member states eligible for funds from the Enhanced Structural Adjust-

ment Facility (ESAF) Among them Albania Angola Mongolia and Nicashyragua will now be eligible for the IMFs concessionalloans

IMF Support to Czechoslovakia

The IMF approved a $322 million standshyby credit to Czechoslovakia in early April The money will be available to support economic reforms and privatization The IMFpraised the sigshynificant progress Czechoslovakia achieved last year in liberalizing its economy taminginflation and improvshying its trade position

bulland to Bulgaria

The IMF approved a $212 million stand-by credit to Bulgaria over the next 12 months in support of the governments economic and financial program The 1992 program includes reducing the monthly inflation rate to 2 percent by the end of the year conshytaining the decline of output to about 4 percent and increasing imports by 9 percent this year Remaining restricmiddot

New Chapter in Bretton Woods Twins History Russia andother republtcs othpound ormer USSR were provisionally admitud to the IMF and the World Bank on 27 April (For procedural reasons AzerbaijanS applicDtions to both inshystitutions were denied 08 WQ8 Turkmenistans applicDtion for pdmission to the World Banll bull Bothcountries are likely to become provisional members in May however) The 15 republics will have a combined share in the IMFof476 percent ofuhich Russw will have 3 percent

The IS states together will control 505 permiddot cent of the World Banlls shares of which

Russia will have 292 perrcnL

Authorized capital from tlut World Bank and the IDA was increased in April to enable the republICS of the former Sov~t Union to purshychase shares allocated to them The total aumiddot thoriud capitat of1448500 shares equivashylent to$17474 billion WQ8 increased by 77159 shares equivalent w $93 billion represtntmiddot ing 505 percent of the World Bahks shares Gfthe 15countr~sRussiawill havethelarg est number ofshares 44795 giving the COUll

try a voting power of 292 percent Thu will put Russia on a par with Canada India Italy and Saudi Arabia

Share subscriptions of the new membera of the World Bank

Armenia 1139 Lithuania 1507 Azerbaijan 1646 Moldova 1368 Belarus 3323 Russian Fed 44795 Estonia 923 Tajikistan 1060 Georgia 1584 Turkmenistan ~337

Kazakhstan 2985 Ukraine 10908 Kyrgyzstan 1107 Uzbekistan 2193 Latvia 1384

Total 77159

Approval by tlut republics legislatures is still required for full admission in tMse organizamiddot tions In order to become members tM countriu will need to pay in a total of $540 miUion of capital Membership will make the former Scshyviet republicseltgible to receive $65 billion to $9 billion yearly from the IMF and total lending from both institutions could reach $40 billion during the nat four years Tht rnajority ofthis lending is likely to go to Russia for whom $45 billion in IMF and World Banlc aid was pledged by the Gmiddot 7 industrialized countries on 1 April MF membership will cilso unlocJc otMrforms of

tions on sale of agricultural land are to be lifted

World Bank Loans to China

The World Bank is lending $310 milshylion to China to finance the expansion of the Zouxian thermal power plant The addition of two generating units will help alleviate power shortages in Shandong Province and promote ecoshynomic development in the region The loan will also finance a study on minishymizing air pollution

and to Hungary

The World Bank has approved a $200 million loan to Hungary for privatization and structural renewal Finance Minister Mihaly Kupa and Hungarian Central Bank President Akos Bod Peter signed at accord in Washington with Bank officials forreshypayment of the loan over a period of 15 years Another $100 million loan was also signed it is to support domestic trade specifically product market deshyvelopment in Hungary

G-7largess including $6 billion for a roble stabilization fund $25 billion in debt defermiddot ral and $11 biJlion ingovernment middotwmiddotgovernmiddot ment aid

The World Bank anticipaus making its first loan for about $500 million to Russia this summer for the purchaseofessential Imports By the end of this year according to a Bank spokesperson total loan cmmitments could reach $15 billion By the end of 1994 Bank loan commitments to the republics could be between $4 billion and $5 billion a year (see page 9) Lending would start with a roughly $4 billion IMF loan w Russia perhaps as early as June

Tlut IMPs Interim Committee durtng its Washington meeting called for a prompt implementation of IMF-backed reforms in the former Souiet Union It also called or the provision of adequate technical assistance and financial support for such programs and to help finance a stabilizatLOn und or the ruble provided that conditIOns are appromiddot priaU

April 1992 14 Volume 3 Number 4

Transition The World BarnltCECSE

Conference Diary

Transition-DevelopmentEconomics May 11 Berlin Germany

Workshop at the Berghof Institute of the Free University of Berlin entitled PostmiddotSocialist Transition from a Deshyvelopment Economics Point of View The workshop incorporates theinsights of early development economics parshyticularly Albert Hirschmans unbalshyanced growth doctrine into the theory of post-socialist transition It will focus on the selfmiddot propelling reform sequence that is whether starting an initial shock (Poland Russia) could generate moshymentum strong enough to continue in an evolutionary way Topics also inshyclude savings intermediation and inshyvestment behavior and challenges of foreign trade liberalization Information Yeugeny Kuznetsou Center for Inmiddot ternational Studies Cornell University 180 Uris Hall Ithaca NY 14853-7601 Tel (607) 255middot 6484

Privatization and Market Mechashynisms A Comparative Approach May 14-15 Budapest Hungary

Organized by the Association Internatiol1ale de Droit Economique (Internatic nal Association for Economic Law) in collaboration with the Hungarshyian Association for the lrotection of Industrial Property The discussion brings togf~ther leading academics and policymakers from the public and prishyvate sector in different countries Four workshops will discuss legal requireshyments in a iUnctioning market economy technique~ofprivatization social rights and privatization and sectoral aspects of privati2ation (telecommunications financial system) InforfUltion General Secretarial of AIDE Place Montelquieu 3 1348 Lourain La Neuue Belgium Tei32middot10middot47middot39middot70ax32middot1()47-39middot 45

Taxation in Eastern Europe May 15-16 Cambridge UK

Workshop organized by the Centre for Economic Policy Research London as part of their research program Ecoshynomic Transformation of Eastern Eushyrope Topics include instability and

VolJme 3 NulTOef 4

uncertainty of the fiscal position durshying transition the case of Poland tax reforms in Poland and Czechoslovashykia ownership and taxation in transishytional economies Information Centre for Economic Policy Remiddot search 6 Duke of York Street London SWIY 6LA 1 Tel (4471) 930middot2963 fax (4471) 930middot 8454

CIS Food Crisis May 17-20 Middlebury Vermont US

Geonomics Spring Seminar limited to about 50 people The seminar will assess the findings of a survey conshyducted in early April in Russia Ukraine and Kazahkstan About 700 private farmers and collective and state farm managers were interviewed about their attitudes toward and the impact of agrarian reform in the three states The survey was conducted unmiddot der the direction of Vera Matusevich Russian professor of agrobusiness management After analyzing the surshyvey data and considering background papers in panel discussions recomshymendations will be made in the followshying areas food affordability and availshyability interrepublic trade and relashytions the role of the West Information George Bellerose Editor Geonomics Institute 14 Hillcrest Auenue Middlebury IT 05753-6116 Tel (802) 388middot 9619 fax (802) 388middot9627

Competition and Regulation in Transition Jule 8-9 London UK

International conference sponsored by the London Business Schools CenshymforBusiness Strategy and the ESRC East-West Initiative The conference will analyze emerging competition polishycies and regulatory frameworks for utilities in the post-socialist econoshymies It will bring together practitioshyners from ministries and regulatory agencies to set out their plans for comment by representatives of intershynational funding agencies as well as Western academic observers Speakshyers on competition policy include high officials from Hungary the Slovak Republic and Germany regulation policy experts from Poland Czechoshy

15

slovakia the World Bank (Timothy Nulty) and the EBRD will address the conference Information Eleanor Burke London Business School Sussex Place Regents Park London NWI 4SA England Tel (4471) 262-5050 ext 440

To Learn from the Experiences of Brazil and Argentina June 23-25 Buenos Aires Argentina

