53836

Socialist Economies Unit bull Country Economics Department bull The World Bank

Priorities of Economic Reform in the Emerging Democracies by ~Dontb-=h Prof__ofElaquoJItDrrUa

oi tNt Maaoch_u JIIIIUIatr ofTcJutolosy

Heavily managed economies falling output and unrealistic expectations ofprogreu handishy

cap the new leaders in Central and Eastem Europe Market-oriented policies can help to decentralize decishysionmaking and depoliticize the ec0shy

nomic sphere Progresa will be slow but the reecvery will not begin unless restrictions on pdvate initiative are withdrawn

Quick tranitio D

Reform should follow fOUT principles bull Governments should focus their

energies on essential measures Most countries have limited administrative and politicill capacity

bull Reforms should be sequenced to avoid widening the vacuum Reforms should create opportunities tobe filled by individual initiatives not open gaps that require further and more encomshypassing govemment action

bull Where ponible govemments should privatize the production and distribution of goods

bull Since it is not possible to protect the entire population from the burden of restructuring govemments must target the group that will get a parashychute The rest must fan on their feet somehow

These principles should be accompashynied by a waming It islike)y that the

Volme 2 Nunber 2

Wests contribution will be limited beyond an initial effort little can be expected Moreover policymakers in the new democracies must address the question of an appropriate time frame Gradualism opens the door to an unstructured free-for-all conshysumen will go to the black market firms will produce for the black ma ket Households will tum to Deutsch

Whats Inside bullbullbull

Mbiqu-Eoo_mic AdJv__at III ampbe Ntnaadlw

Depite the norreadou at o( rebuildiDi the eooaomy Moaambique fOWrmDltat committed to reform baa beUar chaaceI DOW to achieve 1Utaiaabl POwth aad reshyductioD o( paverty How_r it aeedt the cia ClIIOPRtioa ofCoreiga doDon (pap S)

Qvoampadoll of tlM MOllilu -We _peak a dHTereat ecoDOmic langu - Hitoriaa Yuri Alaauyev commeata oa chaDcet (or Soviet chage (pap 5)

With the collapM ofthe CMEA trade moA Eat EUlOpeaa aouam try to fill the gap by developing eooaomic ti with a uaited Germany (pqe 7)

Mark and donan workn will privatize firma 11loae who an left out will radicalize

Economi operatiDc with a hiP dishyvilion otlaborrequireeitherthe coe cion ofa repreuive reaime or the incentiyena a 1IUUbt ecoDOID1 In aninatitutionalvacuumtheycollapu Therefore a qWc1r truudtioD to a

ADIIudabullbull

ThealAlbaIaCIIUDIitIiDI aI 8teII_- paiDAd ch The JIOIINI aI Europttrrfalto~1IIIIIoa1iIe wttIIta8 IIIshyfiicamplq addiUaaal lwUId utiDamp () bull

The IDdaat17 Dtwkl DiWIMa aldMt WcrlclBakwUlurt- to pampher dUtliat iDJOtioD OD maDufMlbarilli _ mFas P1 lIIul CuchoaIcwaId lt 11)

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February 1991

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I

Transition The Wood BanlcCECSE

market economy is the mast effective strategy The lesson of the postwar period is that those countries that pushed reform aggressively showed the best results

Rules of the came

At the very start governments must provide a legal framework for a market system including the right of private property and full economic freedom Striking the proper balance between economic competition and aocial goals requires a reference framework One model might be Germanys middotsocial market economy- Laissu-faire libshyeralism however must be mitigated in two ways

bull Governments will have to enshysure a competitive environment beshycause the incentive to form cartels will be too obvious and the impedishyments to monopoly too few

bull The fiscal system will have to strike the right balance between reshydistribution and efficiency Governshyments need to put into place targeted social welfare programa to shelterthe poorest groups from the rigors of the adjustment phase

A market economy requires an abundant well-functioning institushytional infrastructure a legal system that protects the right to conduct economictransactions and courts to provide redresa The most suitable way of handling this isaue is to adopt the entire civil code including corposhyrate law of a well-functioning legal system say from the Netherlands or Finland There is abampolutely no merit in trying to create a new one time is too short The same applies to a stanshydardized modem accounting system

