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TransitionEconomicsDivision * PolicyResearch Department TheWorldBank

Measuring Transition Is ToughObservations of EBRD's First Transition Report Editor

K asperBartholdy, a senior econ- Several countries took decisive steps in an economy shouldbeprimarilyprivate;omist from Denmark, headed thedirectionofprivatizinglargecompa- that most prices, interest rates, and for-theeditorial group oftheEBRDYs nies, including Armenia, Slovenia, and eign trade should be free from adminis-

inaugural Transition Report,which will Ukraine. Also, several countries-such trative control; andthat banking shouldhenceforth be an annual publication of as Belarus, Ukraine, and some Central be competitive but subject to close su-the Chief Economist's Office. The Re- Asian states-significantly liberalized pervision. This view is reflected in theport analyzes institutional changes as their trade and domestic markets. The choice of indicators for last year's table.well as recent and future economic de- list attempts to measure how close thevelopments in Central and Eastern Eu- current economic structureineach coun- However, important aspects of the tran-rope and in countries of the formner So- try is to that of a "well functioning" sition process, including the role of theviet Union. In a London interview market economy. One ofthe difficulties state, legal changes, and the pace andBartholdyexplainedto JenniferP. Walker though is that different people have dif- sequencingofreform, wereleftoutofthefromthe World Bank's Transition news- ferent views on what the ingredients of a assessment. In these areas there is, ofletter the difficulties of measuring the well-functioning market economy are. course, much less agreement in the pro-progress in individual transition econo- Most would agreethat ownership in such fessional, financial, and academic com-Mnies, the statistical methods the Transi-tion Report uses and the accuracy of What's inside.., out of business, writes Hans-Peter Brun-tion Report ues and the acuracy of ss at o Iss;oluv;ner. (page 13)economic predictions. Future of Poland's Mass Privatization.

Lucja Swiatkowski Cannon analyses Gender in Transition-World BankQ. Since the EBRD's Transition Re- Poland's long-awaited mass privatization Conference in Bucharest. Mitigatingport was first pubfished, in October program. (page 7) the hardships of transition goes beyond

1994, what major new developments Quotation of the Month:" Eighty-five specific women's issues. (page 15)have occurred that could be included Percent of Committed Assistance Is Deal of the Century? (page 17)in the forthcoming report? Are there Debt-Creating." PECAT, a Warsaw-any spectacular changes in your based think tank, surveys Western aid to Milestones of Transition (page 18)n progress ist" (table, page 3), which Central Europe. (page 9) World Bank/IMF Agenda (page 20)

gave the best marks to the Czech Aid Conference in Washington. Greater Spring Meetings in WashingtonRepublic, closely followed by Esto- recipients involvement advised. (page 10) (page 23)mia, Hungary, Poland, and Slovakia.

Letters to the Editor. Electricity con- Conference Diary (page 24)A. Some recent developments are al- sumption as a substitute for GDP data? E-

mail exchange on the politics of entitle- New Books and Working Papersready listed in our Transition Report ment. (page 11) (page 25)Update. These developments may leadus to revise the assessments that are German Blitz-Privatization. Treuhand- Bibliography of Selected Articlesincludedinvwhatyoucalltlteprogresslist. anstalt has successfully privatized itself (age 32)

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The World Bank/PRDTE

munityaboutwhatis desirable and what cause at the start their Aecdnomy was the region's earliest and most rapidis not. Wewill bethinkinglongandhard much more state-dominated than those implementerofmarket-orientedreforms.about ways to address these aspects, but of the othertwo countries. The Czecho- The scope among the more resource-I will not guarantee that we will be able slovak authorities opted for comprehen- rich countries for converting their oil,to deliver a solution. sive voucher plivatization to give the gas, gold, and cotton into hard currency

population at large a stake in the reform looks somewhat less promising, at leastQ. How would you explain why tran- process. It was helpful that Czech- inthe very short run,thanit didtwo yearssition countries at similar develop- oslovakia's external andfiscal debtprob- ago. But after initial hesitation, mostment levels chose different routes to a lems were minuscule compared with Central Asian countries have comemarket economy? Diverse economic those facing Hungary and Poland. Low around to embracing market-orientedpolicies ofthe VisegradFourordiffer- debt levels allowed consideration of reform.Wemayseetherestoftheregioning economic strategies within the voucher privatization that would yield follow suit within the next few years.Central Asian states of the former only small amounts of revenue for theSoviet Union are good examples. state. It is more difficult to understand Q. As you stated in your autumn re-

Poland'scomparativelymodestprogress port, most transition countries fallA. Let me start off with the Visegrad on large-scale privatization. The Polish into the "middle income" category,countries. They all pursued relatively authorities have, from a very difficult having inherited more equal incometight stabilization programs in the early distribution and better health andphase of transition. They all moved schooling indicators than the averagequickly to liberalize prices, free up for- in this group. In your view, what areeigntrade, andprivatize small-scale units themostefficientmethods to dismantleofproduction. True, "quickly" mayhave the unsustainable welfare systemsslightly different meanings for the three X without losing the political support ofcountries. For instance, in Hungary lib- 1 the electorate?eralization of prices and trade began in A Iearnest around 1988 and was phased in A. It is never easy for politicians to cutgradually over the next three years. In benefitsthatpeoplehavecometo regardPolandandtheformer Czechoslovakia a European Bank as permanent entitlements. But welfaremore comprehensive liberalization was for Reconstruction and benefits must be reformed as the transi-implemented during the early stage of Development tion process increases strains on publictransition, but it got started slightly later . finances, despite vigorous cutbacks inthan liberalization in Hungary. Transition Report capital expenditures andin subsidiesgiven

October 1994 to enterprises and consumers. Tax rev-There is a more substantial difference, enues becomemoredifficuittocollectashowever, betweenthesecountries'priva- economic activity becomes increasinglytization strategies for large enterprises. concentratedintheprivatesector. Mean-Early inthe reform process the Hungar- startingpoint, successfully implemented while, pressure for new expendituresian authorities had a greater need to a radical stabilization program over a arises, for example, as a consequence ofmaximize revenues from privatization protracted period. But they have found open unemployment. In some countriesthantheircolleagues in Czechoslovakia. it much more difficult and controversial this pressure has combined with unfa-Meanwhile, because of risk factors, the tomoveforwardwithprivatization. [See vorable demographic trends that threa-Hungarians were better able to attract articleon Poland's privatization, page7. ten, in the absence ofreform, to substan-foreig investorsthanthePolishauthori- The Editor] tially raise spending on pensions, healthties. This factor and the wish to attract care, and family benefits.new owners who could lift the degree of Governments in natural resource-richcorporategovemanceledtheHungarian Central Asian countries have been It is crucial in reformingthe benefit sys-authoritiestofocustheirlarge-scalepriva- tempted initially to put off reform, con- temthatgovemments explaintotheelec-tizationeffortsonsalesto strategicinves- sideringfinancialpressures asbeingrela- torate the reason for the reforms. Re-tors. tively weak. On the other hand, formsthusrequireapublicrelationseffort.

Inthe former Czechoslovakia there was Kyrgyzstan-acountrywitharelatively Furthermore, the move toward benefitsmore emphasis on speed, possibly be- modest natural resource base-became systems that are based on means testing,

2 April 1995

Transition

Progress in Transition ini3Eastern Europe and the Former difficulties. For many years we will notSoviet Union be able to rely with any confidence on

econometric modeling methods, as mostPrivate Enterprise Trade availabledata series areseriouslyflawed

sector share privatization Price and foreign by measurement problems and struc-

of GDP in liberali- exchange Bank- tural breaks. The forecasts from the

mid-1994 Large- Srnall- Restruct- zation and system ing Overall EBRDaswellasfromotheragencieswill

Country (percent) scale scale uring competition reform reform score" remain rough. They will cortiinue to be

Albania 50 1 3 2 3 4 2 [15] based onbroad assumptions and consid-erations ratherthan sophisticated statis-

Arbaenia 40 1 3 1 3 2 1 [11] tical analysis. In the absence of a better

Azerbaijan 20 1 1 1 3 1 1 [8] altemativewewill,forthepurposeofthe

Belarus 15 2 2 2 2 1 1 [10] Transition Report, use the approach

Bulgaria 40 2 2 2 3 4 2 [15] commonly followed by other forecast-

Croatia 40 3 4 2 3 4 3 [19] ers operatingin the region: tryto predict

Czech Republic 65 4 4 3 3 4 3 [21] what the region's govenmments ' esti-

Esbania 55 3 4 3 3 4 3 [20] matesforgrowthandinflationwillbe.If

FYR Macedonia 35 2 4 2 3 4 2 [17] we tried instead to forecast the "true"

Georgia 20 1 2 1 2 1 1 [8] GDP growth and inflation, correcting

Hungary 55 3 4 3 3 4 3 [20] errorsonofficialestimates,thenwewould

Kazakhstan 20 2 2 1 2 2 1 [10] have no benchmark against which theKyrgyzstan 30 3 4 2 3 3 2 [17] accuracy of our forecasts could be mea-

Kyrgyzstan 30 3 4 2 3 3 2 [17] sured.

Latvia 55 2 3 2 3 4 3 [17]

lithuania 50 3 4 2 3 4 2 [18] Q. What do you think of the Dobozi-Moldova 20 2 2 2 3 2 2 [13] Pohl proposal (Transition, January-

Poland 55 3 4 3 3 4 3 [20] February 1995) to measure GNP

Romania 35 2 3 2 3 4 2 [16] changes through changes in electric

Russian Federation 50 3 3 2 3 3 2 [16] power consumption?

SlovakRepublic 55 3 4 3 3 4 3 [20]

Slovenia 30 2 4 3 3 4 3 [19] Electricity consumption as a measure of

Tajilustan 15 2 2 1 3 1 1 [10] economic activity could be a useful indi-

Turkmenistan 15 1 1 1 2 1 1 [7] cator. The weaker the statistical system

Ukiraine 30 1 2 1 2 1 1 [8] is in general, the more useful other indi-Uzbekrtane 30 2 3 1 3 2 1 [12] cators become, such as electricity use.Uzbekistan 20 2 3 1 3 2 1 [12] Bttinttoupoes.asms

Butitis notwifthoutproblern. It assumesPerformance has been measured on a scale of 4 to 1, based on rough estimated by EBRD staff. constant ratios between electricity use

a. The overall score tallied by Transition, was not included in the original table. and value added. These may have

Source: EBRD Transition Report, October 1994. caged a lot, in either direction, duringthe transition. In Eastem Europe theefficiency of electricity use may have

ratherthan across-the-board cutbacksin reductions inbeuefits.Thereareno simple risen, but this is perhaps less intuitivelyuniversal benefits, may help contain the solutions, but fiscal pressures make re- clear in the case of the CIS countries,political fallout from the reforns. But form of these provisions inevitable. where the payment discipline for elec-meanstestingisnotaproblem-free,solu- tricity is weak.tion. It is difficult to administer, and for Q. What will be your method for fore-some individuals it may raise the effec- casing the 1995-96 development of Q. World Development Report 1996tivetaxrateonmarginal laborincometo transition economies? focuses on transition issues. Do youvery high levels. In some cases extra see any overlap between your publica-labor income may even be more than A. Little has changed since last year's tion and the World Bank's forthcom-offset by the sum of extra taxes and Transition Reportto reduce forecasting ing undertaking?

Volume 6, Number4 3


A. We have been in close and construc- between their publication and ours. We totheEBRD mandate, includingfactorstivecontactwiththeWorldBankteamto will aimto steer ourforthcoming Transi- that drive the investment process.prevent excessive overlap in coverage tion Report toward topics that are close

EBRD Reviews Labor Cost DifferencesThe average wage expressed in U.S. the dollar wage far outpaced reported Indicators of Competitive-dollars(the"dollarwage")rosein 1993- productivity growth, which in fact was ness for the Czech Republic,94 inthe Czech Republic, Hungary, and negative until 1994. The increase in the Hungary, and Poland,Poland. However, this does not neces- dollarwagereflectsthefactthatwagesin 1991-94sarily constitute evidence of an erosion local currency increased rapidly while (average percentage change)of competitiveness, partly because the thenominal exchangerateremainedfixedincreaseinthedollarwagemaybeoffset against a basket of hard currencies. La- corn1y9

.. . . .. ~~~~~~~~~~~~Indicator 1990 1991 1992 1993 1994byproductivitygrowth. A better indica- borproductivitymovements weredriventorofcompetitivenessisthedollarwage by the continued weakness of the index Czech Republic

adjusted for labor productivity, that is a formanufacturingoutput,whichfellpre- pricesa -8.1 -4.6 15.9 17.1 9.9

measure ofthe cost in common currency cipitouslyin 1990-92, droppedfurtherin Wages in manu-of labor inputs per unit produced ("unit 1993, androse onlymarginallyin 1994, facturingb -17.6 -28.9 22.7 21.4 15.7

labor cost"). In 1993 and 1994, labor longafterthe equivalent indexes inHun- Laborproductivltyin manu-

productivity in manufacturing grew in gary and Poland had begun to increase facturing-d -0.4 -16.6 -7.6 -3.5 5.7

Hungary and Poland at annual rates rapidly The lateand subduedtumaround Unit labor cost

ranging from about 8 to 16 percent (see in recorded industrial production in the imanu-table). Thus, despitethe rise inthe dollar CzechRepublicmayinpartbetheresult factuing d' -17.3 -14.8 32.8 25.8 9.5

wage inHungary and Poland, unit labor of measurement difficulties, leading to Hun-ycosts in dollar terms in manufacturing an understatement of labor productivity pricese 20.5 14.2 16.4 5.3 2

declined by about 9 percent in 1993 and growth and an overstatement ofthe rise Wages in manu-by about 4.5 percent in 1994 in these in unit labor cost. facturinge 14.8 6.2 19.8 5.6 3.2

counties. Labor productivityin nanu-

From the EBRD's Transition Report facturine 0.6 -20.9 126 16 7.9

By contrast, in the Czech Republic unit Update, EBRD, April 1995, 70 p. To Unit labor cost in

labor costs in manufacturing (in dollar order: One Exchange Square, London manu-

terms) rose roughly by 26 percent in EC2A2EH, UK, tel. (44171)338-6000. facturinge 14.2 34.3 6.4 -9 -4.41993 and 10 percent in 1994. The risein ColandConsumer

pricesa 3.9 16.4 11.0 1.7 2.7Wages in manu-

facturingb -28.2 19.8 6.9 4.5 7.3Labor productivityin manu-facturing-d -21.1 12.6 17.1 14.5 12.5

Unit labor costin msanu-facturing' -8.9 6.4 -8.7 -8.8 -4.6

a Local cmsumner price index converted into U.S.dollars at the average exchange rate for the year.b.Local wage in manufacturing ccavexted into U.S.dollars at the average exchange rate for the year.c.Manufacturing output per enployee in the manu-facturing sector.d.Percemtage shown for 1994 is the dcange betweenQl4-Q3ofl993andQl-Q3 of 1994.e.Cost in U.S. dollars of labor used in manufacturingper unit of gross oitput.

"Our financial problems are over. We are bankrupt." Source:EBRD n afficalculatims based o data from

the "OECD Short4merm Economic Indicators', no. 1,From the World Press Review/Liwanowski-Prawo 1995.