Workshop entitled Long-run Indusshytrial Policy in Short-run Crisis Manshyagement Recent Lessons from Brazil and Argentina and Their Applications for Transformation in the Russian Fedmiddot eration Under the auspices of the Social Science Research Council (New York) the workshop will explore ecoshynomic and political implications of nonmarginal industrial downsizing in Latin America and Russia Participants from Russia South America and the United States will discuss failures of Latin American imports substitution policy and the prospects for success of thenewinterventionism which seeks to guide the market not replace it Information Yeugeny Kuznetsou Center for International Studies Cornell University 180 Uris Hall Ithaca NY 14853middot7601 Tel (607) 255-6484

~-

Perhaps we could l8P1ace the BerliD

Wall with a screen

From the Financial Times

April 1992

c=oo

Transition The Wond BankCECSE

Staff may contact the Joint BankmiddotFund Library 202middot623- 7054BIBLIOGRAPHY OF SELECTED ARTICLES

Post-Socialist Economies

Holzmann Robert Budgetary Issues of Subsidy -Reduction When Movshying from Pian to Market_ Girozentrale Quartalshefte (Austria) 26 No 457 -80 1990

Qian YingyiEquityEfficiencyand Incentives in a Large Economy Journal of Comparative Economics (US) 1627-46 March 1992

Rose Richard Toward a Civil EconomyJournalofDemocracy(US) Vol 3213-26 April 1992

Sundararajan V Central Banking Reforms in Formerly Planned Economies Finance andDevelopment IMFIWorld BankClnternational) 2910shy13 March 1992

Yin Xiangkang Demand and Shortmiddot age ofDurable Consumer Goods in Socialist CountriesApplied Economshyics (UK) 24219-25 February 1992

CIS and the Baltic States

Cole John PRepublicsofthe Former USSR in the Context of a United Europe and New World Order Soshyviet Geography (US) 32587-603 Noshyvember 1991

Johnson Chesmiddotter Public Finance for the New Order Succeeding the USSRmiddot Government Finance Review (US) 817-21 February 1992

Johnson Simon and Heidi Kroll Manashygerial Strategies for Spontaneous Privatization Soviet Economy (US) 7281-316 October-December 1991

Kagalovsky Konstantin Prospects for a Capitalist Russia EconomicAffairs (UK) 1226-28 November 1991 An interview with Dr Konstantin Kagalovsky (adviser to Boris Yeltsin) by Harry Phibbs

Kase Robert D Petroleum Perestroika Columbia Journal of

World Business (US) 26[16]-28 Winter 1992

Moltz James Clay Commonwealth Ecoshynomics in Perspective Lessons from the East Asian Model Soviet Economy (US) 7342-63 OctobermiddotDecember 1991

Padovano Fabio Budget Deficit in the Soviet Economic System Origins and Perspectives Economia Delle Scelte Pubbliche (Italy) No 1991-1[ 41J56 1991

Reiner Thomas A Land and Housing in the USSRduringthe GorbachevYears Soviet Geography (US) 32683-700 Deshycember 1991

Salameh Mamdouh G Soviet Oil Indusmiddot try in Mid-I9910pec Review Organizashytion of Petroleum Exporting CountriesClnshyternational) 15379-88 Winter 19H

CEE

Akhmeduev A Destatization and the Development of Forms of Property Problems ofamponomicsAJournal ofTransshylations (US) 3435-44 December 1991

Alter Rolf New Challenge in Eastern Europe bwestment and Restructurmiddot ing Intereconomics Review of Internashytional Trade and Development (Gennany) 2716-19 January-February 1992

Antowska-Bartosiewicz I wonaand Witol d Malecki Brady Plan and the Polish Debt Reduction Soviet and Eastern European Foreign Trade (US) 27[24]-43 Fall 1991

Feinberg Richard E Paltry Aid to Censhytral Europe Challenge (US) 3536-43 January-February 1992

Geipel Gary L A Tom~z Jarmoozko and Seymour E Goodman Information Technologies and East European Somiddot cieties East European Politics and Socishyeties EEPS (US) 5394-438 Fall 1991

Gowan Peter Old Medicine New Bottles Western Policy Toward East Central Europe World Policy Journal

(US) 9[1]-33 Winter 1991-92

Poland Financial Times Survey ImiddotX (UX) April 28 1992

Sachs Jeffrey Building a Market Economy in Poland ScientificAmerishycan (US) 26634-40 March 1992

Stephens Clifford and Gavin Gray Personnel Problems [in CEE counshytries] Central European (UK) 1020shy33 March 1992

Valencia Matthew Czech Republic The Road to Reform Central Euroshypean (UK) 1020-33 March 1992

Asia

Beresford Melanie and Lyn Fraser Political Economy of the Environshyment in Vietnam Journal ofContem porary Asia (Philippines) 22 No 13shy19 1992

Gongwen Fang Integrating Socialmiddot ist Public Ownership with the Comshymodity Economy Social Sciences in China (China) 1313-22 January 1992

Pike Douglas Vietnam in 1992 The Turning Point Asian Survey (US) 3274-81 January 1992

Shim Jae Hoon Price of Unity [in Korea] Far Eastern Economic Review (Hong Kong) 15554-61 March 261992

Africa

Merten Marianne Nation in Transimiddot tion [Mozambique]Al7-ica Economic Digest (UK) 13p5 January 27-rebshyruary 9 1992

Robson Emma Conservation Through Human Development [in Madagascar] World Development (UK) 510-15 January 1992

Salih Hamid Ethiopia Economic Prospects_ Sudanow (Sudan) 17p25 January 1992

TRANSITION is a regular publication of the World Banks Socialist Economic Refonn Unit The fIndings views and interpretations published in the articles are those of the authors and should not be attributed to the World Bank or its affiliated organizations Nor do any of the interpretations or conclusions necessarily represent official policy of the World Bank or (If its Executive Directors or the countries they represent Richard Hirschler is the editor and production manager Desktoppingis by Mary Mahy for the Policy Research Dissemination Center To be on the distribution list send name and address to Richard Hirschler Room N-6027 The World Bank 1818 H S~t NW Washington DC 20433 orcall (202)473-6982 or fax (202) 676-0439 Infonnationon upcoming conferences on 8Odalisteconomies indication of subjects ofspecial interest to our readers letters to the editor and any other reader contributions are appreciatEd

April 1992 16 Volume 3 Number 4

shy _------------------------------------shyTransition The World BonkCECSE

disruption of economic activity during the transitional period A decentraImiddot ized market-based trading-system asshysumes a greater coordination ofpricing policy and the elimination of interrepublic trade barriers Within the ruble zone a coherent monetary policy and fiscal stabilization should be implemented To coordinate monetary policy the states involved should agree without delay on ground rules for setshytinginterest rates exchange rates reshyserve requirements and credit lines common commitment to responsible

bull fiscal policies and fair procedures to manage the note issue introducing new currencies and settling claims on rubles including the disposal of ruble banknotes

Over the longerterm new interrepublic institutions related to trade payment systems and inter-central bank clearshying could bolster coordination of monshyetary fiscal and trade policies Repubshylics that choose to leave the ruble area could still benefit from participating in those institutions (As of March 1992 Moldova UKraine and the three Balshytic states have announced intentions to issue their own currencies Belarus has requestad that its supply of ruble notes be stamped by the Russian aushythorities Kyrghyzstan plans to move to its own currency after some 18 months The other states prefer to stay in the rubl~l zone) Early departure from the ruble zone could be costly and frictions in monetary arrangements might lead to unnecessary disruptions in interrepublic trade Establishing a multilateral clearing facility between the mhle-hlsed and non-mble-based central banks could reap some benshyefits asserts the paper

(Between September 1991 and March 1992 IMF staff visited states of the former Souiet Crnion to review steps required for membership they collected economic citlta to process these states applications and to provide policy admiddot vice The above economic reuiew is one ofthe publications prepared following these visits I

Other recently published economic reshyviews ofthe IMF

The Economy of the Former USSR in 1991 103 p Russian Federation 115 p Belorus forthcoming Ukraine 69