A simple highmiddotyield tax system is critical Rates should not interfere with incentives A comprehensive 20 percent value-added tax might be useful A significant capital gains and profits tax would make capital gains socially legitimate and provide additional revenue for welfare proshygrams An efficient system for unshyemployment compensation and an effective bankruptcy mechanism are essential

Macroeconomic instability is endemic in economies with large public sec-

February1991

IIItorsand politicize4wage settlements Bulgaria for example seems fated to grapple with inflation as lOOn u price deregulation the monetary overhang and the budget deficit converge And in the Soviet Union mone~ overshyhang and huge budget deficits fishynanced by money creation also set the stage for a potentially serious inflashytion

Monetary adjustment can be accomshyplished in two ways either by a big possibly one-shot inflation Of by monetary reform that reduces effecshytive nominal money balancu cor COWM monetary reform itnot enough since it attends at best to the stock isaue the monetary overhang The flow problem calls for conventional budget cutting)

Conceptually a ~Hp- in the price level that reduces the real value of money-is a pollible solution But it is extremely hard to prevent the widenshyingofinflation Aconvenion ofmoney into interest-bearing debt is the wrong kind of monetary reform The budget problem is already serious in many countriu and thus the need to add extra charges is perilous The reshymaining options are a freeze a writeshyoft or a convenion of the money balshyances Leaving the overhang frozen risks financial instability down the road Conversion into useta is an attractive solution except for one problem the timetable for monetary reform is too short to allow for privatization An outright write-oftis equally attractive It reduces the risk ofmacroeconomic instability and creshyates an opening for a new financial system

Privatization and tree trade

Property rights can be used to drive the efficient use of resources One solution involves transferring assets to privatization funds that would be required to transfer a88ets to private hands in a specified number of yean (Multiple funds offer the best chance of ensuring competition in designing new ideas in this largely unexplored region) Citizens would receive tradshyable shares in these funds on a per capita basis The performance of the funds would be monitored by publir pressure which would serve as an

2

incentive to stimulate capitalism Foreign direct investment will ultishymately playa key role in rebuilding Eastern Europe but eV6n with very strong reform programs those inshyvestments may be slow to come

Currency convertibility for trade transactions is critical Trade proshyvides an imm~diate reference system ofprices stimulates competition and opportunity and offers access to sushyperior technology processes and products Thus prompt and unremiddot stricted accea to foreign markets is essential for bothmiddotexporters and imshyporters Domestic price liberalizashytion must go hand in hand with trade openness to prevent distorted prices from leading to irrational trade patmiddot tems

In the short run a fixed exchange rate can help to control inflation But within a year or two it can become a source of financial crisis Realistic exchange rates ifnecesampary crawling pep are the Bine quo non of a sucmiddot ceuful open trade policy Eastem European and Soviet wages in dollar term can be expected to rise once their economies are successf1l1y biteshygrated into the world market butmiddot initially wages in dollar terms will have to be low

Debt caaeellation

A firms debt burden presently has no relation to its usets The debt may reflect a history ofpricing below cost rather than real a88ets From this perspective even the most attractive firm might be unprofitable simply because of its debt burden Debt sershyvice should not stand in the way of prospective profitability Therefore the first priority ofimancial reform is to eliminate this debt The move would -also assure higher prices if these firms are privatized Debt cancellation is also essential if the banb are to compete with fo-reign entran ts Ifdomestic institutions have to charge high interest rates to covet non performing loans foreign banks with lower rates will attract the best loan customers

There iSal80 a need to create the basic vehicles for saving and intermediashytion Un]ess savers have accea to

VoIIme 2 NImber 2

The WOf1d BanklCECSE

stable and convenient uaets they will not ampave or they will take their asaets abroad Banks have little exshypertise in lending either and here the right response is to lend widely A common mistake is to go on lending to keep large firms alive long beyond solvency A better strategy might be to ration credit to help create new small and medium-size finns Regu lation of the financial system is entimiddot w Without regulation but with de facto deposit insurance financial inshystability becomes a strong risk

What should be done about extemal debt The West should be more inshyterested in ultimate political stability and economic prosperity in the East than in punetual service ofrelativeJy minor debts The most plausible way to ensure eventual debt service is to use those resources now for reconshystruction