4 Aprill995

Transition

The EBRD in Russia-Concentrating LimitedResources

n an interview conducted by Jenni- A. The Bank began its operations in (but any single project's total cost mustfer P. Walker, Istvan Ipper, head of Russia in September 1991. As of late exceed 15 million dollars).the EBRIYs Russia country team, March 1995 we had more than $1.3

highlighted some major features of the billionworthofloanandequityfinancing Russia's medium-size and large priva-EBRD's operations in Russia, which is commitments related to 43 different tized enterprises badlyneed all kinds ofbecoming the EBRD's most important projectswithatotalprojectvalueof$3 .8 banlking services. To help develop thepartner. billion. Of these, 28 have been signed, localbankingandfmnancialinstitutions,a

committingtheBanktoproviding$945.7 joint EBRD-World Bank $100 millionQ. What changes have you experi- million, of which $228 nillionhas been loanintheFinanciallnstitutionDevelop-enced in Russian operations since disbursed. Russia is also the singlelarg- ment Program will support 15 RussianJacques de Larosiire decided to reor- est recipient of the Banks technical co- commercial banks (already selected). An-ganize the EBRD in November 1994? operation funds, worth $107 million, other 25 banks are to be picked in the

comingmonths. Withthis loan, thebanks

A. The Bank was restructured and the can enhance their financial soundnessmerchant and development banking di- and modernize their information tech-visionsmerged.Newcountryteamswere nology. Employing mainlytwinning ar-createdto givetheBanka stronger focus rangements leading foreign banks willo-.nindividual member states .Thati:s how * i _ # |providetechnical assistancetotheirRus-the Russia team was born. Now it is able w .l sianpartner banks on business plans andto respond more rapidlyto Russia's par- implementation strategies.ticular needs. hn another development,the EBRD's presence has increased re- 1Aspartofthisprogram,ajointlyfinancedmarkably in Russia. The Moscow Resi- EBRD-World Bank credit line calleddent Office, which was opened in March Enterprise Support Project (ESP) will1993, now has a staff of 26. Regional makeloanstotheabove-mentionedRus-representative offices now operate in sian commercial banks. The banks willVladivostok, covering the far east re- then lend the funds to Russian enter-gions, and in Volgograd, covering the prises that are large or medium-size, aresouthwestemarea, includingKrasnodar. (Technical cooperation funds are grants at least 75 percent privately owned, andThereis athirdregional representativein made available for the preparation of want to restructure.St. Petersburg andthere will be a fourth projects to bringthemto a level atwhichin Ekaterinburg. All there offices are in the Bank and otherpotential partners can Q. And how is the Russia Small Busi-cities in areas where we are particularly make a loan or investment decision.) ness Fund doing?active-in order to be more efficient wedecided to concentrate our limited re- Q.Could you mention some key areas A. The Russia Small Business Fund is asourcesinspecificgeographicareas. Also, of direct EBRD funding? very successful project. Pilot projects,we arenowfocusingmorethanbefore on indudingBusiness TrainingCentres, havesupporting enterprises that are 100 per- A. Within the rapidly growing private alreadybeen setup inNizhniyNovgorod,centRussian-owned. Itismoredifficult, sector, we are focusing on key areas Tula, and Tomsk. The Fund offersand certainly riskier than helping joint where we can have the greatest impact. assistance in management and businessventures; but itis also more rewardingin Thus, weprovide long-term lending and planning, plustraining, small loans up toterms offulfillingour original objective: equity investment, mostly for the finan- $75,000, and micro-credits (of $100 toencouragingRussia's transition process cial sector, including capital market de- $30,000 rubleequivalent)toprivatebusi-and private sector growth. velopment;themanufacturing industry; nesses. Loans are for two years with a

telecommunications; and the transport grace period ofup to six months. MicroQ. How would you sunmarize the and energy sectors. The EBRD can fund credits are generally for shorter terms.Russian operations so far? a maximum of 35 percent of anyproject Halfofthe $300 million fund is financed

Volume 6, Number 4 5


fromEBRD resources andtheotherhalf and Sverdlovsk regions), in St. Peters- vestment. The Bank's capital in eachfrom donor countries. burg, (City of St.Petersburg, Leningrad fund is complemented by $20 million,

District), and in the far east and eastem financed by donor govemments. EachQ.VWhatprogresshasbeen madewith Siberia (Irkutsk and regions to East). fundwillbeclose-ended,withaten-yearthe Regional Venture Funds? Each fund (apart from the first, which life.

was set up with starting capital of $12A. Four such funds have already been million) has capital of $30 million to Anotherseventfunds areunderprepara-established in selected regions of Russia. invest as new equity capital in medium- tion and will be to set up gradually overThe first Regional Venture Fund was size enterprises. The minimum invest- thenext eighteen months. TheBank alsolaunchedintheSmolenskdistrictinJanu- ment is $300,000 and the maximum $3 works through "normal" investmentary 1994, and has already disbursed its million. At least 75 percent ofthe voting funds that are geared more toward jointfirst investment. Anotherthree followed shares of the enterprise must be owned ventures. Several ofthese are alreadyuplater: in the Urals (Chelyabinsk, Perm, by private shareholders prior to the in- and running.

Cost-Cutting at the EBRDOne and a half years after its second 1994 almost 25 percent of the money EBRD Increases Lending topresident, Jacques de Larosiere, took committedbytheBankwaschanneledto Eastern Europe, 1991-94office, the EBRD has emerged from its otherfinancial institutions. (millions of EC Us)early difficulties with a stronger sense ofdirection. Yet the Bank finds it increas- Private sector lending accounted for 73 1994inglydifficulttotrackdownprojectsthat percent of the EBRD's total commit-meet the necessary requirements-that ments in 1994. That is up sharply from 1993are based on sound banking principles, 56 percent of total lending in 1993 andsupport thetransition process, and meet well ahead of the 60 percent minimum 1992the "additionality" criterior, meaningthat laid out in the Bank's articles of agree-privatelenderswouldnotbeinterestedin ment. Last year the EBRD approvedthe project. projects worth US $3.14 billion, up 17 1991

percent from 1993. That brings total - l l

To step up investment in Central and projectapprovalsintheBank'sfirstfour 0 1000 2000 3000Eastern Europe, the Bank developed a years to ECU 5.77 billion. Project dis- C Net Disbursementsstrategyknownas "wholesalefinance"- bursements in 1994 were 44 percent E3 Commitmentslendingthroughfinancial intermediaries. greater than in 1993. And the EBRD's * ApprovalsThese loans or capital now make up 35 focus is shifting east of Central Europe.percent ofthe EBRD's total portfolio. In By the end of 1994, it had committed benefits for each of the 23 board mem-

funds to all 25 of its countries of opera- bers and their staff-which consists ofEBRD Increases Loans tion, except Tajikistan. an alternate director, an assistant, and a

secretary for the 23 countries repre-1994 "LastyeartheBanktumed inanetprofit, sented-consume 12 percent (or $21

afterprovisions, ofjust 1 millionECUs. million) ofthe Banks operating budget.

1993 Most ofthe profit still comes from man- Each board member receives a salary ofaging its liquid assets rather than from more than US $124,000 a year, as well

1992 .'..~ banking operations. For 1995 the Bank-s as a $35,000 annual housing allowance.outlook is "cautious," with no net profitexpected. Hence the president's empha- Based on the EBRD's AnnualReport-

0 500 1000 sisoncost-cutting. Byallaccounts, cost- 1994, andlainsJenin's article, "Can the

|[ Poland ElHungary cutting has been successful. If there's EBRDEverGetRight?,publishedin theE Czech Rep. 0 Romania oneexception,it'stheboardofdirectors. March, 1995 issue of Global Finance

Their expenses, including salaries and (New York).

6 Apri1995

Transition

Polish Mass Privatization The Debate Goes Onby Lucja Swiatkowski Cannon

P_ oland is experiencingits third ownership through Employees Share nies, tobacco firms, heavy construction,year of rapid economic growth. Ownership Programs (ESOPs) were to machinebuilding,food-processingplants,P Real GDP rose by 2.6 percent in beexchangedforstateproperty. Allocat- shipyards, and the Bank Przemyslowo-

1992, 3.8 percent in 1993, and 5.0 per- ingpropertyrightswouldalloweveryone HandlowyinCracowarescheduledtobecent in 1994. In November industrial to participate in the transformation and sold. The government should eam 16growthwas 14.3 percenthigherthan for create of a new middle class that would billion zlotyfrom cash privatizationthisthe same period in 1993. Most of this sustain democracy. year, twice the amount the treasury re-growth is because oftheperfonnance of ceived last year. The govemment ex-the vigorous private sector, which pro- The 1990 privatization law, however, pects to receive a total of 29.5 billionduced 54 percent of GDP in 1994. This contradictedthispopularbelief. Thelaw's zloty from privatization, including rev-sectorevolvedmostlyfromsmallprivate primary goal was to increase the effi- enuesfromliquidation-privatizationandbusinesses, which were created in the ciency of the economy and raise funds saleofvouchersinthemassprivatization1980s and early 1990s, ratherthan from for the state. It prescribed a top-down program.privatized state enterprises. In 1993 processtoaccomplishthisandconflictedprivatized enterprises contributed only withthe 1981 law, which declared state New privatization legislation claims to3.1 percentoftotal sales, whilethewhole enterprises to be autonomous and self- streamlineandimproveprovisions oftheprivate sector's share in total sales was financing. Thenewlaw "renation-alized" 1990law. Thislegislationwouldinclude45.9percent. Privatizationofstate assets enterprises and,throughcommercializa- anewmass commercializationprogram,may be the least successful aspect of tion, reestablished state intervention. turning3,500 stateenterprises(of 4,800)Polish reform. Initial public offerings (IPOs) on the into state joint-stock companies, and

stock exchange were supposed to be- excludefirms underliquidationorbank-As of September 30, 1994 Poland still come the major tool of privatization. ruptcyprocedures. Thegovemmentalsohad about 4,800 state enterprises and These offerings would have preserved plans to publish a list of enterprises that500 state joint-stock companies. Of the old management power, enabling only will remain under permanent state own-4,800 stateenterprises, 2,100wereprof- wealthy individuals to participate in the ership. These enterprises may includeitable (before taxes), although 1,500 of process. coal extraction, electricpower plants, oilthosewere small andmedium-size. About refineries, highway construction, rail-1,600 were bankrupt orintheprocess of After publicprotests a compromise was ways, and road transport.liquidation, andabout 1,100werein shaky struck that allowed employees to leasefinancial condition. About 400 of those enterprisesandbuysharesatadiscounted The long-awaited mass privatizationare going through various restructuring price and established the voucher-based program, first proposed in the summerprograms. mass privatization (National Investment of 1990, finally took off. At the end of

Fund) program. None ofthese measures 1994theMinistryof Ownership ChangesA Short History changedthe essentiallycentralized, state- approved the statutes and boards of di-

controlled approach. Public support for rectors of 15 investment funds. TheseThe social consensus of the late 1980s privatizationdeclinedfrom90percentin boards begantonegotiatewith 5ipoten-held that privatization was a means to November 1989 to 29 percent in No- tial management consortia. Once con-transform the communist system into a vember 1993, leadingto political conflict tracts between newly created boards anddemocratic market economy. It was felt andinstability. chosen management firms are signed,that depriving the state of its property shares ofparticipatingenterpriseswill bewoulddepoliticizetheeconomyandgive Program for 1995 allocated to the corresponding invest-more autonomy to individual citizens. ment funds. Each fund will have a start-Forced savings, invested bycentralplan- The government privatization program ing capital of aboutthree billion zloty, toners to modernize the economy, would for 1995 envisages the sale of 56 enter- be registered according to the commer-beretumedto citizens: individualpriva- prises,comparedwith35in 1994. Brew- cial code. The Ministry of Ownershiptization vouchers orindividual employee eries, chemical works, textile compa- Changes estimates that about half of


The Word BanklPRDTE

eligible Polish citizens-14 million investors' anxiety could jeopardize the are looking for more free market solu-people-will take part in the program. National Investment Fund program. tions, includingindividual vouchers.

(IPOs and secondary offerings are al-Inthesummerof 1995participationcer- readyin trouble. An informal system of *The government is ambivalent abouttificates are supposed to be sold to eli- underwritingdevelopedwheretheissuer foreign investors. Permits are still re-giblecitizens, and eventually individuals seeksaguaranteefromPolishstatebanks quired to engage in business activities,will be ableto sell them onthe secondary and insurancecompanies, creatingamaze and the government is withdrawing taxmarket. In 1996, investment funds will of cross-ownership.) privileges that were given to joint ven-issue shares on the stock exchange and tures. Ontheotherhand,thegovernmentparticipationcertificateswillbeexchanged *Domestic politics will also affect the abolished its permit requirements forfor the investment fund shares. privatizationprogram. Privatizationwill investing in certain stocks.

be a major issueinthe 1995 presidentialEindering Factors campaign. PresidentWalesa is expected The author is an Adjunct Fellow at the

to promote individual credit vouchers Centerfor Strategic and InternationalA number of stumbling blocks threaten thatcanbeexchangedforprivatized state Studies in Washington. She has beento slow the privatization process: property. Center-rightparties emphasize involved as an adviser to Polish priva-

a limited role for the government, while tization since 1989. This article is based*The new privatization law was pre- demanding strong property rights and a on her contribution to the Privatizationsented to the Cabinet in early April. strong private sector brought about by Yearbook (editor, Henry Gibbon), pub-However, it was withdrawn "for further privatization through individual vouch- lished by Privatization International,study." The business community rejected ers. Eventhecenter-leftpartiesthatdomi- London, April 1995.it as a step backward that does nothing natedthepreviousreformistgovemmentstoprovide easier creditterms for domes-tic investors.

*Former owners demandin-kind restitu- Integration troublestion for their former property-mostlyland, real estate, and service companies. _

The governing coalition has proposedpartial compensation awarded in sharesof privatized enterprises and only for .Qpropertynationalizedin violation ofpost-war laws. This issue is still unresolved.

*LaunuingtheNational InvestmentFundProgramdidnotacceleratetheprivatiza-tion process, and its implementation isstill endangered by delays. In April thenegotiations with management compa-nies were delayed because of a tax dis-pute with foreign consultants. Littleprogress has been made in printing anddistributing shares or in installing com-puters and communications equipmentfor the over-the-counter market where .

these shares will be traded. Including .

management fees, additional costs sum . -- L...

to at least $200 million. . .

*ActivityontheWarsaw StockExchangehas drastically slowed. Low prices and

From the Budapest magazine Hungarian Economy

8 April 1995

Transition

Quotation of the Month: "Eighty-five Percent of CommittedAssistance Is Debt-creating"Warsaw-based Think lTank Surveys Western Aid to Central Europe

T he first phaseof transition- $30in 1993,itisclearthattransitionisnot worsened health indicators, increasedthe "top-down" transition- assistance-driven. mortality rates, and depened poverty in

T marked by impressivegains in *As much as 85 percent of committed certain social groups and geographicalmacroeconomic stabilizationandlargely Westem assistance has been debt-creat- regions. To ease the pain for peopleledbycentralgovenmmentswiththesup- ing, meaning that the six countries may adverselyaffectedbytransition,govern-port of Western assistance, has lost mo- face repayment difficulties in the me- ments have significantlyincreased socialmentum. If the slowing down of reform dium to long term. This prospect has benefits (unemployment compensation,cannot be overcome, Central and East- made recipient governments reluctant pensions).em European (CEE) societies risk stag- to accept additional loans despite theirnating in their transition and retaining need. Increased social costs haveledto a cnsismany structural features from the com- -In terms of total commitments to the in public finance that the state does notmunistpast. Sincethe start oftransition, CEE countries over 1990-93,theEuro- have the capacity to address. And anya number of "gap-filling" studies have pean Union was the largest donor, with attempts to finance the budget deficitclaimed that bridging the gap between more than 40 percent oftotal committed through increased taxation, excessiveEastem and Westem Europe would re- assistance. The intemational financing employers' contributions to social funds,quire the yearly transfer of hundreds of institutions contributed an additional 35 orthe sale oftreasurybondsto commer-billions of U.S. dollars. The past five percent. cial banks will have a suffocating effectyears oftransition have shownthat such *The lack of reliable, compatible, and onthe emerging private sector-thepri-an approach is unrealistic: current data, especially on the disburse- mary hope for economic recovery.

ment of assistance, causes confusion in*Althoughatotal of$82.5 billionofassis- formulatingpolicies and planning assis- Westem assistance should target threetance committed to 11 postcommunist tance. sectors in particular: the private sector,European countries seems impressive, *Analysis showstheinflow ofassistance meeting its capital and technical assis-assistancecommitmentshavenot,grown resources is positively correlated with tance requirements through local inter-since a peak in 1991. This stagnation is other financial flows, including foreign mediaries, usually foreign and domesticexpectedto continue-thecomingyears direct investment (FDI). It is important banks;the social sector, assistinginmorewill see few new commitments. to make sure that the different resource efficient use of financial and service re-*By the end of 1994 some $62.5 billion inflowsareappropriatelytargetedtoavoid sources; and the nonprofit sector, pro-of assistance had been committed to the overlap. motingtheirpartnership withtheprivatesix countries examined in this survey *It should be noted, however, that FDI and public sectors.(Bulgaria, the CzechRepublic, Hungary, flows have also been less significantthanPoland, Slovakia, and Romania). Only expected, amounting to $10 billion for Excerpts from Assistance to Transi-about$15 billionofthesefundshadbeen the six countries. This means the coun- tion-Survey 1995, a recent publica-disbursed by the end of 1993 (most tries in transition face significant con- tion of the Warsaw-based JEWS (Insti-recent data available). straintsto capital formation. tute for East-West Studies) Policy-Cumulativepercapita disbursementfig- *In Central andEastemEuropefinancial Education Centre onAssistance to Tran-ures suggest an uneven distribution of tensions will remain present for some sition (PECAT), by Krzystof J. Ners,assistance. The highest per capita dis- time because of inherited foreign and Ingrid T Buxell, and others. To order:bursementwasgiventoHungaryin 1991 domestic debt burdens. Therefore, bal- Publication Office, Institute for East-($175). Totalcumulativepercapitadis- ance of payments support will remain a West Studies, 360 Lexington Avenue,bursement for 1990-93 was $361 for necessary component of Westem assis- New York, NY 10017, USA, tel. (212)Hungary, while Bulgaria received $155 tance for some transition countries. 557-2570,fax (212) 949-8043; orIEWSand Romania just $94 per capita for the PECAT, ul. Obozna 7/32, 00-332 War-same period. The deepening social crisis in transition saw, Poland, tel. (4822) 268-595, fax*Astheaveragepercapita disbursement economies has several dimensions: di- (4822) 270-648.ofassistancetothe six countrieswas only minished employment opportunities,