Volume 3 ~Jumber 4

p Estonia 76 p Latvia 69 p Lithuania 73 p

BB Aghevli E Borensztein and T van der Willingen Stabilization and Structural Reshyform in the Czech and Slovak Fedmiddot eral Republic First Stage IMF Washington DC 199246 p Available from IMF Publication Services 700 19th Street NW Washington DC 20431 Tel (202) 623-7430 ax (202) 623middot7201

Other Working Papers

Peter Murrell An Antidote to Shock Therapy An EvolutionaryApproach to the East European Economic Transition The Woodrow Wilson Center East European Studies Occasional Papers No 37_ Washington DC 199242 p Available through written request to Occasional Papers WWC EES 370 LEnanl Promenade Suite 704 Washington DC 20024-2518

Karen Anderson and Jonathan Halperin Through a Glass Clearly Finding EvaluatingandUsingBusiness Inmiddot formation from the Soviet Region Special Library Association Occasional Paper Series No3 Washington DC

199265 p Information Jane Taylor tel (202) 234middot4700 ax (202) 265middot9317

Simon Johnson Heidi Kroll and Mark Horton New Banks in the Former Soviet Union How Do They Operate Available rom Simon Johnson TN Fuqua School ofBusiness Duke Uniuersity Durham NC 27706 Tel (919) 6oumiddot78i7 ax (919)681shy6244

K Gatslos Privatization in Hungary Past Present and Future CEPR London DPS 642 1992

Barry Eichengreen and Marc Uzan The Marshall Plan Economic Efmiddot fects and Implications for Eastern Europe and the Former USSR CEPR London DPS 638199262 p

Laszlo Halpern and Istvan P Szekely Export Supplyand Import Demand in Hungary (An Econometric Analysis for 1968middot1989) CEPR London DPS 620 1992 18 p

13

Gerard Roland and Thierry Verdier Privatization in Eastern Europe hTeversibility and Critical Mass Effects CEPR London DPS 612 199239 p

To order CEPR Discussion Papers Centre (or Economic PoIicy Research 6 Duke of York Street London SW1Y 6LA L Tel (4471 930shy2963

New Books

Michael P Claudon and Tamar L Gutner eds Putting Food on What Was the Soviet Table (Collection of papers presented at the Geonomics Seminar on Soviet Agriculshyture October 17-20 1991) New York University Press New York and London 1992 141 p

William Reisinger Energy and the Soviet Bloc Allimiddot ance Politics After Stalin Cornell University Press Ithaca ~Y-

1992 184 p

Robert A Lewis and Robert R Churchill Geographic PerspectivesofSoviet Central Asia Rolltledge Press New York 1992 323 p

Simon Powell Agricultural Reform in China From Communes to Commodity Economy 1978middot1990 Manchester University Press New YorkManchester (UK) 1992231 p

China Statistical Yearbook-1991 State Statistical Bureau of China Beijing 1992

Frederic L Pryor The Red and the Green The Rise and Fall of Collectivized Agriculmiddot ture in Marxist Regimes Princeton University Press Princeton 1992 Information Princeton Unitersily Press 51 William St Princeton NJ 08540middot5237

April 1992

-Tronsfflon The World BankCECSE

World BankIMF Agenda

IMFSupport for Russian Privatshyization

Russia laW1ched a program in Nizhny Novgorod (formerly Gorki) in early April to privatize more than 2000 small-scale statemiddotowned enterprises The International Finance Corporashytion ClFC) designed the program which entails auctioning off cafes shops and stores to Russian citizens Under the plan any Russian can register as a potential buyer of an enterprise The sellmiddotoff includes an installment-payshyment system to enable employees to purchase the enterprises for which they work The IFC has also begun work on a pilot program to privatize enterprises in the food and energy sectors and to convert defense industries into facilimiddot ties that will produce consumer goods NizhnyNovgorod is Russias third largshyest city

Longer List for ESAF

The IMF has added 11 countries to the list of member states eligible for funds from the Enhanced Structural Adjust-

ment Facility (ESAF) Among them Albania Angola Mongolia and Nicashyragua will now be eligible for the IMFs concessionalloans

IMF Support to Czechoslovakia

The IMF approved a $322 million standshyby credit to Czechoslovakia in early April The money will be available to support economic reforms and privatization The IMFpraised the sigshynificant progress Czechoslovakia achieved last year in liberalizing its economy taminginflation and improvshying its trade position

bulland to Bulgaria

The IMF approved a $212 million stand-by credit to Bulgaria over the next 12 months in support of the governments economic and financial program The 1992 program includes reducing the monthly inflation rate to 2 percent by the end of the year conshytaining the decline of output to about 4 percent and increasing imports by 9 percent this year Remaining restricmiddot

New Chapter in Bretton Woods Twins History Russia andother republtcs othpound ormer USSR were provisionally admitud to the IMF and the World Bank on 27 April (For procedural reasons AzerbaijanS applicDtions to both inshystitutions were denied 08 WQ8 Turkmenistans applicDtion for pdmission to the World Banll bull Bothcountries are likely to become provisional members in May however) The 15 republics will have a combined share in the IMFof476 percent ofuhich Russw will have 3 percent

The IS states together will control 505 permiddot cent of the World Banlls shares of which

Russia will have 292 perrcnL

Authorized capital from tlut World Bank and the IDA was increased in April to enable the republICS of the former Sov~t Union to purshychase shares allocated to them The total aumiddot thoriud capitat of1448500 shares equivashylent to$17474 billion WQ8 increased by 77159 shares equivalent w $93 billion represtntmiddot ing 505 percent of the World Bahks shares Gfthe 15countr~sRussiawill havethelarg est number ofshares 44795 giving the COUll

try a voting power of 292 percent Thu will put Russia on a par with Canada India Italy and Saudi Arabia

Share subscriptions of the new membera of the World Bank

Armenia 1139 Lithuania 1507 Azerbaijan 1646 Moldova 1368 Belarus 3323 Russian Fed 44795 Estonia 923 Tajikistan 1060 Georgia 1584 Turkmenistan ~337

Kazakhstan 2985 Ukraine 10908 Kyrgyzstan 1107 Uzbekistan 2193 Latvia 1384

Total 77159

Approval by tlut republics legislatures is still required for full admission in tMse organizamiddot tions In order to become members tM countriu will need to pay in a total of $540 miUion of capital Membership will make the former Scshyviet republicseltgible to receive $65 billion to $9 billion yearly from the IMF and total lending from both institutions could reach $40 billion during the nat four years Tht rnajority ofthis lending is likely to go to Russia for whom $45 billion in IMF and World Banlc aid was pledged by the Gmiddot 7 industrialized countries on 1 April MF membership will cilso unlocJc otMrforms of

tions on sale of agricultural land are to be lifted

World Bank Loans to China

The World Bank is lending $310 milshylion to China to finance the expansion of the Zouxian thermal power plant The addition of two generating units will help alleviate power shortages in Shandong Province and promote ecoshynomic development in the region The loan will also finance a study on minishymizing air pollution

and to Hungary

The World Bank has approved a $200 million loan to Hungary for privatization and structural renewal Finance Minister Mihaly Kupa and Hungarian Central Bank President Akos Bod Peter signed at accord in Washington with Bank officials forreshypayment of the loan over a period of 15 years Another $100 million loan was also signed it is to support domestic trade specifically product market deshyvelopment in Hungary

G-7largess including $6 billion for a roble stabilization fund $25 billion in debt defermiddot ral and $11 biJlion ingovernment middotwmiddotgovernmiddot ment aid

The World Bank anticipaus making its first loan for about $500 million to Russia this summer for the purchaseofessential Imports By the end of this year according to a Bank spokesperson total loan cmmitments could reach $15 billion By the end of 1994 Bank loan commitments to the republics could be between $4 billion and $5 billion a year (see page 9) Lending would start with a roughly $4 billion IMF loan w Russia perhaps as early as June

Tlut IMPs Interim Committee durtng its Washington meeting called for a prompt implementation of IMF-backed reforms in the former Souiet Union It also called or the provision of adequate technical assistance and financial support for such programs and to help finance a stabilizatLOn und or the ruble provided that conditIOns are appromiddot priaU

April 1992 14 Volume 3 Number 4

Transition The World BarnltCECSE

Conference Diary

Transition-DevelopmentEconomics May 11 Berlin Germany

Workshop at the Berghof Institute of the Free University of Berlin entitled PostmiddotSocialist Transition from a Deshyvelopment Economics Point of View The workshop incorporates theinsights of early development economics parshyticularly Albert Hirschmans unbalshyanced growth doctrine into the theory of post-socialist transition It will focus on the selfmiddot propelling reform sequence that is whether starting an initial shock (Poland Russia) could generate moshymentum strong enough to continue in an evolutionary way Topics also inshyclude savings intermediation and inshyvestment behavior and challenges of foreign trade liberalization Information Yeugeny Kuznetsou Center for Inmiddot ternational Studies Cornell University 180 Uris Hall Ithaca NY 14853-7601 Tel (607) 255middot 6484

Privatization and Market Mechashynisms A Comparative Approach May 14-15 Budapest Hungary

Organized by the Association Internatiol1ale de Droit Economique (Internatic nal Association for Economic Law) in collaboration with the Hungarshyian Association for the lrotection of Industrial Property The discussion brings togf~ther leading academics and policymakers from the public and prishyvate sector in different countries Four workshops will discuss legal requireshyments in a iUnctioning market economy technique~ofprivatization social rights and privatization and sectoral aspects of privati2ation (telecommunications financial system) InforfUltion General Secretarial of AIDE Place Montelquieu 3 1348 Lourain La Neuue Belgium Tei32middot10middot47middot39middot70ax32middot1()47-39middot 45

Taxation in Eastern Europe May 15-16 Cambridge UK

Workshop organized by the Centre for Economic Policy Research London as part of their research program Ecoshynomic Transformation of Eastern Eushyrope Topics include instability and

VolJme 3 NulTOef 4

uncertainty of the fiscal position durshying transition the case of Poland tax reforms in Poland and Czechoslovashykia ownership and taxation in transishytional economies Information Centre for Economic Policy Remiddot search 6 Duke of York Street London SWIY 6LA 1 Tel (4471) 930middot2963 fax (4471) 930middot 8454

CIS Food Crisis May 17-20 Middlebury Vermont US

Geonomics Spring Seminar limited to about 50 people The seminar will assess the findings of a survey conshyducted in early April in Russia Ukraine and Kazahkstan About 700 private farmers and collective and state farm managers were interviewed about their attitudes toward and the impact of agrarian reform in the three states The survey was conducted unmiddot der the direction of Vera Matusevich Russian professor of agrobusiness management After analyzing the surshyvey data and considering background papers in panel discussions recomshymendations will be made in the followshying areas food affordability and availshyability interrepublic trade and relashytions the role of the West Information George Bellerose Editor Geonomics Institute 14 Hillcrest Auenue Middlebury IT 05753-6116 Tel (802) 388middot 9619 fax (802) 388middot9627

Competition and Regulation in Transition Jule 8-9 London UK

International conference sponsored by the London Business Schools CenshymforBusiness Strategy and the ESRC East-West Initiative The conference will analyze emerging competition polishycies and regulatory frameworks for utilities in the post-socialist econoshymies It will bring together practitioshyners from ministries and regulatory agencies to set out their plans for comment by representatives of intershynational funding agencies as well as Western academic observers Speakshyers on competition policy include high officials from Hungary the Slovak Republic and Germany regulation policy experts from Poland Czechoshy

15

slovakia the World Bank (Timothy Nulty) and the EBRD will address the conference Information Eleanor Burke London Business School Sussex Place Regents Park London NWI 4SA England Tel (4471) 262-5050 ext 440

To Learn from the Experiences of Brazil and Argentina June 23-25 Buenos Aires Argentina

Workshop entitled Long-run Indusshytrial Policy in Short-run Crisis Manshyagement Recent Lessons from Brazil and Argentina and Their Applications for Transformation in the Russian Fedmiddot eration Under the auspices of the Social Science Research Council (New York) the workshop will explore ecoshynomic and political implications of nonmarginal industrial downsizing in Latin America and Russia Participants from Russia South America and the United States will discuss failures of Latin American imports substitution policy and the prospects for success of thenewinterventionism which seeks to guide the market not replace it Information Yeugeny Kuznetsou Center for International Studies Cornell University 180 Uris Hall Ithaca NY 14853middot7601 Tel (607) 255-6484

~-

Perhaps we could l8P1ace the BerliD

Wall with a screen

From the Financial Times

April 1992

c=oo

Transition The Wond BankCECSE

Staff may contact the Joint BankmiddotFund Library 202middot623- 7054BIBLIOGRAPHY OF SELECTED ARTICLES

Post-Socialist Economies

Holzmann Robert Budgetary Issues of Subsidy -Reduction When Movshying from Pian to Market_ Girozentrale Quartalshefte (Austria) 26 No 457 -80 1990

Qian YingyiEquityEfficiencyand Incentives in a Large Economy Journal of Comparative Economics (US) 1627-46 March 1992

Rose Richard Toward a Civil EconomyJournalofDemocracy(US) Vol 3213-26 April 1992

Sundararajan V Central Banking Reforms in Formerly Planned Economies Finance andDevelopment IMFIWorld BankClnternational) 2910shy13 March 1992

Yin Xiangkang Demand and Shortmiddot age ofDurable Consumer Goods in Socialist CountriesApplied Economshyics (UK) 24219-25 February 1992

CIS and the Baltic States

Cole John PRepublicsofthe Former USSR in the Context of a United Europe and New World Order Soshyviet Geography (US) 32587-603 Noshyvember 1991

Johnson Chesmiddotter Public Finance for the New Order Succeeding the USSRmiddot Government Finance Review (US) 817-21 February 1992

Johnson Simon and Heidi Kroll Manashygerial Strategies for Spontaneous Privatization Soviet Economy (US) 7281-316 October-December 1991

Kagalovsky Konstantin Prospects for a Capitalist Russia EconomicAffairs (UK) 1226-28 November 1991 An interview with Dr Konstantin Kagalovsky (adviser to Boris Yeltsin) by Harry Phibbs

Kase Robert D Petroleum Perestroika Columbia Journal of

World Business (US) 26[16]-28 Winter 1992

Moltz James Clay Commonwealth Ecoshynomics in Perspective Lessons from the East Asian Model Soviet Economy (US) 7342-63 OctobermiddotDecember 1991

Padovano Fabio Budget Deficit in the Soviet Economic System Origins and Perspectives Economia Delle Scelte Pubbliche (Italy) No 1991-1[ 41J56 1991

Reiner Thomas A Land and Housing in the USSRduringthe GorbachevYears Soviet Geography (US) 32683-700 Deshycember 1991

Salameh Mamdouh G Soviet Oil Indusmiddot try in Mid-I9910pec Review Organizashytion of Petroleum Exporting CountriesClnshyternational) 15379-88 Winter 19H

CEE

Akhmeduev A Destatization and the Development of Forms of Property Problems ofamponomicsAJournal ofTransshylations (US) 3435-44 December 1991

Alter Rolf New Challenge in Eastern Europe bwestment and Restructurmiddot ing Intereconomics Review of Internashytional Trade and Development (Gennany) 2716-19 January-February 1992

Antowska-Bartosiewicz I wonaand Witol d Malecki Brady Plan and the Polish Debt Reduction Soviet and Eastern European Foreign Trade (US) 27[24]-43 Fall 1991

Feinberg Richard E Paltry Aid to Censhytral Europe Challenge (US) 3536-43 January-February 1992

Geipel Gary L A Tom~z Jarmoozko and Seymour E Goodman Information Technologies and East European Somiddot cieties East European Politics and Socishyeties EEPS (US) 5394-438 Fall 1991

Gowan Peter Old Medicine New Bottles Western Policy Toward East Central Europe World Policy Journal

(US) 9[1]-33 Winter 1991-92

Poland Financial Times Survey ImiddotX (UX) April 28 1992

Sachs Jeffrey Building a Market Economy in Poland ScientificAmerishycan (US) 26634-40 March 1992

Stephens Clifford and Gavin Gray Personnel Problems [in CEE counshytries] Central European (UK) 1020shy33 March 1992

Valencia Matthew Czech Republic The Road to Reform Central Euroshypean (UK) 1020-33 March 1992