Reflections from a Recent Aid Conferenceby Janine R. WedelS ince 1989theWesthas allocated have been made for conditioning Rus- ity of the workshops (whether the pur-

about $35 billionto help ease sianaidonactions inChechnya andIran. pose makes sense, whether the purposeCentral and Eastern Europe's Congressional staff representatives was fulfilled, whether the participants

transition to democracy and a market warned that U.S. aid to Russia would couldmakeuseofthematerial presented).economy. With the end of the Cold War, likely be cut and that the U.S. Congresstens of billions more were promised to is considering not whether or not to re- By discussing where to target limitedRussia and other former Soviet repub- duceforeignaid, buthowmuchto reduce resources, mostparticipants agreedthatlics. Yet assistance projects sometimes it. training and educating the next genera-look different on paper than in the field: tion ofleaders in an entire rangeof skills,the view from Washington, Brussels, or The discussions focused primarily on indudingvocational education, mayhaveBonn can be very differentthan the view privatization aid and aid to private and thehighestlong-termpayoff. Local gov-from Budapest or Bratislava. nongovernmental sectors, on structuring emnments and institutions should receive

and implementation of aid projects, and a bigger share oftheaid, as they areoftenBecause discussion about aid to the re- on the degree to which these projects overlookedintheassistance efforts. Thegion has been based more on armchair havebeen integratedintothelocal politi- final conclusion of the conference wasanalysisthanonempirical investigation, cal and cultural environment. Nearly all that: for aid to be effective, recipientsIn April 1995 Initiated andhelpedorga- participants agreedthatpresentadminis- shouldbeactivelyinvolved indesigning,nizeaproblem-focusedworkingconfer- trative and evaluationprocedurestendto implementing, and evaluating the rel-encethatbroughtWestempolicymakers discouragerisk-taking, althoughrisk-tak- evant projects, so as to meaningfullyandpractitionerstogetherwith recipient ingandflexibilityareimportantcriteriaof "own" them.aid coordination officials. (Participants successful aid programs. Monitoringincluded U.S. congressional staff, aid methods are often misguided, partly be- The author is a MacA rthur Fellow andcontractors, and social anthropologists; cause they try to quantify the results a professor at the George Washingtonrepresentatives oftheU.S. StateDepart- (number of workshops held, number of University, Washington, D.C.ment, USAID, and the U.S. General participants)insteadofassessingthequal-Accounting Office; participants in theEuropeanUnion'sPHAREprogram; Ger-man aid analysts; and aid coordination * -* -Aofficials and analysts from Croatia, the -A-Czech Republic, Hungary, Poland, andSlovakia.) The goals of the conference, A-which focused ongrant aid provided bythe major donors, were summarized inits title: "Western Aid to Central andEastern Europe-What We Are DoingRight, WhatWe AreDoing Wrong, Howwe can do it Better." It was hosted byJohn Lampe, Director of the East Euro-pean Program of the Woodrow WilsonInternational Center for Scholars, andcosponsoredbytheFriednichEbertFoun-dation.

The conference brought about 40 peopletogetheratanopportune moment. Aidto >Central and Eastem Europe and to thestates of the former Soviet Union is _ _ _ _ _ _ _ _ _ __Iunder review inWashington. Arguments From the Budapest magazine Hungarian Economy

10 April995

Transition

Letters to the EclitorFlawed Conclusions Dobozi and Pohl argue instead that ac- Politics of Entitlement," Transition,

tual output cannothave diverged signifi- March 1995)isthattherecentlargevoteIn their provocative piece on GDP and cantlyfrom electricityconsumption, and for "left-wingparties, descendents oftheelectricity consumption statistics, "Real provide some dubious reasons. They former communist parties ofthe region"Output Decline in Transition ]Econo- write that in market economies output arises from an entitlement mentality ofmies-Forget GDP, Try Power Con- and electricity consumption move in the population. I do not believe that thissumption Data!", Transition, vol.. 6, no. lockstep. Whilethis assumption maybe analysis captures the major reasons for1-2, p. 17, Istvan Dobozi and Grerhard broadly correct, it may not be that rel- the described voting behavior. Let mePohl propose to dump the former and evant fortransition economies undergo- give you three examples from my ownfocus exclusively on the latter. They are ingrapidandmassive structural changes. recent experience in three differenttran-correct that output generally declined Dobozi andPohl further statethatcross- sition countries.less in the transition countries than indi- country differences inthe electricity con-cated by the official national accounts sumption-GDPgap "carnotbeexplained In country A, out oftentaxi drivers eightdata, but some of their arguments and rationally." Buttheyfail, for example, to wanted to overcharge badly. Cheatingconclusions are flawed. relatetheincreaseinelectricityconsump- and more serious crimes seem to flour-

tion recorded in the Kyrgyz Republic to ish. While the old system engenderedDobozi and Pohl claim that the likely the policy of substituting electricity for similarills,nodoubtalargeproportionofdownward bias plaguing official output other sources of energy. the population was then, as now, honest.statistics has only been supported by Thesepeople-includingmanywhofeelqualitativeevidence. However, Bergand The Dobozi-Pohl "methodology" thus pressed to participate in the cheating inSachs ("Structural Adjustment and hI- leads to some very odd conclusions: ac- orderto survive-mustfeel extreme dis-ternational TradeinEastemEurope: The tual output inPoland droppedmorethan comfort about the continuing and ever-CaseofPoland," EconomicPolicy, April indicated by the official statistics, "eco- present dishonesty.1992) reestimatedthe output collapsein nomic activitydeclinedless intheformerPolandandGavrilenkovandKoen ("How SovietUnionthaninCentralandEastem In country B, I leamed that most topLarge Was the Output Collapse in Rus- Europe," andtheKyrgyzRepublicactu- opera singers have left the country, andsia? Altemative Estimates and WVelfare ally enjoyed a cumulative increase in that many, who are left behind, are hop-Implications," IMF Working Paper No. output rather than a deep fall. Such ingforlikeopportunities. Justthinkabout94/154, December 1994) have reesti- implausible inferences suggestthatelec- theloss ofmusicaltalendand experience.matedtheoutputcollapseinRussia. Both tricity consumption is not much more Do we suggestthattheprice of a marketshowed thatthe official indicators over- reliable as a summary measure of eco- economyistotrashthefineandperform-stated the actual decline by a large mar- nomic activity than official real GDP ing arts? And to rebuild them fromgin. measures. scratch, when the people can "afford"

culture again? Many educated people inThese studies look at the end-use side of Vincent Koen, these countries possibly feel anger andGDP (consumption, investment, andnet Research Department, 1MF despair atthe sellout and disappearanceexports) rather than at the production of their cultural achievements and sym-side. More realisticestimates ofreal GDP (The opinions expressed here are those bols.can thus be derived. Gavrilenk:ov and of the author and should not be attrib-Koen also discuss electricity conisump- uted to the EME) In country C,a Science Academytion, suggestingthat its resilience is one member's proposals for some technol-ofseveral signsthatactualoutputdropped E-mail Exchange on the Politics of ogy improvements were rebuffed by thelessthanofficiallymeasuredactivity. But Entitlement government: "Try to market your ideasthey explain that because the relevant as a private entrepreneur." But not ev-mput/output coefficients and priceelas- Dear Professor Sachs, eryone can be or wants to be an entrepre-ticities are unknown, itwouldbehazard- neur; nor does society need such anoustobaseanaltemativereal GDP series A major message of your interesting objective. However, in former commu-on electricity consumption alone. article ("PostcommunistParties andthe nist countries any non-entrepreneurial



activityhas been and still is disparaged. realismandafewacceptedcdassics), and model of privatization (which is nowDon't you think that this attitude makes technology stuckin the 193 Os except for spreading throughout Latin America).manypeoplefeel helpless andhopeless? armaments. The citizens of the Czech Duringthetransitionperiod, the currentWhatpolitical parties should these indi- Republic, Hungary, Poland and else- retirees and those who will soon retireviduals vote for? where know better. The old system was would continueto operate onthe existing

a dead end in every dimension: eco- pay-as-you-go arrangements, sothattheYourarticlefurther recommends a move nomic, social, political, cultural, and changeover would take place over sev-away from a solely pay-as-you-go pen- moral. The transition to freedom is dif- eral years. Inthemeantime, inflation willsion system to one that is based on vol- ficult, but freedom is overwhelmingly fall if appropriate macroeconomic poli-untary savings, enablingpeopleto aug- preferred to the prison of the earlier ciesarepursued. Alreadyinflationisnearment their future pension income. regime. the levels that Chile had during its ownConsidering the present inflation rates, successfultransitiontopfivatepensions.why would it be practical to save for a People are not voting for the left-wingsupplementary old age pension (which partiesto retumtotheold systemn, nor out Jeffrey Sachsfor a new member of the workforce is of expectationsthattheleft-wingpartiesperhaps 40to 50 years away)? Frankly, will usher in more honest taxis, better Social Stabilityfor the time being, the pay-as-you-go culture or improved technologies. As inpension approach might be the most the United States and most of Western I read the January-February 1995 issuesensible and viable for these countries. Europe, the public is seeking higher so- of Transition with trepidation and con-

cial spending, though combinedwith more sequent dismay The overwhelming im-FritzKonigshofer, WorldBank freedomandlowertaxes. Thisisnormal pressionitcreatedwasthatifonlyRussia

politics, but it is contributing to fiscal and Eastem Europe would run theirDear Fritz Konigshofer, stresses throughoutthe advanced indus- economies as we in the West do, all

trial democracies. It is particularly dan- would be well inthis best of all possibleThank you for your message. I found it gerous in the countries of Eastem Eu- deregulatedglobal markets. Not awhis-very surprising. Your rather casual "em- rope,wherepercapitaincomesarearound per of doubt was uttered about the en-pirical methods" have led you to believe one-fourth of the levels of Westem Eu- croachment of global markets on na-that communism provided for honesty, rope and the United States. The high tional sovereignty. Pursuingprofit aloneculture, andtechnologicalimprovement. taxation and inflation that pay for the without considerating social conse-This would surely be a shock to the ambitious social spendingareimportant quences is wrong: every Westem nationpeople of Eastem Europe who lived barriers to necessary economic growth. is facing massive unemployment andthrough decades of degrading state-run social stress. Yetthose sameglobal mar-corruption, suppression of freedom of As for pension fund privatization, I am kets cannot operate without stable soci-thought and culture (other than socialist thinking along the lines of the Chilean eties any more than can the national

markets.

S , rNf 9 > ~~~~~~~~~Cyril Appletong Cyt> ) } t a Trustee, Cadet Development Center

Corrections andamendments to theMarch issue (vol. 6, no. 3, p. 3): Onpage 3, table 3, the correctfigurefor Poland's "all pensioners" as apercentage of the laborforce is 48,not 18. On page 29, Elena Suhir(World Bank) reviewed the paper"AgriculturalReformsinRussiaandthe Situation of Women and Pen-sioners."

From the Budapest magazine Hungarian Economy

12 Apiil 1995

Transition

German Blitz-Privatization: Lessons for OtherReforming Economies?by Hans-Peter Brunner

reuhandanstalt was bom in in 1989. Open and hidden unemploy- tivefirms-those that are ableto quicklyMay 1990 during the last days ment has reached 30 percent. And, East overcome the high-wage, low-produc-

T of the Gennan Democratic Re- Germans have not had enough invest- tivitydisparity.public and amid the turmoil of German ment capital to acquire any significantpolitical and economic unification. The share in their former economys assets. Germany chose the third option, and itmandate ofthisinstitution, thenthe larg- has blighted the eastern industrial land-estholdingcompanyintheworld, wasto Integrating eastem Germany into the scape.restructure and privatize state property westem market economy has requiredas fast as possible. Accordingly, privati- enormous resourcetransfers. Since 1992, In thefirst stage ofTreuhand' s activityinzation ofthe retail sector was completed on average, the Bonn govemment has 1990 and 1991, many indigenous firmsby 1992, and the industrial sector was transferred more than DM 150 billion in eastem Germany were rooted outsold by 1994. Treuhand secured invest- annually (financial gross transfer), and because of the sudden full exposure tomentstotalingabout,200 billion deutsche these transfers will continue inthe years intemational, mainly westem German,marks (DM), and saved about 1 million to come. Treuhand operations alone re- competitors. Those newly privatizedjobs. By the end of 1994, only 350 of quiredDM 275 billionfromtheGerman firms were not able to raise significant13,781 former socialist enterprises re- taxpayers. Such a historically unprec- investment capital, and lackingmained on its books. The Treuhandanstalt edented drain of resources was not an- Treuhand's guarantees, potential inves-has successfully privatized itself out of ticipated at the time of German unifica- tors were not ready to risk their money.business. tion. Was this costly road the only As a result, many areas in eastem Ger-

conceivable one to be taken? manylosttheirtraditional industrial base.The former GDR had a lopsided enter- Treuhand condoned not only the 80 per-prise structure, resembling a an upside- FolfowingunificationGenmanyhadthree cent downsizing of the labor force indown pyramid, with most production options: manufacturing, but also an 80 percentconcentrated in large conglomerates or cut ofapplied research capacity. Western"combines," few medium-size produc- *Maintain real wages at a level corre- hightechinvestmentshavebeenconcen-tion units, and almost no small-scale sponding to eastern German productiv- tratedin afewselected regions in Saxonybusinesses. Three years after German ity, which in 1990-93 was about a third and around Berlin.unification, the enterprise pyramid had of westemGermanysproductivitylevel.assumed a normal position, as the This optionwasnotfeasiblegivenpoliti- The weakness of the eastem GermanTreuhand broke up large conglomerates cal circumstances arisingfromtheunifi- tradables sector is demonstrated by theand sold or liquidated the smaller units. cation and labor force mobility. pattem of intra-German trade flows. InWhile those dinosaurs were being extin- 1994 eastem Germany purchased DMguished, by mid-1994 an estirnated -Support uncompetitive eastem enter- 255billionfromwestemGermany,while470,000 small and medium-size busi- prises until they were able to increase it sold the west a mere DM 45 billion ofnesses began operating. Of these about productivity to westem levels. Mean- goods and services. (The trade gap was100,000 havegone out of business. This while, temporarily shieldthem from for- financed bythe massive financial trans-restructuringhas significantlyincreased eign competitors and investors. A 1991 fers to eastem Germany.) Closing theproductivity, which has risen in eastem proposal of U.S. economist George tradegap will require increasingtheper-Gemianys manufacturing sectorby 5 to Akerlof pointed in this direction, but it centage of production devoted to intra-10 percent annually since 1991. was never considered in Germany. German exports by fimns producing

tradables to about 40 to 50 percent. AtTreuhand's success has come at a high *Bringwages rapidlyup towestemrlevels present, an average of around 10 percentprice. By 1994 easternGermanyhadlost in a completely open economy, regard- of eastemrindustrial production is soldtoabout 80 percent of its industrial less ofproductivityiincreases. Thiswage- the westem half. Accordingly, compa-workforce, which numbered 3.2 million shockwould spare onlythemostinnova- nies in machine building and chemical,


The World BanklPRDTE

optical, and electronic manufacturing Marks Replace Marx iri Eastern Gennanymust improve competitiveness to cap-ture market niches from western rivals.

Manufacturing as much as construction withagreaterconcentrationonindustrial

While the Treuhand has managed to has contributedtothevigorous upturn of projects. The investment grant, aid for

dismantle the state sector and sell it off eastern German GDP, which grew by 9 medium-size firms, and depreciation al-

bythe scheduled date (December 1994), percent in 1994. Manufacturing orders lowances are to be continued to 1998,

it was only inthelatest stage, from 1993 in the second half of 1994 were 20 per- encouraging revitalization of the inner

onward, that Treuhand developed strat- cent higher than one year earlier. How- citiesineastem Germany. Thetaxbreaks

egies to counter the loss of competitive- ever, this output started from a low base for investingintheeastwill becontinued

ness and was readyto provide money to and remains dependent on public trans- but at a lower level.

supportprivateowners' efforts. Treuhand fers.supported management buyouts with Western private manufacturers, how-technical advice, and it teamed up with In 1995 gross official transfersto eastern ever, arestillhesitarnttoinvestintheeast.

some state governments to modernize Germany-including 7 billion deutsche Government authorities, the railways,

enterprises considered essential to the marks (DM) fromtheEuropean Union- and telecommunications and electricity

maintenanceofa regional industrial core. areexpectedto reach DM 211 billion. By supply corporations have contributed a

Itealsohelpedthemgainmarketaccessin 1996 gross public transfers to the east much larger share of productive invest-

the west. will total DM 840 billion. ment. Investors have been deterred byuncertainty, such as the fate of property

Private investors and companies, mainly A breakdown of 1995 gross expenditure confiscated during the 1945-48 Soviet

fromwestemGermany, swifllymtegrated reveals that 20 percent of flows are di- administration, the costs of redundancy

theacquired assetsinto ahigh-tech, high- rected toward pension and unemploy- and environmental cleanup, andthelong-

wage economy. But the economies of ment support and other labor market term futureof enterprisesinthehands of

Central andEastern Europe cannot sim- measures. The remainder is divided be- the Treuhand. (Larger loss-making

ply adopt the privatization model from tween public services, direct infrastruc- firms-the industrial core)-whichwere

Treuhand, which privatized the former ture investments, investment incentives, left in the hands of the Treuhand's suc-

East German economy in a stable andpublic sector salaries. To covertheir cessor organizations, are now sustained

macroeconomic environment, operated huge expenses, early this year Germany by the state government.)within a clearly definedinstitutional and introduced a new Solidarity Surcharge,legal framework, andwas abletobringin amounting to 7.5 percent of the income A key factor depressing profits and in-

investment capital and westem manage- tax, and doubledthepropertytransaction vestment remains the high unit labor

ment expertise on a massive scale. Even tax cost; eastem hourly wage rates are ap-underthese circumstances, largeareas in proaching the westem level; and hadeastem Germany lost their traditional At present, more than 700 different in- reached 84 percent as of December

industrial base, which is beingonlyhalt- centive programs apply to the east. Re- 1994.inglyreplacedbysustainablenewindus- gional aid could cover 45 percent of thetnies. cost of an individual project. A 50 per- Unemployment remains at 14.7 percent

cent depreciation allowance is allotted (l.lmillion)andafurther600,000people

Ifthereis anylessonto leam, Central and for investment in plants and buildings. areinjob creation schemes orintraining.

EasternEurope'stransitionpains cannot Small and medium-size manufacturing Since 1991 about 60 percent ofthe east-

be alleviated by only large-scale liberal- andcraftfirrns receivea 10 percentgrant em labor force has changed workplace,

ization, macroeconomic stabilization, and if theymakenewinvestments. Lucrative whiletheeemployedlaborforcehas shrunk

radicalprivatization. Itis moresadvisable tax breaks are awarded to high-earning from 8.8 millionto 6.3 million. Forecasts

to support enterprises that initially are groups that invest in commercial and for the next ten years see an additional

uncompetitive, but make serious efforts residential projects in the east. large cut in the labor force, with the

to gradually close the productivity gap migrationofperhaps I millionpeople outwith westem rivals. Econo,ucs Mnister Guenter Rexrodt of eastem Germany

has announced a 35 percent upper limitThe author isprofessor ofeconomics at on assistance (calculated on investment Based on a report of OxfordAnalytica,the Friedrich Schiller University in cost in eastem Germany) until 1998, theOxfonrd(UK)-basedreseatvhgroup.Jena, Germany.

14 April1995

Transition

Gender in Tra:nsitionWorld Bank Conference in Bucharest

re all human resources--in- next phase ofthe transition, women will *Initial efforts to cut wage costs werecludingthoseofwomen-being be less vulnerable to widespread layoffs directed at clerical, auxiliary, and scien-k fully utilized during the transi- than those filling the overwhelmingly tific-technical jobs-jobs filled mostly

tion? Arewomenbeingtreated equallyin male-dominatedbluecollarpositions,es- bywomen. This trendwill be reversedinthe labor market and receiving a fair pecially in heavy industry. the next phase of enterprise restructur-share of assets? Are vital services being ing,whichwillmainlyaffectjobsfilledbyprovided, including carefor children and However, Russian men still receiveligher men.the elderly (who are primarily women)? wages forperformingthe samejob. Dis-Theseissues,andothers,werediscussed criminationaccountsforthegreatestpart *The hidden unemployed-those listedataWorldBank-sponsoredinternational of the wage gap. Also, because women on the payroll who neither work norseminar, "Gender in Transition," held in continue to bear most of the burden of receivea salary-areestimatedto betenBucharest in early February. The meet- raising children, they follow different times the registered unemployed and toing-attended by participants from careerpaths thanmen, withgreaterinter- beconcentratedamongproductionwork-academia, nongovernmental organiza- ruptions. ers.tions (NGOs), and the governments often countries from among the transition Participants in the conference agreed *The higher labor costs associated witheconomies-revealedthatgenderissues that gender segregation should be re- women's maternity and child-raisingmust be addressed as apart ofthebroad- placed byunrestrictedworkchoices. Also, benefits pushes firms to discriminatebased transition process. protective legislation might denywomen against women. Although government

access to jobs that would preserve their policy can mitigatethe costs to the firm,Yawning Wage Gap? earnings. Family costs should not be social attitudes are unlikely to change

bomebyfirms. Whilepublicpolicycan- quickly.In Russia women still eam about 30 not influence the balancing of workloadpercent less than men on average (after between men and women in the house- Most women still want to work. Whencontrolling for age and education). This hold, it can influence it indirectly by asked why they were working, 82 per-gap has changed little in the last thirty- ensuring that family benefits result in cent of Russian women answered, "be-five years, compared with the declining gender-neutral outcomes in the house- cause [my] family needed the additionalgap in other parts of the world. Andrew hold (i.e., parental benefits instead of income" (73 percent of Uzbek womenNewell and Barry Reillys paper The matemity leave), so as to not hinder and 81 percent of Latvian women gaveGender Wage Gap in Russia, based on householdparticipation. similaranswers).a late- 1992 survey of 6,000 employees,pointed out that women held only 30 What about Unemployed Women? Emancipation fromthehomewas also anpercent of managerial jobs and 20 per- important factor, but only 37 percent ofcent of skilled worker positions com- The paper of Sheila Marnie and Albert Russianwomenand l7percentofLatvianpared with 92 percent of clerical posi- Motivans, Women in the LaborMarket womenfeltthatchildrenshouldbebroughttions. However, womenfilltwo-thirds of andFemale Unemployment in the FSU, up in preschool facilities. Growing un-the professional occupations. details the situation of women who are employment and declining social ben-

facing unemployment during the transi- efits-includingchildcarebenefits-This "occupational segregation" has been tion. The study is based on surveys car- have probably increased the incentivesresponsiblefor much ofthewagegap but ried out last year inthree countries ofthe for workingmothers to give up theirj obsmight produce unexpected results-fa- former Soviet Union (FSU). In 1993 and remain at home. Participants recog-vorable to women and,favorablle to a women represented about 70 percent of nizedthat somereducedlaborforcepar-successful transition. With dominant the registered unemployed in Russia, 64 ticipation bywomen was voluntary and,positions in the service sector (77 per- percent in Uzbekistan, and 52 percent in hence, not a cause for concem. Struc-cent), especially in the financial sector, Latvia. The paper explores three differ- tural unemployment, however, will re-many women are particularly well posi- ent angles to determine why women main a serious concern for both men andtioned and well trained to contribute to have represented a larger share of the women.the emerging market economies. In the unemployed. The authors find:



The unemployed have little confidence services should be detached from Monica Fong, Gender Dimensions ofin the employment services' ability to unrestructuredstateandcollectivefarms. OldAgePovertyandPensionReforminhelp them find jobs. This attitude is not theFSU. Ratherthandiscriminateagainstsurprisinggiventhatthelabormarketis Who Cares for the Children? women, mostpension systems discrimi-depressed. At the same time, partici- nate in favor of women, with womenpantsurgedthatjobplacementprograms Childcare is as essential for the well- retiringfiveyearsearlierthanmen-whobeimprovedandmadegender-sensitive, being of children as it is for facilitating areretiringrelativelyearlycornparedwithfor example, by offering flexible hours. parents'participationinthelabormarket. other countries-and living about ten

In their Review of Child Care Develop- years longer.Sea Changes in Russian Agriculture ments in Eastern Europe, Judith Evans

and her collaborators loana Herseni, This group ofpensioners have seentheirWomen in Russia's rural areas-which Boyanka Komnazheva, Marta Korintus, real pension benefits erode the most.are undergoing sweeping agricultural andM. Karwowska-Struczykfoundthat While there was consensus on the needchanges-are more dependent on social the share of children enrolled in kinder- to give a wider range of support certainservices, particularly childcare, and are gartens has declined; and increased un- groups of elderly poor-such as elderlytherefore more likely to remain on ex- employmentandvoluntaryexitfromthe women living alone or in rural areas-Soviet state fanms and cooperatives (the labor market have reduced demand. opinions differed on how to reform thekolhoz and sovhoz systems) than men, pension systems. Participants suggestedwho are more actively starting private At the same time, home-based and com- that reforms be analyzed in light offarms. Sharon Holt reached this conclu- munity-based altematives to statefacili- family support and labor market oppor-sion in her paper, Gender andAgrarian ties-manyofwhicharedeteriorating- tunities for the elderly.Reform, whichwas based oncase studies are emerging. In reporting on centralin Moldova and Russia. She also found Asia, Jeni Klugman painted a picture of Summin Upthat, while not explicitly gender-biased, more rapid decline in childcare services,asset distribution favored men over led by fiscal pressures. Kathie Krumm, a principal economistwomen. from the World Bank, summarizing the

Maria Frey warned that nurseries and lively discussion, emphasized that theHalt reportedthat everyone onthe farm, kindergartens should not be seen prima- gender issue should be perceived in aregardless of gender, was given a "land rily as services that enable parents to broader sense and embrace the man-share," which entitledthe ownertocom- work; they havethe potential to enhance women relationship both in the familymon stock in a joint-stock company or thehealth andthe educational and social and the workplace. The great resourcemembership inaproducers'cooperative. development of children. They should that women represent should contributeThe nonland capital assets of the old thereforebe saved even under direfinan- to the success of the transition process.farms were distributed as "property cial circumstances. But how? The par- Unsolved issues in the transition eco-shares" according to wage levels and ticipants encouraged government and nomics, such as the fate of childcareyears of employment. But men received donor support to develop altemative centers run by local governments andhigher-valued property shares on aver- options, includingtax incentives fornon- enterprises orthevulnerability ofelderlyage, because women tended too earn profit, nongovernmental organizations women in rural areas, should receivelower wages, retire earlier, and interrupt andprivate sectorpartnershipswithlocal special attention.their employment more often. governments.

The World Bank-which sponsored theHolt also found that farm members- Participants supported amixoffinancing studies prepared forthis conference-ismen and women-were surprisingly from both public and private resources, preparedtopromote, inpartnership withunderinformed about their rights, with with a particularly important public fi- governments, NGOs, and other donors,farm managers exercising considerable nancingroleinthepovision of childcare policies and programs to mitigate thepersonal control over farm management for poor families. hardships oftiansition.and assets. Conference participantsagreedthatprovidingampleinformation The Plight of Elderly Women Conference papers are availableto both men and women was critical. from Maria Estrella, World Bank,Women should be encouraged to keep Themostcontentious sessionwas stimu- RoomH-12-081, tel. (202)4732665,their tools and equipment. Also, social lated by the work of Louise Fox and fax (2 02) 477-1942.

16 April 1995

Transition

Deal of the Century?-The Elusive Russian Bank ProposalThe most damning criticism of Russia's tions. He added that the companies were Many large industrial enterprises, includ-halting move to a market economy is that mid-size firms, ranging from port facili- ing the major oil and gas giants-Lukoilreforms have failed to put effective new ties to heavy-machinery producers. (The and Gazprom (one of the principal ownersowners in chaige of the country's facto- list excludes strategically important or of Imperial Bank)-are strongly opposedries, thereby allowing old directors to more lucrative firms in industries such as to the original proposal, as are most liberalgive full rein to the inefficient manage- defense, energy, and telecommunications.) economists. The proposal's leading oppo-ment practices of the Soviet era and to nents within the government include Firstindulge in the newer pastime of wide- Although enterprises are to keep 51 per- Deputy Prime Minister Anatoly Chubais,spread corruption. "-Chrystia Freeland cent of the proceeds from these sales, op- most of the leadership of the State Prop-in the Financial Times (April 15, p. 2) position to the second phase has been ertyCommittee,andDmitryVasilev,thede

mounting. The state Duma's support of in- facto chief of the securities commissionOn May 3 President Yeltsin's chief eco- cumbent managers forced Yeltsin to enact (which Chubais formally heads).nomic adviser, Aleksandr Livshits, en- the program by presidential decree. More-dorsedaproposal fora consortium ofbanks over, economic andpolitical developments Critics fear thatto manage the govermnent's stakes in inin the second half of 1994, coupled with *the proposal would concentrate owner-dustrial enterprises for several years in the inadequacy of the legal framework for ship and hinder the formation of an open,return for lending the government the investment, deterredmany potential inves- transparent capital market.money it hopes to raise from privatization tors, both domestic and foreign. By late *the banks, having secured a dominant po-proceeds this year. This "deal of the cen- April the government had raised only 100 sitionvis-a-vis industry, would simply milktury" has been the subject of fierce debate, billion rubles ($19.7 million) through cash it for profits and do little to restructure itthoughtheproposal itselfremains shrouded sell-offs this year, against an annual target effectively.in secrecy. The key question will be the of 9 trillion. This failure clearly adds to the *the government is selling out in order toextent ofthebanks' involvementinrestruc- attractiveness of the banks' proposal. meet its budgetary requirements.turing industry: Will the banks be directlyinvolved in managing andrestructuringthe The banks' proposal comes at a time when Arguments in favor of the banks' propos-enterprises whose stakes theyheld? Orwill Russia's commercial banks are increasing als:the deal simply involve a loan to the gov- their already strong power base. (For ex- *The finance ministry favors it, since the 9ermnent, with the enterprise stakes being ample, agroupofbanksrecentlypurchased trillion rubles slated to come from privati-used as collateral? Channel One, the only television station to zation revenues would be quickly secured.

broadcast to the whole of the former So- The ministry hasalso expressed(valid) con-In any event, privatization has so far failed viet Union.) Nowthe banks appear to have cern that raising the funds through salesto ensure the efficient management of en- focused their attention on enterprise own- this year could simply flood the marketterprises, one of its principal aims. When ershipandmanagement. with more shares than it can absorb, thusvoucher privatization ended in July 1994, ensuring revenue shortfalls.the management and workforce combined In late March nine banks (including -Banks would arguably have a real stake inhad a majority stake in over 64 percent of Uneximbank, Stolichnyi Bank, Imperial ensuringefficient management ofthe com-wholly or partlyprivatized enterprises. Al- Bank, Inkombank, Tokobank,andMenatep) panies. Bank control would allow morethough managers obtained only minority proposed to establish a trust that would effective monitoring and permit effectivestakes, they have generally been able to control a large portfolio of enterprise countermeasures to prevent loans frompursue their own aims, appeasing em- shares-including those of many of becoming nonperforming. High salariesployee-shareholdersbyminimizingredun- Russia's "blue chip" companies-to be have attracted some of Russia's brightestdancies through lack of restructuring and managed by the banks for a period ofthree minds into the banking sector. These banksby maintaining real wages. Restrictions of to five years. In return, the banking consor- have made significant progress in develop-shareholder rights-in particular the right tium would lend the government 9 trillion ing project appraisal skills. Their corpo-to transfer ownership-often strengthen rubles (roughly $1.84 billion)-precisely rate governance would allow pooling ofmanagerial control. Few strategic outside the sum to be raised via privatization this these scarce resources.investors have emerged. Shares not owned year. On April19 CiticorpRussia expressed *Consequently, more bank credit, desper-by employees and managers are either an interest in joining the consortium. (A ately needed for restructuring, might bewidely held by small shareholders oir re- rival consortium called Nadyozhnost [reli- forthcoming. Even with effective manage-main with the state. ability] has submitted its own proposal in a ment, enterprises still face the obstacle of

The current phase of privatization focuses letter to Prime Minister Viktor Cher- raising large amounts of finance due to theon cash sales of goverunment stakes, Partly nomyrdin. Its members, Mosbusiness- state of Russian capital markets, the lackto finance the budget deficit, partly be- bank, Agroprombank, Promstroibank, of foreign strategic investors, and the in-cause the state is incapable of managing Sberbank Tokobank, Vozroz-hdeniyeBank, ability of Russian banks to secure suffi-the enterprises it still owns. Russian 'State and Vneshtorgbank,have proposedtoplace cient information to provide credit to en-Property Committee Chairman Sergei lnte gover wm eonttorrynot directly terprises on a significant scale.Belyaev recently announced that 7,200 i h oenett ar u tt nBuiesse reenotl s nol d inafirsthprivatization vestment programs.) (Based on recent reports of Oxfordbusinesses not sold in a first privatization Analytica, the Oxford (U.K.)-based re-wave would be sold this year at public auc- search group, and of news agencies.)