Asia

Beresford Melanie and Lyn Fraser Political Economy of the Environshyment in Vietnam Journal ofContem porary Asia (Philippines) 22 No 13shy19 1992

Gongwen Fang Integrating Socialmiddot ist Public Ownership with the Comshymodity Economy Social Sciences in China (China) 1313-22 January 1992

Pike Douglas Vietnam in 1992 The Turning Point Asian Survey (US) 3274-81 January 1992

Shim Jae Hoon Price of Unity [in Korea] Far Eastern Economic Review (Hong Kong) 15554-61 March 261992

Africa

Merten Marianne Nation in Transimiddot tion [Mozambique]Al7-ica Economic Digest (UK) 13p5 January 27-rebshyruary 9 1992

Robson Emma Conservation Through Human Development [in Madagascar] World Development (UK) 510-15 January 1992

Salih Hamid Ethiopia Economic Prospects_ Sudanow (Sudan) 17p25 January 1992

TRANSITION is a regular publication of the World Banks Socialist Economic Refonn Unit The fIndings views and interpretations published in the articles are those of the authors and should not be attributed to the World Bank or its affiliated organizations Nor do any of the interpretations or conclusions necessarily represent official policy of the World Bank or (If its Executive Directors or the countries they represent Richard Hirschler is the editor and production manager Desktoppingis by Mary Mahy for the Policy Research Dissemination Center To be on the distribution list send name and address to Richard Hirschler Room N-6027 The World Bank 1818 H S~t NW Washington DC 20433 orcall (202)473-6982 or fax (202) 676-0439 Infonnationon upcoming conferences on 8Odalisteconomies indication of subjects ofspecial interest to our readers letters to the editor and any other reader contributions are appreciatEd

April 1992 16 Volume 3 Number 4

-Tronsfflon The World BankCECSE

World BankIMF Agenda

IMFSupport for Russian Privatshyization

Russia laW1ched a program in Nizhny Novgorod (formerly Gorki) in early April to privatize more than 2000 small-scale statemiddotowned enterprises The International Finance Corporashytion ClFC) designed the program which entails auctioning off cafes shops and stores to Russian citizens Under the plan any Russian can register as a potential buyer of an enterprise The sellmiddotoff includes an installment-payshyment system to enable employees to purchase the enterprises for which they work The IFC has also begun work on a pilot program to privatize enterprises in the food and energy sectors and to convert defense industries into facilimiddot ties that will produce consumer goods NizhnyNovgorod is Russias third largshyest city

Longer List for ESAF

The IMF has added 11 countries to the list of member states eligible for funds from the Enhanced Structural Adjust-

ment Facility (ESAF) Among them Albania Angola Mongolia and Nicashyragua will now be eligible for the IMFs concessionalloans

IMF Support to Czechoslovakia

The IMF approved a $322 million standshyby credit to Czechoslovakia in early April The money will be available to support economic reforms and privatization The IMFpraised the sigshynificant progress Czechoslovakia achieved last year in liberalizing its economy taminginflation and improvshying its trade position

bulland to Bulgaria

The IMF approved a $212 million stand-by credit to Bulgaria over the next 12 months in support of the governments economic and financial program The 1992 program includes reducing the monthly inflation rate to 2 percent by the end of the year conshytaining the decline of output to about 4 percent and increasing imports by 9 percent this year Remaining restricmiddot

New Chapter in Bretton Woods Twins History Russia andother republtcs othpound ormer USSR were provisionally admitud to the IMF and the World Bank on 27 April (For procedural reasons AzerbaijanS applicDtions to both inshystitutions were denied 08 WQ8 Turkmenistans applicDtion for pdmission to the World Banll bull Bothcountries are likely to become provisional members in May however) The 15 republics will have a combined share in the IMFof476 percent ofuhich Russw will have 3 percent

The IS states together will control 505 permiddot cent of the World Banlls shares of which

Russia will have 292 perrcnL

Authorized capital from tlut World Bank and the IDA was increased in April to enable the republICS of the former Sov~t Union to purshychase shares allocated to them The total aumiddot thoriud capitat of1448500 shares equivashylent to$17474 billion WQ8 increased by 77159 shares equivalent w $93 billion represtntmiddot ing 505 percent of the World Bahks shares Gfthe 15countr~sRussiawill havethelarg est number ofshares 44795 giving the COUll

try a voting power of 292 percent Thu will put Russia on a par with Canada India Italy and Saudi Arabia

Share subscriptions of the new membera of the World Bank

Armenia 1139 Lithuania 1507 Azerbaijan 1646 Moldova 1368 Belarus 3323 Russian Fed 44795 Estonia 923 Tajikistan 1060 Georgia 1584 Turkmenistan ~337

Kazakhstan 2985 Ukraine 10908 Kyrgyzstan 1107 Uzbekistan 2193 Latvia 1384

Total 77159

Approval by tlut republics legislatures is still required for full admission in tMse organizamiddot tions In order to become members tM countriu will need to pay in a total of $540 miUion of capital Membership will make the former Scshyviet republicseltgible to receive $65 billion to $9 billion yearly from the IMF and total lending from both institutions could reach $40 billion during the nat four years Tht rnajority ofthis lending is likely to go to Russia for whom $45 billion in IMF and World Banlc aid was pledged by the Gmiddot 7 industrialized countries on 1 April MF membership will cilso unlocJc otMrforms of

tions on sale of agricultural land are to be lifted

World Bank Loans to China

The World Bank is lending $310 milshylion to China to finance the expansion of the Zouxian thermal power plant The addition of two generating units will help alleviate power shortages in Shandong Province and promote ecoshynomic development in the region The loan will also finance a study on minishymizing air pollution

and to Hungary

The World Bank has approved a $200 million loan to Hungary for privatization and structural renewal Finance Minister Mihaly Kupa and Hungarian Central Bank President Akos Bod Peter signed at accord in Washington with Bank officials forreshypayment of the loan over a period of 15 years Another $100 million loan was also signed it is to support domestic trade specifically product market deshyvelopment in Hungary

G-7largess including $6 billion for a roble stabilization fund $25 billion in debt defermiddot ral and $11 biJlion ingovernment middotwmiddotgovernmiddot ment aid

The World Bank anticipaus making its first loan for about $500 million to Russia this summer for the purchaseofessential Imports By the end of this year according to a Bank spokesperson total loan cmmitments could reach $15 billion By the end of 1994 Bank loan commitments to the republics could be between $4 billion and $5 billion a year (see page 9) Lending would start with a roughly $4 billion IMF loan w Russia perhaps as early as June

Tlut IMPs Interim Committee durtng its Washington meeting called for a prompt implementation of IMF-backed reforms in the former Souiet Union It also called or the provision of adequate technical assistance and financial support for such programs and to help finance a stabilizatLOn und or the ruble provided that conditIOns are appromiddot priaU

April 1992 14 Volume 3 Number 4

Transition The World BarnltCECSE

Conference Diary

Transition-DevelopmentEconomics May 11 Berlin Germany

Workshop at the Berghof Institute of the Free University of Berlin entitled PostmiddotSocialist Transition from a Deshyvelopment Economics Point of View The workshop incorporates theinsights of early development economics parshyticularly Albert Hirschmans unbalshyanced growth doctrine into the theory of post-socialist transition It will focus on the selfmiddot propelling reform sequence that is whether starting an initial shock (Poland Russia) could generate moshymentum strong enough to continue in an evolutionary way Topics also inshyclude savings intermediation and inshyvestment behavior and challenges of foreign trade liberalization Information Yeugeny Kuznetsou Center for Inmiddot ternational Studies Cornell University 180 Uris Hall Ithaca NY 14853-7601 Tel (607) 255middot 6484

Privatization and Market Mechashynisms A Comparative Approach May 14-15 Budapest Hungary

Organized by the Association Internatiol1ale de Droit Economique (Internatic nal Association for Economic Law) in collaboration with the Hungarshyian Association for the lrotection of Industrial Property The discussion brings togf~ther leading academics and policymakers from the public and prishyvate sector in different countries Four workshops will discuss legal requireshyments in a iUnctioning market economy technique~ofprivatization social rights and privatization and sectoral aspects of privati2ation (telecommunications financial system) InforfUltion General Secretarial of AIDE Place Montelquieu 3 1348 Lourain La Neuue Belgium Tei32middot10middot47middot39middot70ax32middot1()47-39middot 45