Milestones of Transition

R ussia's first quarter GDP fell by to 30 per 1,000. Haub estimated that if electricitymonopolyandthesale of some5 percent compared with the current trends continue, the Russian of its subsidiaries. Under the new law,same period in 1994. Industrial populationcoulddropto 126.7millionby Hungary'stwoprivatizationbodies, AVU,

outputandpersonal incomes fell respec- 2025, from 147.9 million in 1990. the statepropertyagency, andAVRt, thetively by 4.5 percent and 4 percent. stateholdingcompany, areto be mergedPrices rose 42 percent in the quarter, Restrictions on Russian trade to the into a single body, and cash sales andthough analysts say monthly inflation West remain as they were during the public offers will havepriority. Thegov-will fall to 6 percent in May from 8.9 Cold War, Deputy Prime Minister Oleg emment initially hoped to raise $1.27percent in March. Davydovsaidon April 18.HesaidRussia bilioninprivatizationrevenuesthisyear,

had already removed all barriers andthat but no sales have been completed so far.First Deputy Prime Minister Anatoly the European Union is using ChechnyaChubais said a 3 percent rise in first as a pretext for not proceeding with an Suzuki Motors has stopped exportingquarter M2 money supply had set the interim trade accord, thus allowing EU- cars from Japan to Europe and will sellstagefor lowinflationin comingmonths. Russiantradetoberegulatedbyan agree- cars assembled in Hungary throughtheHesaidRussia's monthlyinflation could ment reached with the former Soviet European dealernetwork. The change isfall to Ito 2 percent by mid-year andthat Union. Russia is not recognized as a prompted by high European import du-the ruble was showing more signs of transition economy and all antidumping ties. To meet the demand of the Euro-stability. Russia's finance ministry said and protectionist measures remain in- pean market, Magyar Suzuki will doublethefederal budget deficitnarrowedinthe tact. HecitedRussiancapabilities in aero- its outputin 1995 to 40,000 vehicles andfirst quarter to 3.3 percent of GDP with space industry and in the production of increaseitsworkforcefrom840to 1,000.revenues 3.3 percent above target. fissionable materials, aluminum, and The parent firm will invest 2-3 billion

nickel as areas in which Russia is more forint ($17-$25 million) this year to fi-In Russia the statutory monthly mini- than competitive with the West. nancetheexpansion. Suzuki saidhisfirmmum wage and pension went up May 1 plansto raisetheHungariancontentinitsto 43,300 rubles ($8.50), double the In Slovalda macroeconomic goals for vehicles to around 80 percent from theearlier 20,500 rubles, under a new law 1995 include GDP growth of 4 to 5 current 52 percent and to increase thesignedbyRussianPresidentBorisYeltsin. percent, inflation of only 8 percent, and West European content, now about 11About 30 to 40 percent of Russians eam a budget deficit of less than 3 percent of percent.less than 249,000 rubles (equivalent to GDP. While limiting the state budget$50) a month, viewed as the average deficit to 3 percent of GDP, the govem- Romania's first nuclear power plant isminimum subsistence level, said ment aims to raise investment spending expectedto begingeneratingpowernextVyacheslav Bobkov, head of the All- on infrastructure without resort to in- month, Atomic Energy of Canada an-Russian Center for Living Standards at- come from the National Property Fund, nounced on April 12. The Canadian com-tached to the labor ministry. which is to be used only for covering panyishelpingbuildthefacility,whichis

expenses relatedto privatization andfi- located at Cemavoda. The project wasIn Russia birth rates have plummeted nancialrestructuringoffimis. According started in 1979 by former communistand death rates risen owing to political to released official data, in Februarythe leaderNicolae Ceausescuwith Canadianchaos and economic decline, according country's monthly inflation rate was 0.5 govemment loans and technical assis-to a study by Carl Haub, Demographer percent. In January andFebruary indus- tance. Itis years behind scheduleandhasof the Population Defence Bureau. Life trial production grew by 7.4 percent over beenplagued by construction problems.expectancy for men fell from 63.9 years thefirsttwo months oftheprevious year. Atomic Energy of Canada is to assist inin 1990 to 58.9 in 1993, the lowest the construction of a second reactor inamong industrialized countries. Female The Hungarian Parliament on May 10 Romania, estimated to cost about $710life expectancy declined from 74.3 to passedanewprivatizationlawthatshould million.71.9 years. The birth rate dropped from givethe countrys economic refonrsnew1.9 in 1990to 1.4 in 1994, reflectingthe momentum. The law is aimed at speed- Strong growth in exports of garments,gloomyoutlookofthepopulation. Infant ingupthesaleofstatecompaniesandwill coal, and rice helped Viet Nam narrowmortalityhas morethan doubledoverthe pavethewayforthe sale of utilities-for its trade deficit to an estimated $85 mil-sameperiodfrom l4per 1,O00livebirths example, a majority stake in the state

18 Apil 1995

Transition

lionduringthefirstthreemonths of 1995. since 1989. The United States comes tionratecontinuedtofallinMarch,drop-But the inflation rate reached 20.5 per- next with 21.2 percent, followed by pingto 18.7 percent, but disparities be-cent in March despite the government's France (11.6 percent), Austria (7 per- tween the deyeloped coastal regions andgoalofkeepingitinsingledigitsthisyear. cent), and Belgium (6 percent). inland agricultural provinces widened,

Beijing's People's Daily reported. ThePoland's economy duringthe first quar- Bulgaria's socialist parliamentary ma- People's Bank of China (central bank)ter of 1995 has continuedtogrow strongly: jority passed a controversial amendment forecasts 9 percent economic growth inindustrial production was up 13.7 per- to the land restitution law on April 14. 1995. Foreign debt repaymentis forecastcent year-on-year, and construction ac- Theamendment statesthatowners wish- at $20 billion in 1995. China's inflationtivitywas up 13 percent. Unemployment ingto sell theirland haveto offer it first rateis expectedtobe 15 percentthis yearhad fallen by the end of March to about to the state, which has two months to and 8 percent in 1996.2.7 million, equivalentto 15.4percentof decide whether to buy it. It also restrictsthe active labor force, down from 16.2 therightto sell smallplotsthatarepartof Ukraine will crackdown on state enter-percent in January. Both exports and larger land blocks and to plant crops prisesthatfailtopayforgasinanattemptimports increased sharply; the cumula- different from the ones in the rest of the to check rising external debt and alleviatetive trade deficit at the end of February block. The opposition will take the mat- acontinuingenergycrisis. Gas suppliesamounted to $612 million. Between ter to the Constitutional Court. to offending enterprises will be cut orDecember and March, prices increased suspended. Gas accounts for around 40by 8 percent, against the government's Unemployment in Bulgaria is expected percent of total energy consumption,6.4 percenttarget. Real wages shot up in toriseto750,000in 1995, Trudreported. making Ukraine one of Europe's mostthe first quarter, increasing by 8 percent More than 300,000 unemployed receive gas-intensive countries. Acting Primein March alone. no state compensation. The state paid Minister Yevgheny Marchuk confirmed

out some 2.7 billion leva (about $180 that the government will need up to $4A United Nations report said economiic mnillion) in unemployment benefits in billioninWestemfinancial assistancetodevelopment giveaways to attract jobs 1994. Iflation for 1994 reached 121 coverthe costs of closingthe Chemobylwere proliferating worldwide and often percent, the second-highest figure since nuclear power plant.didmoreharmthangood, The WallStreet 1989.Journal reported. The report, which Tanzania'sfoundingfatherandfirstpresi-analyzed the foreign direct investment Newly contracted foreign investment in dent Julius Nyerere called privatizationincentives of more than 100 countries, China dropped sharplyin 1994 afterthe plans antisocial and accusedthegovem-said governments were overbidding in hectic pace of the two preceding boom mentofbeingcorrupt. AddressingaMayefforts to woo industries or companies. years. China's State Statistical Bureau Day rally, Nyerere claimed industrial

reported that new foreign investment powers were bent on killing industry inForeign direct investment in the Czech pledged in 1994 amounted to $82.6 bil- developing countries and "want us toRepubfic increased by almost 52 per- lion, down 25.8 percent from the year keep sellingraw cotton and coffeeforthecent in 1994 to $862.4 million, Rude before. Numbers of new projects were rest of our lives." Speaking out againstPravo reported on April 18. Germany down by 43 percent. However, actual government policies, Nyerere said heaccounted for the largest share of last utilized investment was up 30 percent was told by other leaders that privatiza-year's investment, with 48.4 percent, from the previous year, reaching $33.8 tionisaconditionforassistancefromthefollowedbyAustria(9.2percent),France billion. The Bureau reported a "notice- IMF and the World Bank. "Who is this(8.9 percent), and the United States (4.6 able shift" towardinfrastructureprojects World Bank and IMF? Is the IMF pre-percent). Since the demise of commu- in the 1994 investment figures. tending to be the International Ministrynism almost $3.1 billion have been in- of Finance?" Nyerere is quoted as say-vested in the Czech Republic. China's GDP reached $116.8 billion in ing.

the first three months of 1995, an 11.2Volkswagen's stake in the Skoda auto percent rise over the same period lastcompany, which becamea majorityhold- year. Economicgrowthwas 12.7percenting in 1994, is the biggest factor in in same period of 1994, prompting theGermany's overall coverage 36.2 per- governmentto declarethe economywascent share ofthetotal foreign investment heading for a soft landing. China's infla-


The Wordd Bank/PRDTE

World Bank/IMF Agenda

The New World Bank: Consultant, spill near the Arctic Circle. The World payment of the former U.S.S.R.'s debtAdviser, Facilitator Bank's commitments to Russia now to all creditors before December 31,

amount to $3.6 billion. The new loans 1995.Instead of financing dams and other big include $400 million to support the cre-developmentprojectsintheThirdWorld, ation of private housing markets in a IMF Ups Its Forecast for World GDPthe World Bank, at present only a minor number of cities, $16.8 million to mod-sourceofcapital,isexpectedinthefuture ernize the tax system, $40 million for ThelMFhas revisedupwardits Octoberto focus farmore on privateinvestments trainingpersonnelinthefinancial sector, forecasts for world economic growthand function more as a consultant or and $99 million to help clean up more and said in its "World Economic Out-adviser. "We must create the conditions than 100,000 tons of oil that leaked last look" reportthattheworldeconomywasfor private capital to flow into all these yearfrom apipelineintheKomi Repub- expected to grow 3.8 percent this yearcountries,insuringtheydevelopahealthy, lic. Officialshavedescribedthelastproject and 4.2 percent in 1996. The Fund pre-skilled work force, encouraging good as "a race againsttime" to containthe oil viously forecast 3.6 percent growth ingovemance and a favorable regulatory before the spring thaw. Russian First 1995. The Fund wamed that "recentenvironment for business," James D. DeputyPrimeMinisterAnatolyChubais changes in financial market sentimentWolfensohn, who will become president who visited Washington for the toward some emerging market coun-of the Bank June 1, has been quoted as IMF-World Bank spring meetings, said tries, together with turmoil in exchangesayingin a recent articleintheNew York RussiawantstotaptheWorldBankmore markets more generally, have cast aTimes. "There is need for change in the "aggressively" in the future, including shadow on the otherwise encouragingBank, andl intendtobean instrument of seeking money to strengthen the social picture."change," Wolfensohn said. Accordingto safety net to help Russians hurt by thethearticle,heisgivinghimselfuntil Janu- countrys economic reforms. He also World Bank, IMF Approve Croatiaary to decide on a plan of action. Lyn revealed that Russia wants to talk with LoansSquire, Director of the World Bank's the IMF about a new three-year creditPolicyResearchDepartment,inthesame worth some $9 billion. According to Croatia andtheWorld Bankhave signedarticlealsoexplainedthattheWorldBank Chubais, thetwo organizations' focus on an agreement for an $80 million loan towill become more a knowledge-based one-yearlendingprogramswas"oldfash- supporttheHighway Sector Project. Atinstitution, advising countries, for in- ioned." He saidtheRussian govemment atotal cost of $570 million, Croatia is tostance, on developing their private sec- had already mapped out a longer-term speed up modernizationandtransforma-tor. Duringthe April meeting of the De- reform plan and would be discussing its tion ofthetransport sector. TheIMF hasvelopment Committee, World Bank 1996 budget in early May. He said that approvedanadditional $103 million sys-ManagingDirector GautamKaji under- Russia had asked the G-7 to reschedule temictransfornationfacility(STF)loanlinedthattheWorldBankrs goal istohelp some of its debt andbopedfora response (seconddrawing)to supportthe Croatiangovernmentsplaytherolemoreoffacili- within three months. government's 1995 economic stabiliza-tator than direct provider of infrastruc- tion and reform program. An lIMF state-ture. Russia Repays Debt from MF Loan ment said that in spite of significant

progress-GDP increased by 1.8 per-World Bank Loans for Russia Russian Deputy Prime Minister Oleg centin 1994, inflationhas beenhalted-

Davydov said the government will use the situation remainedfragilebecause ofA $106.5 million World Bank loan, ap- thefirstinstallmentofa$6.5 billionIMF theslowimplementationofplannedstruc-provedMay2, will help finance rehabili- standby loan to service its $120 billion tural reforms anduncertainties connectedtation of the gas distribution network in foreign debt. He said an initial under- tothe securitysituationintheregion. Thethe city of Volgograd, as well as the sale standinghad been reached with the IMF government's economic program forof energy-efficient equipment for com- torelease$1.1 billioninMay, addingthat 1995 is based on 4.5 percent economicmercial and residential customers in ten the moneywould be usedto pay ongoing growth and an annual inflation target ofpilot cities. On April 25 Russia and the debts to the Paris and London Clubs of 2.6 percent.World Bank signed loan agreements to- creditors and to selected countries andtaling $555.8 million to fund economic suppliers. He confirmed that Russia in-reform and the cleanup of a massive oil tended to sign commitments for the re-

20 Apfil1995

Transihon

Lodz Receives Loan MIGA Surges Ahead Viet Nam's First Power Loan

The World Bank has granted a $3.7 In the first three months of 1995, the TheWorldBankhas concludednegotia-millioninvestmentloantotheLodzProv- World Banlks Multilateral Investment tions over two loans worth $265 millionince Management of Telekomunickacja Guarantee Agency (MIGA) issued 12 for Viet Nam; the Bank's first powerPolska S .A. Jan Wasilewski, deputy di- political risk investment insurance con- sector loan to the country will expand arector of the firm, said the funds would tracts to investors for projects in seven power station in southern Viet Nam,be spent on the development of local member countries. The guarantees to- whileanotherloanwill upgradetheelec-intemational telephone exchanges and taled $92.9 million in new coverage. tricity network in Ho Cli Minh City. Inthe laying of cables in Lodz and other MIGA is the World Bank Group agency another development, IDA credits oftowns in the province. that promotes private investment in $100 million to rehabilitate and develop

member countries by providing insur- Viet Nam's irrigation system, includingIM Standby for Estonia ance to protect investors from noncom- thecompletionofsevenirrigationschemes

mercial risks. MlGAguaranteesthisfi- coveringa gross area of about 130,000The IIMF has approved a fifteen-month, nancial year, which started in July 1, hectares, will enhance the income of$22 million standbycreditfor Estoniato 1994, have to date facilitated more than about 300,000 rural families.supportthegovernment's 1995 economic $650 million in direct investment to 16program. Thegovemmentaimstoachieve member countries. Projects have ranged LithuaniaDevelops PivateBanking..real economic growth of 6 percent, re- from a state-of-the-artpaperboardprint-duceinflationto 26percent, andimprove ingfactoryinthe CzechRepublictogold A $25 millionWorldBankloantoLithua-the country's balance of payments. mining in Uzbekistan. Seven countries nia, approved April 13,willboostprivateEstonia's new coalition govemment, have joined MIGA this fiscal year, in- sector development by helping enter-headedbyPrimeMinisterTiitVaehi,vwas cludingMozambique, Ukraine, and Vet prises get better access to medium-termconfirmed by President Lennart Meri. Nam, bringingmembershipto 128 coun- credit from private rather than govem-LiinaTonissoniseconomyminister,Mart tries. ment banks. The loan will also provideOpmann is finance minister. post-privatizationtechnical assistancefor

World Bank Reaches Out to Russian enterprises and help for state-ownedUkraine's Hydro Empowering Cities enterprisesthatfailedintheirinitialpriva-

tization attempts. (In Lithuania thenum-A $114 million World Bank loan ap- World Bank loans totaling $400 million ber of registered private enterprises hasproved April 11 will help improve the are slatedto improve infrastructure in a almostdoubledto 88,446,andmorethanefficiency, reliability, safety, and envi- number ofRussian cities. A $36.95 mil- half of all workers are now employed inronmentalperformanceofUkraine'shy- lion loan will help the Rostov-on-Don theprivate sector.) Swedenhas agreedtodropower plants, the country's lowest- administrationtodevelopmunicipaltrans- provide another $10 million to increasecost power source. The loan will also port. Another$35.9millionwill speedup the capital funds of commercial banks.fostermoreefficientpowerdispatchfrom five construction projects in St. Peters- Lithuaniacanexpectloansworth$250toallpowerplants,withimprovedcommu- burg. The moneywill beusedto provide $300 million from the World Bank bynication, command, and control systems anengineeringnetworkforcottagebuild- 1998, to support the further develop-throughout the grid. The project will ing in the Kamenka and Kolomiagi dis- ment of the Lithuanian economy, ac-extend the life of the nine major hydro- tricts. It will also repair and modernize cordingto Europe and Central Asia Re-power plants by about twenty years. the downtown sewage collector, build gional Office Director Basil Kavalsky.Improved environmental performance another collector along Pnmorsky Av-oftheseplantswillreduceriverpollution; enue, and finish the construction of a FYRMacedoniaMitigates Transportbetter monitoring ofdams and reservoirs pumping station inthe Pamas industrial Woes...will reducethe risk ofdam breaks. "This zone. Kostroma, one of 14 Russian citiesproject isapositive step that shouldhelp whosepublictransportation systems are A $38.7 million World Bank loan ap-eliminate or reduce the rotating black- slatedforupgrading,willreceivea$14.5 provedApril 18willhelpFYRMacedoniaouts several cities experienced last win- millionloantoacquire9l buses. A $42.6 address transport problems caused byter," says Laszlo Lovei,aninfrastructure millioncreditlineforTomskwillfinance the closing of its Serbian and GreekspecialistintheBank's Europe and Cen- revamping of the city's transportation borders. The project will improve porttral AsiaRegionandtaskmanagerforthe system. access with renewed east-west roads,project.Volume 6, Number 4 21


fund anew customs system, andprovide damage in China's Yellow River Basin. percent in 1994. The IMF said in aplanning advice for transport agencies. Thefunds will help build a multipurpose statement that Latvia had been success-On May 5 the IMF approved a thirteen- damforbothpowergeneration andflood ful incouplingtheprocess oftransitiontomonth $35 million standby credit, and a control and resettle the reservoir popu- amarketeconomywiththeimplementa-second systemic transformation facility lation. Another development, $25 mil- tionofstabilizationpolicies, butitwamed(STF) drawingofabout $20 million. The lion each from the World Bank and the that continued progress in developing agovernment is aiming to achieve real IDAwill help establish anational admin- full market economywould depend on agrowth of about 0.8 percent this year, istration capable of implementing tax firm commitment to the overall aims ofcompared with a 7.2 percent decline in reform countrywide. The IFC and some the current economic program. Mean-1994. Inflation is targeted at 17.8 per- Hong Kong and Singapore conglomer- while, the International Finance Corpo-cent, against 55 percent in 1994. ates will be the main investors in a $250 ration has signed an agreementto acquire

million cementplantin China. Theplant, a $16.4 million stake in Tilts Communi-...and Kazakhstan Accelerates Priva- inthe eastem ChineseprovinceofJiangsu, cations, a company created in partner-tization will have an annual production capacity ship with the Latvian govemment to

of 1.5 million tons. subsidizethemodernizationandprivati-A$62 million WorldBankloan approved zation of the Latvian state-owned com-April l8willbackKazakhstan'splansto Latvia: IMF Standby, IFC Stake pany Lattlekom.privatize, restructure, or liquidate largeenterprises and to provide market train- ThelIMFhas approvedathirteen-month, IDA Supports Georgiaingformanagers. Itwill alsohelp develop $44 million standby credit for Latvia totwo private banks, strengthen bank su- supportthegovernment's 1995 economic The IDA has approved a credit of $75pervision, and ease the processing of program. The government aims to in- million to boost the Georgianlargetransactions. crease GDP growth from 2 percent in government's efforts to implement its

1994to 5 percentthis year, andto reduce reform program, continuepriceandtradeIMFandlDAInjectionsforAzerbaijan inflation from 26 percent in 1994 to 15 liberalization, reduce and redefine the

percent by the end of 1995. The overall role of the public sector, and improveThe IMF has approved a $46 million fiscal deficit is expected to narrow this targeting of social benefits.economic support program for year to 2.2 percent of GDP from 4.1Azerbaijan. The support comes afterAzerbaijan set the stage for lower infla-tion bytighteninggovemmentcredit and Confidentialmoney supply. Thegovemment wants toslow the 21 percent decline in outputregistered in 1994 to 6 percent this year. .Efforts to checkthe runaway 1,664 per-cent inflation in 1994 are expected to -result in 520 percent inflation in 1995.The 1994 fiscal deficitof l3 percentisto 'be cut to one-third, and the current ac-count deficit should be almost halved.The]DA'sfirstloanto Azerbaijan, $20.8million approved on April 20, will helpthe country's oil industry and encourageprivate foreign investment.

Dam on the Yellow River

A $100 million World Bank loan and a$110 million IDA credit, approved April25, will help finance an ambitious plantoimproveirrigationandreducedailyflood From the Budapest magazine Hungarian Economy

22 April1995

Transiton

IMF-World Bank Spring Meetings in Washington

Facedwith a declineinaidfromtherichier (GAB)andto useitforbailouts similarto usedtohelp tumtheenhanced structuralcountries, the world's poorer nations that of Mexico. (Established in 1962, adjustmentfacility(ESAF)into aperma-should look more to the private sector to expanded in 1983, and renewed in 1992, nent source of financing for the poorestfinance their development, particularly the GAB permits the Fund to borrow, countries. Camdessus saidtherewas op-costlyinfrastructure,theIMF and World under prescribed conditions, currencies positionto a proposal thatthe IMF con-Bank advised at their recent Spring from 11 industrialized countries and, sider borrowing on the capital marketsMeetings. "Adequate, efficient, and care- through an associated agreement, from for emergency financing. He said thefully designed infrastructure with fill Saudi Arabia.) UndertheplantheGAB IMF's resources should be doubled toregard to the environment is crucial to wouldbeturnedintoanemergencyfund; $440 billion to help maintain a stable,sustainabledevelopment,"theDevelop- new members would be invited to join; growingworldeconomy. TheManagingment Committee of the Bank and IMF and current members to increase their DirectorisalsopressingforanSDRissuesaid in a statement. The Conmmittee said contributions. Theplanwasnotendorsed inexcessoftheSDR36 billionheinitiallydeveloping countries should pass on the in Washington. United States Treasury proposed in 1994.(Camdessus has sug-commercialrisksofinfrastructureprojects Secretary Robert Rubin noted that the gested resurrecting a Japanese proposalto the private sector and rely less on US supported expanding the number of made a few years ago to use SDRs to setpublicfundingandguarantees. The Com- countries contributing to the GAB and up a new IMF loan facility of up to $30mittee urged the richer nations to con- said this expansion was a possible ap- billion to help countries facing liquiditytinue funding the IDA. proach to the IMF's financing needs. crises.)

The IM's policymaking Interim Coin- Onthe other hand, British Chancellor of On April 26, 1995, the eve of themitteereachedagreementon strengthen- the Exchequer Kenneth Clarke wamed IMF-World Bank Spring meetings, aningthesurveillancecapacitiesoftheFund, the Interim Committee that creating a article inthe Financial Times addressedto improve early warning systems to special facility to help countries facing "the dogma that debt owed to the IMFpreventMexico-stylefinancialcrises.The Mexico-stylefinancial crises riskedsend- and IBRD must never be written off."Committee encouraged the IMF to im- ingan undesirable signal thattheintema- This is now being called into questionprove its dialogue with member coun- tional community stood ready to bail becausemultilateraldebtisrapidlyemerg-tries and to be frank in its recommenda- them out. He said that G-7 officials had ing as one of the most pressing burdenstions aboutthe risks attached to policies agreed to review the future of the 1MF forthe verypoorestofindebteddevelop-followedbymembers. Italsourgedmern- and the World Bank at the G-7's June ing countries, claimed the paper.bers to publish comprehensive data on meeting inHalifax (Canada). "Wethinktheir economies and asked the 1MF to the 1MF and World Bank are somewhat A revised joint IF-World Bank studydevelop standards for the provision of large and bureaucratic, with some over- has concluded that-assuming zero realthis information to the public. lap between them," said Clarke. export growth, 23 countries would face

multilateral debt service exceeding 10The Committee asked the IMF to con- IMF Managing Director Michel percent of their exports, and 7 havetinue to review the adequacy of its re- Camdessus at a press conference after multilateral debt serviceratios above 20sources and ways they can be bolstered, the G-7 meeting said that the IMF may percent. Objections to the principle ofwamingthat the Fund's liquidity is pro- sell some of its gold reserves [worth rescheduling debts to the IMF and thejected to decline sharply over the next about $40 billion]to financeassistanceto Bank remain fierce. IMF officials tendtwoyears. It also requestedthattheINlVF poor countries. He noted that approval to dismiss the suggestion that debt beconduct a study ofthe role and functions for such a measure would require the written off as out of the question, how-ofthe special drawing right (SDR). The support of 85 percent of the member- ever, while Bank staff talk ominously ofCommitteepraisedthe"courageouspoli- ship. Camdessus said that if the IMF the damage this would do to the Bank'scies" followed byRussia and Ukraine. It does sell some gold, it will need various AAA credit rating. Attention now fo-will meet again on October 8, 1995. safeguards, and he suggested that it sell cuses on ways ofmakingthelMF lending

gold in parallel with receipt of contribu- to the poorest countries under ESAFEarlier at the meeting of the G-7 coun- tions from bilateral donors. He said, even more concessional by extendingtries, a plan was discussed to bolster the moreover, that the proceeds from the repayment terms.IMF's general arrangement to borrow sale shouldremainwithintheIM andbe



Conference Diary

The Case for Russia's Far East: In- Information:LICOSsecretariat, tel. 32 selected survey of Russian industrialvesting, Trading, Partnering (01 6) 32 53 40, fax 32 (016) 32 53 44. enterprises conducted in the second halfMay 9-10,1995, New York, N.Y, USA of 1994. Participants will include senior

Economic Reforms in Cooperation offlcialsfromRussiaandtheWorldBankA Business Development Forum pre- Partner Countries: Opportunities, as well as well-known researchers fromsented by the Geonomics Institute, the Constraints, Security Implications around the world.Russian Far East Update, and the Pa- May 28-30, 1995, Brussels, Belgium Information: Qimiao Fan or Une Lee,cificLaw Center(Vladivostok). Confer- the World Bank, 1818 H Street, N. W,ence aims to bring together Russian en- The24thNATOEconomicsColloquium, Washington, D.C. USA, tel. (202)473-trepreneurs,theintemationalinvestment organized by NATO Economics Office 73 73/0991,fax (202)477-3288. For reg-community, and specific companyexpe- of Information and Press. istration, please contact Elena Belova,rience to discuss-in an interactive and Information:Daniel George, NATOEco- theLeontiefCentre, 16 VoznesenskyPr.,varied format-the Case for Russia's nomics Directorate, Brussels, tel. (322) St. Petersburg, 190000, Russia, tel. (7-Pacific Far East. Panel topics include: 728-4780,fax (322) 728-5228. 812)314-4119,fax(7-812)319-9814, (E-TheRussianentrepreneurtoday; Financ- mail: sln@leont*efspb.su).ing project development and the new RestructuringofAgrobusinessinEast-entrepreneur; Infrastructure develop- ern and Central Europe Emerging Capital Markets in Russia:ment inthe Russian Far East; Distribu- June 10-14, 1995, Sofia/Vitosha, Bul- Mid-YearUpdatetion and the retail market inthe Russian galia July 26-27,1995, New York, N.Y, USAFarEast; Natural resource extraction: the Organized by the Institute of Agrariankey sector for Westem investment. Economics, Prognostication, Planning The Summer 1995 Business Develop-For information: Geonomics Institute, and World Agriculture(IAEPPWA) and ment Forum, sponsored by Geonomicstel. (802)388-9619,fax(802)388-9627, thePHARE-ACE. Institute of Middlebury, Vermont, will(Email: FYoung@AMiddlebury. edu). Information: R Trendafilov, Sofia, teL provide information and tools for those

(3592) 552-808, fax (3592) 552-805. who want to assess and reduce invest-Industrial and EnterpriseRestructur- mentriskin Russia and identifyavailableing in Transition Economies Competitive Banking in East Euro- opportunities. Moneymanagers, privateMay 17-19, 1995, Leuven, Belgium pean Countries and institutional investors, and hedge-

July 10-11, 1995, Krakow, Poland fund managers cangain directaccess toIndustrial and enterprise restructuring, the architects of Russia's emergingmar-the most urgent problem facingthetran- Organized by the Jagiellonian Univer- ket infrastructure, to independent re-sition economies in Central and Eastem sity/PHARE-ACE search providers, and to major market-Europe, will be the subject of a major Information: E. Miklaszewska, Depart- makers from both Russia and the West.conferenceinLeuven. LICOS will bring ment of Economics, Jagiellonian Uni- Information: Michael P Claudon,together researchers from its COST net- versity, Krakow, tel. (4812) 216-484, Geonomics Institute, 14 Hillcrest Av-work to review their work on investigat- fax (4812) 226-306. enue,Middlebury, Vermont05753, USA,ingthedimensions ofrestructuringchal- tel. (802) 388-9619,fax (802) 388-9627.lenges andsolutions. Thisprogram, which Restructuringinthe TransitionNews-is sponsoredbyDGXIIoftheEuropean letter Implications of CEE Business Devel-Commission, is completing the first of June 12-13, 1995, St. Petersburg,Russia opment to Economic Integration inthree years' operations. The public ple- Europenary session on Thursday evening will This international conference, sponsored September 11-13 (new date!), 1995,feature a report on major research work by the Wrodl Bank with participation Bmo, Czech Republicof the World Bank by Professor Mark from the Russian govenmment, will ex- Information: M Kerkovsky, TechnicalSchaffer of the London School of Eco- amine the extent and problems of enter- University ofBrno, Faculty ofBusinessnomics andwill continueFridaymoming prise restructuringinthe Russian indus- andManagement, Brno, Czech Repub-with discussions of other major special- trial sector since 1992 and their policy lic, tel. (425) 4114-2685,fax (425) 4121-ists on restructuring. implications. Mostpapersfortheconfer- 1410.

ence, are based on a large, randomnly

24 Apri 1995

Transition

NewPolitical,Mflitary,Economic,and perspectives in Europe. (Papers should April 18-21, 1996, Svaneke, Bornholm,

Environmental Security for Europe be sentno laterthan September 1, 1995.) Denmark

September 22-24, 1995, Krakow, Po- Information: Karl-Heinz Koppe, cloland Arbeitsstelle Friedensforschung Bonn Organized by Roskilde University and

(AFB), Bethoveenallee 4, D-53175 Bonn, theNordicEconomicResearchCouncil.

Third European Peace Research Con- Germany, tel. (49228) 356-032, fax Information: Prof. Dr. Hans Aage,

ference, organizedbytheEuropeanPeace (49228) 356-050 or 353-603, (E-mail: Roskilde University Department of So-

Research Association (EuPRA). Topics [email protected]. d400. de). cial Science, tel. (4546) 757-781/2458,

include: Post-Communuist states andEu- fax (4546) 756-618, (E-mail:

ropean integration; SoutheastemEurope Nordic Baltic Workshop on Environ- [email protected]).

andits security surroundings; Economic mental Economics

New Books and Working PapersThe PRDTE unit of the World Bank regrets that it is unable tosupply the publications listed.

World Bank Publications will be a shortage, provided industrial- WorkingPaper(PRWP)no. 1430, Marchizedcountriescontinuetomakeprogress 1995, 48 p. To order: Grace Coward,

To receive ordering andprice inforrna- on fiscal consolidation. "The sea change Rm. D8-088, tel. (202) 458-0494.

tionforpublications of the WorldBank, in policies in developing countries, andwrite: WorldBank, PO. Box 7247-8619, their increasing integration into world Bernard Hoekman, and Gerhard Pohl,

Washington, D. C., tel. (202) 473-1155, trade and finance, are underpinning the Enterprise Restructuring in Eastern

fax (202) 676-0581; or visit the World prospects for economic growth in these Europe: How Much? How Fast?

Bank bookstores, in the United States, countries and forgrowthintrade," World Where?-Preliminary Evidence from

701-18thStreet,N.W, Washington,D.C. Bank Vice President and Chief Econo- Trade Data, PRWP no. 1433, March

or in France, 66 avenue d'Iena, 75116, mist Michael Bruno stressed during a 1995,19 p. To order: FatenHatab, Rm.

Paris. press conference introducingtheReport. H8-087, tel. (202)473-5835.

Global Economic Prospects and the Social Indicators of Development, Christiaan Grootaert, Poverty and So-

Developing Countries 1995-AWorld World Bank, April 1995, 100p. cial Transfers in Poland, PRWP no.

Bank Report, April 1995, 100 p. 1440, March 1995, 79 p.The 1995 edition ofthe statistical report

Economnies of early reforming countries monitors socioeconomicdevelopmentfor In 1993 social transfers accounted for

in Eastern and Central Europe achieved individual countries andpresents aframe- 18.7 percent of Poland's GDP, including

positivegrowth in 1994, but output con- worktocomparekeycountryindicators. pensions (14.9 percent), unemployment

tinued to plunge in the former Soviet Some highlights form the book: While benefits (1.9 percent), family allowance

Republics. Overthenext decade, in 1995- livingstandards in low-income countries and other social insurance (1.4 percent),

2004, theBankforecasts averageannual have been continuously improving, dis- and social assistance (0.5 percent). The

growth of 3.4 percent for transition parities between regions are widening. In social minimum,the conventional bench-

economies ofEuropeandtheFSU. Their particular, a gap has become noticeable mark for measuring poverty in Poland,

exports are projected to grow at an an- between the South Asia region and sub- has lost much of its relevance; in 1993,

nual 5.5 percent. East Asia, including Saharan Africa. The number of poor 55 percent of Poles spent less than the

Cambodia, China, Laos, and Viet Nam, people living on $1 or less per day will minimum. Atpresent, minimumpension

could achieve 7.7 percent growth, while reach as many as 1.3 billion worldwide andminimumwagearetheyardsticksforits exports could increase by 9 percent by 2000, measuring poverty. In 1993, 26.3 per-

overthe next decade. Incomegrowth per centofthepopulationhad spent lessthan

capita between 1995 and 2004 is ex- Richard M. Bird, Jennie I. Litvack, and the minimum wage, and 14.4 percent

pectedto reach6.6 percent inEast Asia. M. Govinda Rao, Intergovernmental less than the minimum pension.