Taxation in Eastern Europe May 15-16 Cambridge UK

Workshop organized by the Centre for Economic Policy Research London as part of their research program Ecoshynomic Transformation of Eastern Eushyrope Topics include instability and

VolJme 3 NulTOef 4

uncertainty of the fiscal position durshying transition the case of Poland tax reforms in Poland and Czechoslovashykia ownership and taxation in transishytional economies Information Centre for Economic Policy Remiddot search 6 Duke of York Street London SWIY 6LA 1 Tel (4471) 930middot2963 fax (4471) 930middot 8454

CIS Food Crisis May 17-20 Middlebury Vermont US

Geonomics Spring Seminar limited to about 50 people The seminar will assess the findings of a survey conshyducted in early April in Russia Ukraine and Kazahkstan About 700 private farmers and collective and state farm managers were interviewed about their attitudes toward and the impact of agrarian reform in the three states The survey was conducted unmiddot der the direction of Vera Matusevich Russian professor of agrobusiness management After analyzing the surshyvey data and considering background papers in panel discussions recomshymendations will be made in the followshying areas food affordability and availshyability interrepublic trade and relashytions the role of the West Information George Bellerose Editor Geonomics Institute 14 Hillcrest Auenue Middlebury IT 05753-6116 Tel (802) 388middot 9619 fax (802) 388middot9627

Competition and Regulation in Transition Jule 8-9 London UK

International conference sponsored by the London Business Schools CenshymforBusiness Strategy and the ESRC East-West Initiative The conference will analyze emerging competition polishycies and regulatory frameworks for utilities in the post-socialist econoshymies It will bring together practitioshyners from ministries and regulatory agencies to set out their plans for comment by representatives of intershynational funding agencies as well as Western academic observers Speakshyers on competition policy include high officials from Hungary the Slovak Republic and Germany regulation policy experts from Poland Czechoshy

15

slovakia the World Bank (Timothy Nulty) and the EBRD will address the conference Information Eleanor Burke London Business School Sussex Place Regents Park London NWI 4SA England Tel (4471) 262-5050 ext 440

To Learn from the Experiences of Brazil and Argentina June 23-25 Buenos Aires Argentina

Workshop entitled Long-run Indusshytrial Policy in Short-run Crisis Manshyagement Recent Lessons from Brazil and Argentina and Their Applications for Transformation in the Russian Fedmiddot eration Under the auspices of the Social Science Research Council (New York) the workshop will explore ecoshynomic and political implications of nonmarginal industrial downsizing in Latin America and Russia Participants from Russia South America and the United States will discuss failures of Latin American imports substitution policy and the prospects for success of thenewinterventionism which seeks to guide the market not replace it Information Yeugeny Kuznetsou Center for International Studies Cornell University 180 Uris Hall Ithaca NY 14853middot7601 Tel (607) 255-6484

~-

Perhaps we could l8P1ace the BerliD

Wall with a screen

From the Financial Times

April 1992

c=oo

Transition The Wond BankCECSE

Staff may contact the Joint BankmiddotFund Library 202middot623- 7054BIBLIOGRAPHY OF SELECTED ARTICLES

Post-Socialist Economies

Holzmann Robert Budgetary Issues of Subsidy -Reduction When Movshying from Pian to Market_ Girozentrale Quartalshefte (Austria) 26 No 457 -80 1990

Qian YingyiEquityEfficiencyand Incentives in a Large Economy Journal of Comparative Economics (US) 1627-46 March 1992

Rose Richard Toward a Civil EconomyJournalofDemocracy(US) Vol 3213-26 April 1992

Sundararajan V Central Banking Reforms in Formerly Planned Economies Finance andDevelopment IMFIWorld BankClnternational) 2910shy13 March 1992

Yin Xiangkang Demand and Shortmiddot age ofDurable Consumer Goods in Socialist CountriesApplied Economshyics (UK) 24219-25 February 1992

CIS and the Baltic States

Cole John PRepublicsofthe Former USSR in the Context of a United Europe and New World Order Soshyviet Geography (US) 32587-603 Noshyvember 1991

Johnson Chesmiddotter Public Finance for the New Order Succeeding the USSRmiddot Government Finance Review (US) 817-21 February 1992

Johnson Simon and Heidi Kroll Manashygerial Strategies for Spontaneous Privatization Soviet Economy (US) 7281-316 October-December 1991

Kagalovsky Konstantin Prospects for a Capitalist Russia EconomicAffairs (UK) 1226-28 November 1991 An interview with Dr Konstantin Kagalovsky (adviser to Boris Yeltsin) by Harry Phibbs

Kase Robert D Petroleum Perestroika Columbia Journal of

World Business (US) 26[16]-28 Winter 1992

Moltz James Clay Commonwealth Ecoshynomics in Perspective Lessons from the East Asian Model Soviet Economy (US) 7342-63 OctobermiddotDecember 1991

Padovano Fabio Budget Deficit in the Soviet Economic System Origins and Perspectives Economia Delle Scelte Pubbliche (Italy) No 1991-1[ 41J56 1991

Reiner Thomas A Land and Housing in the USSRduringthe GorbachevYears Soviet Geography (US) 32683-700 Deshycember 1991

Salameh Mamdouh G Soviet Oil Indusmiddot try in Mid-I9910pec Review Organizashytion of Petroleum Exporting CountriesClnshyternational) 15379-88 Winter 19H

CEE

Akhmeduev A Destatization and the Development of Forms of Property Problems ofamponomicsAJournal ofTransshylations (US) 3435-44 December 1991

Alter Rolf New Challenge in Eastern Europe bwestment and Restructurmiddot ing Intereconomics Review of Internashytional Trade and Development (Gennany) 2716-19 January-February 1992

Antowska-Bartosiewicz I wonaand Witol d Malecki Brady Plan and the Polish Debt Reduction Soviet and Eastern European Foreign Trade (US) 27[24]-43 Fall 1991

Feinberg Richard E Paltry Aid to Censhytral Europe Challenge (US) 3536-43 January-February 1992

Geipel Gary L A Tom~z Jarmoozko and Seymour E Goodman Information Technologies and East European Somiddot cieties East European Politics and Socishyeties EEPS (US) 5394-438 Fall 1991

Gowan Peter Old Medicine New Bottles Western Policy Toward East Central Europe World Policy Journal

(US) 9[1]-33 Winter 1991-92

Poland Financial Times Survey ImiddotX (UX) April 28 1992

Sachs Jeffrey Building a Market Economy in Poland ScientificAmerishycan (US) 26634-40 March 1992

Stephens Clifford and Gavin Gray Personnel Problems [in CEE counshytries] Central European (UK) 1020shy33 March 1992

Valencia Matthew Czech Republic The Road to Reform Central Euroshypean (UK) 1020-33 March 1992

Asia

Beresford Melanie and Lyn Fraser Political Economy of the Environshyment in Vietnam Journal ofContem porary Asia (Philippines) 22 No 13shy19 1992

Gongwen Fang Integrating Socialmiddot ist Public Ownership with the Comshymodity Economy Social Sciences in China (China) 1313-22 January 1992

Pike Douglas Vietnam in 1992 The Turning Point Asian Survey (US) 3274-81 January 1992

Shim Jae Hoon Price of Unity [in Korea] Far Eastern Economic Review (Hong Kong) 15554-61 March 261992

Africa

Merten Marianne Nation in Transimiddot tion [Mozambique]Al7-ica Economic Digest (UK) 13p5 January 27-rebshyruary 9 1992

Robson Emma Conservation Through Human Development [in Madagascar] World Development (UK) 510-15 January 1992