Global capital is likely to be tight in the Fiscal Relations and Poverty Allevia-years ahead, although it is unlikelythere tion in Viet Nam, Policy Research



Poverty is highest among social income Sachdeva, Rm. S5-029, tel. (202) 458- Harry Broadman, Meeting the Chal-recipients, followed by pensioners and 2717. lenge of Chinese Economic Reform,workers, of whom about 11 percent live Discussion Paper no. 283, 1995, 6 0 p.below the minimum pension. In large Peter Orazem, Milan Vodopivec, andcities (with more than 200,000 people), Ruth Wu, Worker Displacement dur- Reform of state-owned enterprises5.5 percent live below the minimum ing the Transition, PRWP no. 1449, (SOEs) has been proceeding since thepension. The smaller the settlement, the April 1995, 28 p. Chinese government announced sweep-greaterthepercentageofthepoor. Their ing reforms in November 1993, whichrate is as high as 22 percent in villages. Thepaper describes displacementtrends included the stated goal of creating aMinimum wage occurrences indicate a andthecharacteristicsofdisplacedwork- "socialist market economy" by 2000.similarpattem. Only3.4percentofchild- ers, comparingthem withthose in North Despite China's impressivegrowth, inef-less couples are below the minimum Americaduringamajorrecession. Among ficiencies still burden many ofthe SOEspension (many of these households are theirfindings: that are at the core of the country'spensioners). Thepovertyincidencerises industrial sector. Competitionfromnon-steadily with the number of children. *A comparison of displacement in state sector firms has eroded the marketAmong households with four or more Sloveniain 1990-93 andinNorthAmerica shareofSOEs. ForChinatocapitalizeonchildren, 42.6percent spend(perequiva- during the recession of the early 1980s itspast successes, itmustrestructurethelent adult) less than the minimum pen- shows striking similarities in the inci- overall SOE sector and intensify enter-sion, and60.8 percentlessthanthemini- dence of displacement by gender and prise reform. SOEs face challenges onmum wage. industry, as well as in reemployment three levels: poor corporate intemal in-

paths. centive and govemance systems; distor-The social safety net in Poland repre- tions in the policy and regulatory envi-sents 44.9 percent of the expenditure of -Women are no more likely to be dis- ronment; lackofwell-developed marketsan average household. The safety net is placed than men, and face smaller for labor, capital, and technology.mildly progressive, providing 55.1 per- postdisplacement wage losses.cent of expenditure for average house- Hyung-Ki KimandMashiko Aoki, Cor-holds below the minimum pension, and *About half the displaced workers who porate Governance in Transitional42.7 percent of expenditure for house- find new jobs change occupations and Economies: Insider Control and theholds above the minimum wage. This about a third change industry. Role ofBanks, EDIDevelopment Stud-suggests that there is ample room in the To order: Jennifer Prochnow-Walker, ies, 1995, 492 p.system for better targeting. Proposed Rm. Nll-023, tel. (202)473-7466.reforn options indude: Ira W. Lieberman, John Nellis, Enna.Conductingincometestingforthefam- Willy L. De Geyndt, Managing the Karlova, Joyita Mukherjee, and Suhailily allowance, with double the amount Quality of Health Care in Developing Rahuja, Russia: Creating Private En-paid outto largehouseholds. (Afreezeof Countries, Technical Paper no. 258, terprise and Efficient Markets, Stud-thefamilyallowancesimcemid-1992has 1995, 92 p. ies of Economies in Transformation se-hurt the poor the most.) ries no. 15, 1995, 266 p. [Based on*Reducingeligibilityforthefamilyallow- Barbara Nunberg and John Nellis, Civil papers presented attheWorldBank con-ance to 18 years and taxing the allow- Service Reform and the World Bank, ference "Privatization in Russia," Juneance; providing income-tested day-care Discussion Paper no. 161, 1995, 50 p. 1994]vouchers for young children.*Improvingincometestingfor social as- FarmRestructuringandLandTenure Susan L. Rutledge (and Martin C.sistance. (Atpresent, 55 percent of ben- in Reforming Socialist Economies: A Stewart-Smith, Christina Kappaz, andeficiariesarenonpoorandnonpoorhouse- Comparative Analysis of Eastern and Maziar Minovi, for volume 2), Sellingholds andareactuallyarepaid more-in Central Europe, Discussion Paper no. State Companies to Strategic Inves-absolute numbers-than the poor.) 268, February 1995, 148 p. tors: Trade Sale Privatizations in Po-*Extendingunemploymentbenefits eligi- land, Hungary, the Czech Republicbility for the low-skill jobless in large Zvi Lerman, Karen Brooks, and Csaba and the Slovak Republic-Analysis ofhouseholds. (Currenteligibilityis limited Csaki, Land Reform and Farm Re- Issues, Case Studies, CFS Discussiontotwelvemonths,andthishurtslow-skill structuringintheUkraine,Discussion Paper Series no. 106, vols. 1 and 2,workers the most.) To order: Nona Paper no. 270, 1995, 148 p. January 1995, 33 p. and 106 p.

26 April 1995

Transition

Clyde Hertzman, Environment and FelixFitzRoyandMichaelFunke,Skills, government financial information sys-Health in Central and Eastern Eu- Wages, and Employment in East and tems.rope: AReportfortheEnvironmental WestGermany, IMFWPno. 95/4, Janu-Action Program for Central and ary 1995, 19 p. The treasury can play a passive role inEastern Europe, World Bank, 1995, executing the budget (if the treasury120 p. Ratna Sahayand Carlos Vegh, Inflation merely makes resources available to

and StabilizationinTransitionEcono- spending agencies) or an active role (if itIMF Publications mies: A Comparison with Market is authorized to limit expenditures, or

Economies, IMF WP no. 95/8, January even approve certain payments). TheMingwei Yuan and Kalpana Kochhar, 1995, 44 p. treasury can also sharethe managementChina's Imports: AnEmpiricalAnaly- of public debt with the central bank. Itsis Using Johansen's Cointegration Vincent Koen and Michael Marrese, may or may not be responsible for theApproach, 1MF WP no. 94/145, De- Stabilization and Structural Change accountinginthecentral administration.cember 1994, 24 p. inRussia,1992-94, lMFWPno.95/13,

January 1995, 23 p. Thepaperarguesthat,incountriesfacingBill Allan, Public Expenditure Man- substantial economic and financial ad-agement and Budget Law: Toward a Shailendra J. Anjaria, Working Paper justment problems and/or rapid institu-Framework for a Budget Law for Summaries, IMF WPno. 95/15,Febru- tional change, such as the economies inEconomies in Transition, IMF WPno. ary 1995, 82 p. transition, it is desirabletogivethetrea-94/149, December 1994, 39 p. sury a broader (rather than narrower)

Teresa Ter-Minassian, Pedro P. Parente, range of responsibilities in governmentEvgeny Gavrilenkov and Vmcent Koen, and Pedro Martinez-Mendez, Setting financial management. The paper alsoHow Large Was the Output Collapse Up a Treasury in Economies in Tran- highlightstheimportanceofanappropri-in Russia? Alternative Estimates and sition, lIMF WP no. 95/16, February ate information system for the effectiveWelfarelnplications, lMFWPno. 94/ 1995, 63 p. financial management of government154, December 1994, 23 p. operations, and the relationship of the

Inmost countriesthenationaltreasuryis treasurywith otherpublic sectorentities,Steven Symansky and Leonardo in charge of optimizing the financial in particular the central bank.Bartolini, Financing the Transition of management of government operations.Previously Centrally Planned Econo- Reflectinghistorical and cultural factors, To orderlMFpublications: JMFPubli-mies: Macroeconomic Effects on the economic situation of the country, cation Services, 700-19th Street, N. W,Western Europe, IMF WP no. 94/157, and the balance of powers among gov- Washington, D. C. 20431, USA, tel. (202)December 1994, 19 p. ermnent agencies responsible for eco- 623-7430,fax (202) 623-7201.

nomic management, the treasury's roleVictoriaP. Summers andEnil M. Sunley, can extend to the following areas: CASE Publications, WarsawAn Analysis of Value-Added Taxes in -Planning and control of the centralRussia and Other Countries of the government's budget andthemonitoring Privatization in the PostcommunistFormer Soviet Union, IMF WP no. 95/ of operations oftheextrabudgetaryfinds Countries: Bulletin-Fall '94, CASE no.1, January 1995, 48 p. and subnational governments. 29, October 1994, 31 p.

*Day-to-day cash management, includ-Manre Montanjees, Government Fi- ing control of inflows and outflows into ForeignPnivatizationin Poland, CASEnance Statistics in the Countries of thegovernmentaccount(s)withthebank- no. 30, October 1994, 74 p.the Former Soviet Union: Compila- ing system; and securing the smoothtion and Methodological Issues, IMF financing of government expenditures. Kazimierz Kloc, The Banking SystemWP no. 95/2, January 1995, 149 p. *Management of government debt and in Kyrgyzstan, CASE no. 31, Novem-

debt guarantees. ber 1994, 22 p.Social SafetyNets forEconomic Tran- *Management of government financialsition: Options and Recent Experi- assets,includingequityholdingsinpublic Leszek Balcerowicz and Alan Gelb,ences, IMWPno. 95/3, Februaryl995, enterprises. Macropolicies in Transition to a Mar-26 p. *Accounting of government operations ket Economy: A Three-YearPerspec-

and development and maintenance of tive, CASE no. 33, March 1995, 42 p.



Stanislaw Gomulka, The IMF-sup- tives in Hungary, CEPR Discussion EUconsumers ofopeningmarketstotheported Programs of Poland and Rus- Paper no. 1118, January 1995, 42 p. CEECs, the benefits and opportunitiessia, 1990-1994: Principles,Errors, and far outweighthelikelyadjustmentcosts.Results, CASEno. 36, April 1995, 35p. WolfgangFranz, Central andEastEu-

ropean Labour Markets in Transi- L. Alan Wmters (ed.), Foundations ofMarekDabrowski, Western Aid Con- tion: Developments, Causes, and an Open Economy: Trade Laws andditionality and the Post-Communist Cures, CEPR Discussion Paper no. TradelnstitutionsforEasternEurope,Transition, CASE no. 37, April 1995, 1132, February 1995, 58 p. CEPR, 1995.28p.

RiccardoFaini andRichardPortes(eds.), The honeymoon is over for trade liber-To order: Centerfor Social and Eco- European Union Trade with Eastern alizationin Central andEasternEurope.nomic Research, 00-585 Warszawa, ul. Europe: Adjustment and Opportuni- Neither GATT membership nor the Eu-Bagatela 14, Warsaw, Poland, teL/fax ties, CEPR, February 1995. ropeAgreementsalonearestrongenough(48-2) 628-6581. towithstandtherecentgrowthinprotec-

Will trade liberalization with Eastern tionist pressure. CEE trade policy mustCenter for Agricultural and Rural Europe inflict significant damage on EU begiven anew and stronger institutionalDevelopment (CARD) Publications, economies? No, according to some of basis. Trade policy must above all beAmes, Iowa. Europe's leadingtrade economists. This designed to emphasize accountability,

study, commissioned by the EU's Phare independence, and transparency. TheWilliam H. Meyers and Natalija program, concludes that these concerns book also states:Kazlauskiene, Privatization and Re- aremisplaced: Theiimpactoftradeliber- *DespitetheEuropeAgreements andthestructuring of State and Collective alizationontheEUeconomies islikelyto GA17, Hungary (for example) needs aFarms: PolicyEnvironment and Strat- be either favorable or at worst, only strong institutional framework to sup-egies, Baltic Report no. 94-BR 16, De- minimallynegative. Thereportalsofinds: portliberaltradepolicies.cember 1994, 11 p. *There is no evidence that south Euro- *Legislatures in the CEECs should de-

peancountrieswill sufferfromtradewith cide the principles of underlying tradeFerdaus Hossain and Helen H. Jensen, theCentralizedEastEuropeancountries policies, but the details should be del-Food Expenditures in Latvia: Analy- (CEECs). At least one country, Greece, egated to the executive, under the re-sis from the First Year of Reform, is likely to gain substantially from the sponsibilityofa separateandseniormin-Baltic Report no. 94-BR 19, December growth in trade. istry for trade.1994, 21 p. *Even for the EU's "sensitive sectors" *The CEECs should also establish inde-

(such as steel, textiles, and clothing), the pendent review bodies (possibly withTo order: Betty Hempe, publications negative impact of trade liberalization WorldBankorEUassistance)toanalyzesecretary, Information Services Divi- maybemorelinitedthaninitiallythought. instancesofprotectionandofferapublicsion, Iowa State University, Centerfor Indeed, the EU's textile and clothing forum for consumer and user interestsAgricultural and Rural Development, sector would probably benefit from a and for exporters.578 Heady Hall, Ames, Iowa 50011- moreliberaltraderegimewiththeCEECs! *The CEECs should adopt the contin-1070, USA, tel. (515) 294-1183, fax *Simulations for France show that even gentprotection provisions of the Treaty(515) 294-6336. if trade with the CEECs were to grow of Rome, which are preferable to those

across the board, the effect on employ- in the Europe Agreements.CEPR Papers, London ment across both regions and sectors in

France would be favorable. To order: Centre for Economic PolicyMichael C. BurdaandMartinaLubyova, *"The process of trade and economic Research, 25-28 OldBurlington Street,The Inpact ofActive Labour Market opening with the CEECs could proceed London WJXILB, U.K, tel. (4471) 734-Policies: A Closer Look at the Czech at a faster pace than envisaged in the 9110, fax (44171) 734-8760, and inand Slovak Republics, CEPR Discus- Europe Agreements. This would ease NorthAmerica: CustomerService, T'hesion Paper no. 1102, February 1995, the transition in the CEECs and would Brookings Institution, tel. 1-800-275-36 p. notinflictsubstantial costs-notevenin 1447 or 202-797-6258, fax. 202-797-

the short run-on EU producers." 6004.John Micklewright and Gyula Nagy, *Taking into account foreign direct in-Unemployment Insurance and Lncen- vestmentandtheuncontestedbenefitsto

28 April1995

Transition

SIGMA Publications, Paris Gabor Hunya, Transformation of H-1 051 Budapest V, Dorottyau. 6, Hun-the Transport and Telecommunica- gary, tel. (361) 266-6640,fax (361) 266-

Bureaucratic Barriers to Entry: For- tions Infrastructure in East-Central 8858.eign Investment in Central and East- Europe, WIlWno. 214, February 1995,ern Europe, OCDE/GD no. (94)124, 28p. Nevenka Cuckovic, Privatization Pro-19 94, 22 p. cess in Croatia: The New Legislative

Hans Seidel, Research Project: Theo- Solutions and the Old Problems?State Budget Support to Local Gov- retical Investigation and Empirical ReformRoundTableWorkingPaperno.ernments, OCDE/GD no. (94)116, Assessment of the Impact of Budget 14, Institute for Development and Inter-1994, 29 p. Deficits on the Economy, WIIW no. national Relations, Croatia, September

215, February 1995, 53 p. 1994, 16 p. To order: IRMO, UlicaTo order: Support for Improvement in LjudevitaFarkasa Vukotinovica2, P 0.Governance andManagement in Cen- DragoslavAvramovic, Reconstruction Box 303, 41000 Zagreb, Croatia, tel.tral and Eastern European Countries of the Monetary System and Eco- (385-41) 454-522, fax (385-41) 444-[SIGM], 2 rue Andre-Pascal, 7.5775 nomic Recovery of Yugoslavia, 1994: 059.Paris Cedex 16, France, tel. (33-1) Analytical Framework, Results and4524 8200,fax (33-1) 4524-1300. Problems, WIIW no. 216, February Artan Dhima, The Role of the Market

1995, 22 p. in Prompting Economic, Political andWIIW Publications, Vienna Social Development in Central and

To order: Viennalnstitutefor Compara- EasternEurope [in manuscript], MarchHelen Boxx and Peter Havlik Slavic tive Economic Studies, PO. Box 87, A- 1995,5p. Toorder:ArtanDhima, 3306(dis)Union: Consequences for Rns- 1103 Vienna, Austria, tel (431) 782- Ross Place, N. W, Washington, D.C.sia, Belarus, and Ukraine, WIW no. 567,fax (431) 787-120. 20008, USA, tel. (202) 363-0812.157, January 1995, pp. 234-51.

Other Publications Enterprise InsolvencyinRussia, Insti-Gabor Hunya, The Romanian tute for EastWest Studies, Prague/Economyinl993/1994:FromStagna- Andris Blaho, Russian Transition- Budapest/Warsaw/New York/Atlanta,tion withInflation to Stagnationwith Chinese Reforms: A Comparative March 1995. To order: Institute forStabilization, WIIW no. 158, February View, UN University/WIDER (World EastWest Studies, 360 Lexington Av-1995, pp. 629-41. Institute for Development Economics enue, New York, New York 10017, USA,

Research), 1994,54p. Toorder. WIDER tel. (212)557-2570,fax(212)949-8043.Josef Falkinger, Applying Public Eco- Publications, WorldlnstituteforDevel-nomics to Countries in Transition: opmentEconomicsResearch, Annankatu RobertHolzmann,JinosCGacs,andGeorgEquity and Efficiency Aspects, WIIW 42C, SF-001 00 Helsinki, Finland, tel. Wmckler, Output Decline in Easternno. 208, November 1994, 67 p. 693-841, fax 693-8548. Europe: Unavoidable,ExternalLn.flu-

ence or Homemade?Intemational Stud-RumenDobrinsky,BadEnterprise Debt Hendrikus J. Blommnestein and Bernard ies in Economics and Econometrics no.in Bulgaria, WIIW no. 211, January Steunenberg (eds.), Government and 34, Kluwer AcademicPublishers, March1995, 20 p. Markets: Establishing a Democratic 1995, 396 p.

Constitutional Order and a MarketMichael A. Landesmamn, The Pattern Economy in Former Socialist Coun- The first phase of transition to a marketof East-West European Integration: tries, Kluwer Academic Publishers, economy in Central andEastem EuropeCatchingUporFaDlingBehind?WIIW Dordrecht, 1994, pp. 231-46. was characterized by a sharp decline inno. 212, January 1995, 21 p. output. Thefall in real GDP exceeded 20

Laszlo Csaba, The EU and Eastern percent while real industrial productionPeter Havlik and others, Growth in Europe: A Post-Transformation Per- decreased by 40 percent. This studyCentral and Eastern Europe: Con- spective, Discussion Paper no. 25, deals with various hypotheses trying totrastswithRecessionintheClS,WIlW Kopint-Datorg, Hungary, November explainwhathashappened:Didthegov-no. 213, February 1995, 85 p. 1994, 33 p. To order: Kopint-Datorg, emments overshootthe credit and fiscal

Research Department, Dorottya u. 6, restrictions? Was the collapse of the



CMEA and the U.S.S.R. too -much to ing the Public Choice approach to ana- prices, but were allowed to sell theirswallow? Were domestic producers too lyze the complex ways in which China's above-the-plan outputs atmarketpricesunexperienced, too rigid, to adjust the political processes affect economic out- andto retain part ofthe eamedprofits asoutput to new patterns of demand? The comes during its transition toward the an incentive. Planning was thus main-authors provide a combination of data market. tained initiallyin virtually all industries.based on national studies. Understand- These controlled institutional changesing the causes of recent output decline China's economictransitionis character- werefollowed by rapid economic expan-helps to assess further prospects for ized by changing state-society relation- sion in China and a relatively stableEastem Europe. ships resultingfrom unorganized collec- macroeconomy.To order: KluwerAcademic Publishing tive actions and the diffusion of powerGroup, Order Department, PO. Box under the decentralization reform. The The switchto complete decentralization358, AccordStation, Hingham, Massa- authordescribeshowmacro-levelpolicy from centralized or integrated deci-chusetts 02016-0358, USA, tel. (617) initiatives affect the behavior of micro- sionmaking under central planning will871-6600, fax (617) 871-6528. level actors such as households, enter- lead to output contraction. In the pres-

prises, and localities, and how micro- ence of interindustry dependence andZivko Jurcevic, Social Security Policy level behaviorchanges multiplyby"large imperfect competition, the big bang re-of the Republic of Croatia, IRMO numbers" andconvergeintounorganized form reduces state industries' aggregateReformRound TableWorkingPaperno. yetpowerful collective actions, which in profits relative to the wage rate, while15, Institutefor Development and Inter- turn send strong signals to macro-level China's reform raises statenational Relations, January 1995, 15 p. policymakers andthus changethe state's industries"aggregateprofits. Sincegov-To order: IRMO, Ulica Ljudevita policyinclinationsandresultinnewstate- emments in the refonning economiesFarkasa Vukotinovica 2, PO. Box 303, societyrelationships. Theauthorargues still collect most of their revenues from41000 Zagreb, Croatia, tel. (385-41) that as Chinese society becomes more stateindustries,thismodeloffersastruc-454-522, fax (385-41) 444-059. heterogenous and bureaucratic hierar- tural explanation for the severe budget

chies become further "flattened," new crises in the big bang economies andJozef Konings, Hartmnut Lehmann, and incentives are created and new interest hence the macroeconomic instability.Mark E. Schaffer, Employment groups are generated to sustain those To order: Fuqua School of Business,Growth, Job Creation and Job De- changes and demand further reform. Duke University, Box 90120, Durham,struction in Polish Industry: 1988- These changes reinforce one another, North Carolina 27708-0120, USA, tel.1991, Discussion Paper no. 38, Leuven makingthemarkettransitionanirrevers- (919) 660-7820, fa (919) 681-6244.Institute for Central and East European ible process.Studies, Belgium, 1995. To order: To order: Singapore University Press, Jakob Juchler, Osteuropa imKatholieke UniversiteitLeuven, Blide Yusof Ishak House, Kent Ridge Cres- Umbruch-Politische, Wirtschaft-lnkomststraat5,3000Leuven, Belgium, cent, Singapore 0511, tel. (65) 776- liche mnd Gesellschaftliche Entwick-tel. (+32)16285-340,fax(+32) 16285- 1148,fax (65) 774-0652. lungen 1989-1993, Gesamtuberblick344. und Fallstudien [in German], Seismo

Wei Li, The Impact of Economic Re- Verlag, Zurich, Switzerland, 1994,Kang Chen, The Chinese Economy in form on the Performance of Chinese 461 p.Transition: Micro Changes andMacro State Enterprises: 1980-1989, FuquaImplications, Singapore University School of Business, North Carolina, The author puts the Central and EastPress, Singapore 1995, 160 p. September 1994, 34 p. European transformation process in a

broader historical context extending toWill China be able to preserve the mo- Wei Li, A Tale of Two Reforms, Fuqua the precommunist era, analyzing thementum of its economic reform in the School of Business, North Carolina, domestic factors that contributed to thepost-Deng Xiaoping era? Will China's November 1994, 40 p. demise of the communist systems. hirising regionalism leadto intemal chaos Insteadof "leapingtothemarket," China's detailed case studies on Czechoslovakiaandwarlordism? Is China's central gov- reform inthe 1970s introduced markets and Poland, the author demonstratesemment capable of acquiring the much- . p why the different intial conditions, de-needed policy instruments to maintain atthe margin, parallel to planning. State spitemanysimilarities,resultedindiffer-

enterprises and peasants were still re- pitecan antis rud indiffer-macroeconomic stability? This book quired to fulfil planned output quotas ingpoliticalagendasandeconomicpoli-seekstoanswerthesequestionsbyadopt- and deliver them to the state at planned cies in the two countries. Political and

30 Apri1995

Transition

social opinion polls demonstrate the in- To order: Kopint-D atorg, Research De- 1133 Avenue ofthe Americas, New York,teraction of economiic and political department, Dorottya u. 6, H-i 051 NY 10036-6710, U.S., or Konyushvelopments. Budlapest V, Hungary, tel. (361) 266- kovskaya 26, Moscow 12342, Russia.

6640, fax (361) 266-8858.Canrnelo Mesa-Lago, Are Economic EastEuropeen Constitutional Review,Reforms Propelling Cuba to the Mair- Regional Outlook: Southeast asia a quarterlypublication bythe Center forket? North-South Center, University of 1995-96, Institute of Southeast Asian the Studyof ConstitutionalisminEastemMiami, 1994, 85 p. To order: N,grth- Studies, Singapore, 1995, 82p. To order: EuropeattheUniversityof ChicagoLawSouth Center, University ofMiami, P0. Institute of Southeast Asian Studies, School in partnership with the CentralBox 248205, Coral Gables, Florida HengMui Keng Terrace, PasirPanjang, European University. Volume 4, no. 1,33124-3027, USA. Singapore 05 11, Republic ofSingapore, winter 1995 issuecontains: "TheFragil-

tel. 778-0955, fax 778-1735. ity of Basic Rights:ExplainingtheEnd ofMilan Laporniik and Peter Stanovnik, Czechoslovakia-Interview withIndustrial and Enterprise Restmectur- C. Rock, Employment and Privatiza- Broni slaw Geremnek " To order:.CSCEE,ing in Slovenia, Reformn Round Table tion in Bulgaria's Reform, Occasional UniversityofChicagoLawSchool, 1111WorkingPaperno. 13, InstituteforEco- Paper no. 24, International Labour Of- East 60th Street, Chicago, Illinois,nomic Research, Slovenia, February fice, Geneva, April 1994,6 6zp. To order: 60637, USA.1995, 24 p. To order: Institute for Eco- InternationalLabor Office publications,nomic Research, Kardeljevaploscadl1 7, CH-1211 Geneva 22, Switzerland. LICOS Newsletter, published by the6l00OLjubljana, Slovenia, tel. (+.386) Leuven Institute for Central and East61 345-787,fax (+386) 61 342-760. Transformation in Central, Eastern, European Studies, Katholieke

and South-Eastern Europe: Lessons UniversiteitLeuven, Belgium. To order:Thomas P. Lyons, Poverty and Growth Learned from Development Policy in tel. (+32) 016 325-340, fax (+32) 016in a South China Country: Antxi, the South and from the German Uni- 325-344.Fujian, 1949-1992, Cornell University fication Process-Their Relevance toEast Asia Program, Ithaca, New York, East-West Co-operation [documents The Free Market, newsletter of the1994, 158 p. ofthe Intemational Conference on hinter- Lithiuanian Free Market Inistitute. ToTo order: Cornell Eas tAsia Sen es, Eas t dependence, June 17-19, 1994], no. 18, ordler: Lithuanian Free Market Insti-AsiaProgram, Cornell University, 140 Germnany, 1994, 99p. To order: institute tute, Birutes 56, 2600 Vilnius, Lithua-Uris Hall, Ithaca, New York, 14853- for Development and Peace of the nia, teL. (3 70-2)352-584, fax (3 70-7601, USA, tel. (607) 255-6222, fax Gerhard -Mercator- University 2)351-2 79.(607) 255-1388. Duisburg, Geibelstr. 41, 47057

Duisburg, Germany. Economic Trends in Eastern Europe,Petra Opitz and WolfgangPfaffenbeiger, publication providing subscribers with aAdjustmnent Processes in Russian Newsletters comprehensivepicture ofEastemnEuro-Defence Enterprises within the frame- pean countries. To onder.-Kopint-Datorg,work of Conversion and Transition, CIS Law Notes, newsletter featuring Research Department, Dorottya U. 6, H-Beitrage zur Konversionsforschung, legal developments from the Common- 1051 Budapest V, Hungary, tel. (361)Germany, 1994,1199p. To on-er: Beitrage wealth of Independent States. To order: 266-6640, fax (361) 266-8858.zur Konversionsforschung, DieDeutsche Bibliothek-CIP-Einheits- Devaluationau~fnahme, Dieckstr 73, 48145Munster, -.......

Germany, tel. 0251 235-091, or .. .....Hallerplatz 5, 20146 Hamburg, Ger-many, tel. 040 446-446.

Pirivatization in the Transition Plro-cess: Recent Experiences in EasternEurope, United Nations Conferenice onTrade anidDevelopmenit, Kopint-Datorg,m

Budapst, ungay; 195, 48 p.From the Budapest magazine Hungarian Economy



Bibliography of Selected ArticlesPostsocialist Economies-Interregional Central and Eastern Europe Rodlauer, M. Experience with IMF-sup-Issues ported Reform Programs in Central and

Brada, J. C., R. Schonfeld, and B. Slay. Eastern Europe. Journal of Compara-Banking and Financial Reform in Rus- Role of International Finance Institu- tive Economics (U.S.) 20:95-115, Febru-sia, Poland, and Hungary. Russian and tions in Central and Eastern Europe. ary 1995.East European Finance and Trade: A Journal of Comparative EconomicsJournal of Translations (U.S.) 30:3-103, (U.S.) 20:49-56, February 1995. Shearlock, P. Privatization: No FreeSeptember-October 1994. Goulash [inHungary]. TheBanker(U.K.),

Calbreath, D. Together Forever? [Czech April 1995, pp. 34-35.Haddad, L. World Bank and the Process Skoda-German VW], Business Centralof Transition in Eastern Europe: Les- Europe (U.K.) 3(19):7-10, March 1995. Tarafas,I. The Hungarian Financial Sec-sons for China and Viet Nam. Journal of tor and Bank Privatization. New Mar-Contemporary Asia (Philippines) Defending the EBRD. Central European kets Monthly (U.K.) 20:7, March 1995.24(4):441-58, 1994. (U.K.), April 1995, pp. 16-17.

T6th, L. G. Technological Change, Mul-Hale, D. Currency Boards. Emerging Eastward Ho! Emerging Markets Inves- tinational Entry and Re-Structuring:MarketsInvestor (U.K.) 2(4):39-43, April tor (U.K.) 2(4):9-15, April 1995. The Hungarian Telecommunications1995. Equipment Industry. Economic Systems

Ekes, I. The Hidden Economy and In- (Germany) 18(2):179-95, June 1994.Kopits, G. Midway in the Transition, come: The Hungarian Experience, Eco-Acta Oeconomica 46(3-4): 267-92, 1994. nomic Systems (Germany) 18(4):309-34, Wallich, C. I. What's Right and Wrong

December 1994. with World Bank Involvement in East-Krzysak, K. Nuclear Funding: The Costly ern Europe. Journal of ComparativeClean-up East of the Oder. Euromoney Eavis, P. The EMI East Europe Funds Economics (U.S.) 20:57-94, February(U.K.)'312:112-21, April 1995. Survey. Emerging Afarkets Investor 1995.

(U.K.) 2(4):9-15, April 1995.Leslie, J., and K. Smith, Muddling CIS and the BalticsThrough: Oil and Gas Survey. Business Hoen,H. W Theoretically UnderpinningCentral Europe (U.K.) 3(19):33-42, the Transition in Eastern Europe: An Becker, A. C. Intelligence Fiasco orMarch 1995. Austrian View. Economic Systems (Ger- Reasoned Accounting? CIS Estimates

many) 19(1):59-77, March 1995. of Soviet GNP. Post-SovietAffairs (U.S.)Murrell, P. The Transition According to 10:291-329, October-December 1994.Cambridge, Mass. Journal of Economic lordanova, D. Going On-Line in RussianLiterature (U.K.) 33:164-78, March 1995. and East European Area Studies. Bormstein, M. Russia's Mass Privatiza-

NewsNet (U.S.) 35(2):5-6, March 1995. tion. Communist Economies and Eco-Petit, M., andK. Brooks. Role of the West nomic Transformation (U.K.) 6(4):419-in the Reconstruction of Agriculture in Kutan, A. M. Fractional Cointegration, 57, 1994.Eastern and Central Europe and the Conditional Heteroskedasticity andFormer Soviet Union. European Review Exchange Rate Dynamics: Evidence Easterly, W, and P Vieira da Cunha. Fi-of Agricultural Economics (Netherlands) from Reforming Eastern European Ex- nancing the Storm: Macroeconomic21(3/4):477-92, 1994. change Rates. Economic Systems (Ger- Crisis in Russia. Economics of Transi-

many) 19(1):1-23, March 1995. tion (U.S.) 2(4):443-65, 1994.The Comparative Survey of Freedom.Freedom Review (U.S.) 26(1):5-41, Janu- Meth-Cohn, D., and others. Hopes and Edwards,B. CanYeltsinKeepHisNerve?ary-February 1995. Fears [Central Europe's venture funds], Euromoney (U.K.) 312:68-76, April 1995.

Zecchim, S. Role of International Fi- Business Central Europe (U.K.)2(l8):7- Friebel, G. Organizational Issues ofnancial Institutions in the Transition 11, February 1995. Trade and Services Privatization inProcess. Journal of Comparative Econo- Restoring Reputations[of EBRD]. Cen- Russia. Economic Systems (Germany)mies (U.S.) 20:116-38, February 1995. tral European (U.K.), April 1995, pp.10- 19(1):25-58, March 1995.

14.

TRAANSITIONis aregularpublication ofthe WorldBank's Transition EconomiesDivision, PolicyResearchDepartment. Thefindings,views, andinterpretations publishedin the articles are those ofthe authors and shouldnotbeattributedtothe WorldBankor its affiliatedorganizations. Nordo anyofthe interpretations or conclusions necessarilyrepresent officialpolicy ofthe WorldBankor of itsExecutiveDirectors orthe countries they represent. RichardHirschleris the editorandproduction manager,RoomNI 1-003, tel. (202)473-6982, E-mail: [email protected]. Jennifer Prochnow-Walker is the research assistant, desktoppublisher, andproducer of graphs andfigures. If you wish to receive Transition, send name and address to Jennifer Prochnow-Walker, room N- 11023X, the WorldBank, 1818HStreetNW, Washington, D.C. 20433, orcall (202) 473-7466, orfax (202)522-1152 orEmail JPROCHNOVIWALKERWorldbank-orgInformation on upcoming conferences on transforming economies, indication of subjects of special interest to our readers, letters to theeditor, and any other reader contributions are appreciated.

32 Apil 1995

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