Salih Hamid Ethiopia Economic Prospects_ Sudanow (Sudan) 17p25 January 1992

TRANSITION is a regular publication of the World Banks Socialist Economic Refonn Unit The fIndings views and interpretations published in the articles are those of the authors and should not be attributed to the World Bank or its affiliated organizations Nor do any of the interpretations or conclusions necessarily represent official policy of the World Bank or (If its Executive Directors or the countries they represent Richard Hirschler is the editor and production manager Desktoppingis by Mary Mahy for the Policy Research Dissemination Center To be on the distribution list send name and address to Richard Hirschler Room N-6027 The World Bank 1818 H S~t NW Washington DC 20433 orcall (202)473-6982 or fax (202) 676-0439 Infonnationon upcoming conferences on 8Odalisteconomies indication of subjects ofspecial interest to our readers letters to the editor and any other reader contributions are appreciatEd

April 1992 16 Volume 3 Number 4

Transition The World BarnltCECSE

Conference Diary

Transition-DevelopmentEconomics May 11 Berlin Germany

Workshop at the Berghof Institute of the Free University of Berlin entitled PostmiddotSocialist Transition from a Deshyvelopment Economics Point of View The workshop incorporates theinsights of early development economics parshyticularly Albert Hirschmans unbalshyanced growth doctrine into the theory of post-socialist transition It will focus on the selfmiddot propelling reform sequence that is whether starting an initial shock (Poland Russia) could generate moshymentum strong enough to continue in an evolutionary way Topics also inshyclude savings intermediation and inshyvestment behavior and challenges of foreign trade liberalization Information Yeugeny Kuznetsou Center for Inmiddot ternational Studies Cornell University 180 Uris Hall Ithaca NY 14853-7601 Tel (607) 255middot 6484

Privatization and Market Mechashynisms A Comparative Approach May 14-15 Budapest Hungary

Organized by the Association Internatiol1ale de Droit Economique (Internatic nal Association for Economic Law) in collaboration with the Hungarshyian Association for the lrotection of Industrial Property The discussion brings togf~ther leading academics and policymakers from the public and prishyvate sector in different countries Four workshops will discuss legal requireshyments in a iUnctioning market economy technique~ofprivatization social rights and privatization and sectoral aspects of privati2ation (telecommunications financial system) InforfUltion General Secretarial of AIDE Place Montelquieu 3 1348 Lourain La Neuue Belgium Tei32middot10middot47middot39middot70ax32middot1()47-39middot 45

Taxation in Eastern Europe May 15-16 Cambridge UK

Workshop organized by the Centre for Economic Policy Research London as part of their research program Ecoshynomic Transformation of Eastern Eushyrope Topics include instability and

VolJme 3 NulTOef 4

uncertainty of the fiscal position durshying transition the case of Poland tax reforms in Poland and Czechoslovashykia ownership and taxation in transishytional economies Information Centre for Economic Policy Remiddot search 6 Duke of York Street London SWIY 6LA 1 Tel (4471) 930middot2963 fax (4471) 930middot 8454

CIS Food Crisis May 17-20 Middlebury Vermont US

Geonomics Spring Seminar limited to about 50 people The seminar will assess the findings of a survey conshyducted in early April in Russia Ukraine and Kazahkstan About 700 private farmers and collective and state farm managers were interviewed about their attitudes toward and the impact of agrarian reform in the three states The survey was conducted unmiddot der the direction of Vera Matusevich Russian professor of agrobusiness management After analyzing the surshyvey data and considering background papers in panel discussions recomshymendations will be made in the followshying areas food affordability and availshyability interrepublic trade and relashytions the role of the West Information George Bellerose Editor Geonomics Institute 14 Hillcrest Auenue Middlebury IT 05753-6116 Tel (802) 388middot 9619 fax (802) 388middot9627

Competition and Regulation in Transition Jule 8-9 London UK

International conference sponsored by the London Business Schools CenshymforBusiness Strategy and the ESRC East-West Initiative The conference will analyze emerging competition polishycies and regulatory frameworks for utilities in the post-socialist econoshymies It will bring together practitioshyners from ministries and regulatory agencies to set out their plans for comment by representatives of intershynational funding agencies as well as Western academic observers Speakshyers on competition policy include high officials from Hungary the Slovak Republic and Germany regulation policy experts from Poland Czechoshy

15

slovakia the World Bank (Timothy Nulty) and the EBRD will address the conference Information Eleanor Burke London Business School Sussex Place Regents Park London NWI 4SA England Tel (4471) 262-5050 ext 440

To Learn from the Experiences of Brazil and Argentina June 23-25 Buenos Aires Argentina

Workshop entitled Long-run Indusshytrial Policy in Short-run Crisis Manshyagement Recent Lessons from Brazil and Argentina and Their Applications for Transformation in the Russian Fedmiddot eration Under the auspices of the Social Science Research Council (New York) the workshop will explore ecoshynomic and political implications of nonmarginal industrial downsizing in Latin America and Russia Participants from Russia South America and the United States will discuss failures of Latin American imports substitution policy and the prospects for success of thenewinterventionism which seeks to guide the market not replace it Information Yeugeny Kuznetsou Center for International Studies Cornell University 180 Uris Hall Ithaca NY 14853middot7601 Tel (607) 255-6484

~-

Perhaps we could l8P1ace the BerliD

Wall with a screen

From the Financial Times

April 1992

c=oo

Transition The Wond BankCECSE

Staff may contact the Joint BankmiddotFund Library 202middot623- 7054BIBLIOGRAPHY OF SELECTED ARTICLES

Post-Socialist Economies

Holzmann Robert Budgetary Issues of Subsidy -Reduction When Movshying from Pian to Market_ Girozentrale Quartalshefte (Austria) 26 No 457 -80 1990

Qian YingyiEquityEfficiencyand Incentives in a Large Economy Journal of Comparative Economics (US) 1627-46 March 1992

Rose Richard Toward a Civil EconomyJournalofDemocracy(US) Vol 3213-26 April 1992

Sundararajan V Central Banking Reforms in Formerly Planned Economies Finance andDevelopment IMFIWorld BankClnternational) 2910shy13 March 1992

Yin Xiangkang Demand and Shortmiddot age ofDurable Consumer Goods in Socialist CountriesApplied Economshyics (UK) 24219-25 February 1992

CIS and the Baltic States

Cole John PRepublicsofthe Former USSR in the Context of a United Europe and New World Order Soshyviet Geography (US) 32587-603 Noshyvember 1991

Johnson Chesmiddotter Public Finance for the New Order Succeeding the USSRmiddot Government Finance Review (US) 817-21 February 1992

Johnson Simon and Heidi Kroll Manashygerial Strategies for Spontaneous Privatization Soviet Economy (US) 7281-316 October-December 1991

Kagalovsky Konstantin Prospects for a Capitalist Russia EconomicAffairs (UK) 1226-28 November 1991 An interview with Dr Konstantin Kagalovsky (adviser to Boris Yeltsin) by Harry Phibbs

Kase Robert D Petroleum Perestroika Columbia Journal of

World Business (US) 26[16]-28 Winter 1992

Moltz James Clay Commonwealth Ecoshynomics in Perspective Lessons from the East Asian Model Soviet Economy (US) 7342-63 OctobermiddotDecember 1991

Padovano Fabio Budget Deficit in the Soviet Economic System Origins and Perspectives Economia Delle Scelte Pubbliche (Italy) No 1991-1[ 41J56 1991

Reiner Thomas A Land and Housing in the USSRduringthe GorbachevYears Soviet Geography (US) 32683-700 Deshycember 1991

Salameh Mamdouh G Soviet Oil Indusmiddot try in Mid-I9910pec Review Organizashytion of Petroleum Exporting CountriesClnshyternational) 15379-88 Winter 19H

CEE

Akhmeduev A Destatization and the Development of Forms of Property Problems ofamponomicsAJournal ofTransshylations (US) 3435-44 December 1991

Alter Rolf New Challenge in Eastern Europe bwestment and Restructurmiddot ing Intereconomics Review of Internashytional Trade and Development (Gennany) 2716-19 January-February 1992

Antowska-Bartosiewicz I wonaand Witol d Malecki Brady Plan and the Polish Debt Reduction Soviet and Eastern European Foreign Trade (US) 27[24]-43 Fall 1991

Feinberg Richard E Paltry Aid to Censhytral Europe Challenge (US) 3536-43 January-February 1992

Geipel Gary L A Tom~z Jarmoozko and Seymour E Goodman Information Technologies and East European Somiddot cieties East European Politics and Socishyeties EEPS (US) 5394-438 Fall 1991

Gowan Peter Old Medicine New Bottles Western Policy Toward East Central Europe World Policy Journal

(US) 9[1]-33 Winter 1991-92

Poland Financial Times Survey ImiddotX (UX) April 28 1992

Sachs Jeffrey Building a Market Economy in Poland ScientificAmerishycan (US) 26634-40 March 1992

Stephens Clifford and Gavin Gray Personnel Problems [in CEE counshytries] Central European (UK) 1020shy33 March 1992

Valencia Matthew Czech Republic The Road to Reform Central Euroshypean (UK) 1020-33 March 1992

Asia

Beresford Melanie and Lyn Fraser Political Economy of the Environshyment in Vietnam Journal ofContem porary Asia (Philippines) 22 No 13shy19 1992

Gongwen Fang Integrating Socialmiddot ist Public Ownership with the Comshymodity Economy Social Sciences in China (China) 1313-22 January 1992

Pike Douglas Vietnam in 1992 The Turning Point Asian Survey (US) 3274-81 January 1992

Shim Jae Hoon Price of Unity [in Korea] Far Eastern Economic Review (Hong Kong) 15554-61 March 261992

Africa

Merten Marianne Nation in Transimiddot tion [Mozambique]Al7-ica Economic Digest (UK) 13p5 January 27-rebshyruary 9 1992

Robson Emma Conservation Through Human Development [in Madagascar] World Development (UK) 510-15 January 1992

Salih Hamid Ethiopia Economic Prospects_ Sudanow (Sudan) 17p25 January 1992

TRANSITION is a regular publication of the World Banks Socialist Economic Refonn Unit The fIndings views and interpretations published in the articles are those of the authors and should not be attributed to the World Bank or its affiliated organizations Nor do any of the interpretations or conclusions necessarily represent official policy of the World Bank or (If its Executive Directors or the countries they represent Richard Hirschler is the editor and production manager Desktoppingis by Mary Mahy for the Policy Research Dissemination Center To be on the distribution list send name and address to Richard Hirschler Room N-6027 The World Bank 1818 H S~t NW Washington DC 20433 orcall (202)473-6982 or fax (202) 676-0439 Infonnationon upcoming conferences on 8Odalisteconomies indication of subjects ofspecial interest to our readers letters to the editor and any other reader contributions are appreciatEd

April 1992 16 Volume 3 Number 4

Transition The Wond BankCECSE

Staff may contact the Joint BankmiddotFund Library 202middot623- 7054BIBLIOGRAPHY OF SELECTED ARTICLES

Post-Socialist Economies

Holzmann Robert Budgetary Issues of Subsidy -Reduction When Movshying from Pian to Market_ Girozentrale Quartalshefte (Austria) 26 No 457 -80 1990

Qian YingyiEquityEfficiencyand Incentives in a Large Economy Journal of Comparative Economics (US) 1627-46 March 1992

Rose Richard Toward a Civil EconomyJournalofDemocracy(US) Vol 3213-26 April 1992

Sundararajan V Central Banking Reforms in Formerly Planned Economies Finance andDevelopment IMFIWorld BankClnternational) 2910shy13 March 1992

Yin Xiangkang Demand and Shortmiddot age ofDurable Consumer Goods in Socialist CountriesApplied Economshyics (UK) 24219-25 February 1992

CIS and the Baltic States

Cole John PRepublicsofthe Former USSR in the Context of a United Europe and New World Order Soshyviet Geography (US) 32587-603 Noshyvember 1991

Johnson Chesmiddotter Public Finance for the New Order Succeeding the USSRmiddot Government Finance Review (US) 817-21 February 1992

Johnson Simon and Heidi Kroll Manashygerial Strategies for Spontaneous Privatization Soviet Economy (US) 7281-316 October-December 1991

Kagalovsky Konstantin Prospects for a Capitalist Russia EconomicAffairs (UK) 1226-28 November 1991 An interview with Dr Konstantin Kagalovsky (adviser to Boris Yeltsin) by Harry Phibbs

Kase Robert D Petroleum Perestroika Columbia Journal of

World Business (US) 26[16]-28 Winter 1992

Moltz James Clay Commonwealth Ecoshynomics in Perspective Lessons from the East Asian Model Soviet Economy (US) 7342-63 OctobermiddotDecember 1991

Padovano Fabio Budget Deficit in the Soviet Economic System Origins and Perspectives Economia Delle Scelte Pubbliche (Italy) No 1991-1[ 41J56 1991

Reiner Thomas A Land and Housing in the USSRduringthe GorbachevYears Soviet Geography (US) 32683-700 Deshycember 1991

Salameh Mamdouh G Soviet Oil Indusmiddot try in Mid-I9910pec Review Organizashytion of Petroleum Exporting CountriesClnshyternational) 15379-88 Winter 19H

CEE

Akhmeduev A Destatization and the Development of Forms of Property Problems ofamponomicsAJournal ofTransshylations (US) 3435-44 December 1991

Alter Rolf New Challenge in Eastern Europe bwestment and Restructurmiddot ing Intereconomics Review of Internashytional Trade and Development (Gennany) 2716-19 January-February 1992

Antowska-Bartosiewicz I wonaand Witol d Malecki Brady Plan and the Polish Debt Reduction Soviet and Eastern European Foreign Trade (US) 27[24]-43 Fall 1991

Feinberg Richard E Paltry Aid to Censhytral Europe Challenge (US) 3536-43 January-February 1992

Geipel Gary L A Tom~z Jarmoozko and Seymour E Goodman Information Technologies and East European Somiddot cieties East European Politics and Socishyeties EEPS (US) 5394-438 Fall 1991

Gowan Peter Old Medicine New Bottles Western Policy Toward East Central Europe World Policy Journal

(US) 9[1]-33 Winter 1991-92

Poland Financial Times Survey ImiddotX (UX) April 28 1992

Sachs Jeffrey Building a Market Economy in Poland ScientificAmerishycan (US) 26634-40 March 1992

Stephens Clifford and Gavin Gray Personnel Problems [in CEE counshytries] Central European (UK) 1020shy33 March 1992

Valencia Matthew Czech Republic The Road to Reform Central Euroshypean (UK) 1020-33 March 1992

Asia

Beresford Melanie and Lyn Fraser Political Economy of the Environshyment in Vietnam Journal ofContem porary Asia (Philippines) 22 No 13shy19 1992

Gongwen Fang Integrating Socialmiddot ist Public Ownership with the Comshymodity Economy Social Sciences in China (China) 1313-22 January 1992

Pike Douglas Vietnam in 1992 The Turning Point Asian Survey (US) 3274-81 January 1992

Shim Jae Hoon Price of Unity [in Korea] Far Eastern Economic Review (Hong Kong) 15554-61 March 261992

Africa

Merten Marianne Nation in Transimiddot tion [Mozambique]Al7-ica Economic Digest (UK) 13p5 January 27-rebshyruary 9 1992

Robson Emma Conservation Through Human Development [in Madagascar] World Development (UK) 510-15 January 1992

Salih Hamid Ethiopia Economic Prospects_ Sudanow (Sudan) 17p25 January 1992

TRANSITION is a regular publication of the World Banks Socialist Economic Refonn Unit The fIndings views and interpretations published in the articles are those of the authors and should not be attributed to the World Bank or its affiliated organizations Nor do any of the interpretations or conclusions necessarily represent official policy of the World Bank or (If its Executive Directors or the countries they represent Richard Hirschler is the editor and production manager Desktoppingis by Mary Mahy for the Policy Research Dissemination Center To be on the distribution list send name and address to Richard Hirschler Room N-6027 The World Bank 1818 H S~t NW Washington DC 20433 orcall (202)473-6982 or fax (202) 676-0439 Infonnationon upcoming conferences on 8Odalisteconomies indication of subjects ofspecial interest to our readers letters to the editor and any other reader contributions are appreciatEd

April 1992 16 Volume 3 Number 4