For the policymakers in Eastem Eushyrope there are two ways to go backshyward to repressive control orforwani to the market The wont acenario is that of a mixed economy capitalism without prpfit and socialism without planning The new leadership is anxious to aVClid hardship by extrd ing discretionary controls and reshystrictions on trade property producshytion and employment But these tool were discredited under communism they should be thrown overboard imshymediately

Volrne 2 tbnbef 2

Mozambique Economic Adjustment in the Aftermath of War

Dupite good economic potential in fishing and qriculture transport1MJIYicea energyand

minera1a~ Moymbjque iI one of the poorest countri in the world Anmiddot nual per capita income is about $100 Infant mortality ratealevels of acute malnutrition and life expectancy are among the worst in sub-Saharan Mmiddot rica 111e country sutfers from poorly developed infrastructure one of the lowestliteracyratel in the world and an acute shortap of skilled manmiddot power Many of the problems are a legacy of the colonial era others reshyflect political instability in the counmiddot try and in the recion

A civil war pitting the Mozambique National Resistance (RENAMO) spinst government forces has di rupted production and led to an almiddot most complete breakdown of the rumiddot ral marketing system the destrucshytion ofbaaic infrastructure and masshysive displacement of the population Of Mozambiques IS million people about three million have become refugees in their own country and about 15 million have fled to neigh boring states

poundcoDomie rehabilltatiOD

Since independence in 1975 inapshypropriate economic policies have al80 contributed to Mozambiquel poor economic performance Govemmentshycontrolled prices and heavy capitalshyintenive investments in the public sector severely constrained agricul tural and industrial production The govemment al80 became heavilyinshyvolved in extemal trade and in the allocation offoreign exchange which wa undervalued By 19M real GOP had fanen to about two-thirds of the pre-independence level Thil represhysented a 50 percent decline inmiddot per capita terms In relpon to the wore

3

eningeconomic situation the govemshyment launched the Economic Rehashybilitation Program (ERP) in early 1987

A major objective of the ERP was to reverse the decline in production by reltoringfinancial incentives for proshyducers The first step was a ampharp devaluation of the currency - from 39 meticals to the dollar iD 1987 to about 1000 meticals to the dollar in 1990 Some imports were liberalized in 1989 (through the ao-ealledSNAAD PJOIP8Dl) permitting delivery ofspeshycific inputs for key industries without administrative restriction In late 1990 the govemment introduced a aecondary market for foreign exshy

chanp

The reforms were accompanied by major changes in pricing and marketshying policiel to allow a more marketshybaaed economic framework By the end of1990 products subject to fixed prices accounted for lesa than 2S pershycent of GOP compared to about 70 percent in 1987 The govemment allO opened up domestic trade pershymitting private enterprises to partici- pate in activities previously reserved for public corporations

A second objective ofthe ERP was to reduce financial imbalanceL Tu re~ forms were introduced recurrent exshypenditures were contained and steps were taken to improve the financial discipline of public enterprises Monshyetaryand credit aggregates were kept within a narrow range and interest rates were raised sharply

Sicu 01 recovery

Theae measures had a significant impact on the economy despite the continuing civil unrest in the counshytryside GOP increased an average

Februc1lY 1991

I

Transition The Wood BanlcCECSE

market economy is the mast effective strategy The lesson of the postwar period is that those countries that pushed reform aggressively showed the best results

Rules of the came

At the very start governments must provide a legal framework for a market system including the right of private property and full economic freedom Striking the proper balance between economic competition and aocial goals requires a reference framework One model might be Germanys middotsocial market economy- Laissu-faire libshyeralism however must be mitigated in two ways

bull Governments will have to enshysure a competitive environment beshycause the incentive to form cartels will be too obvious and the impedishyments to monopoly too few

bull The fiscal system will have to strike the right balance between reshydistribution and efficiency Governshyments need to put into place targeted social welfare programa to shelterthe poorest groups from the rigors of the adjustment phase

A market economy requires an abundant well-functioning institushytional infrastructure a legal system that protects the right to conduct economictransactions and courts to provide redresa The most suitable way of handling this isaue is to adopt the entire civil code including corposhyrate law of a well-functioning legal system say from the Netherlands or Finland There is abampolutely no merit in trying to create a new one time is too short The same applies to a stanshydardized modem accounting system

A simple highmiddotyield tax system is critical Rates should not interfere with incentives A comprehensive 20 percent value-added tax might be useful A significant capital gains and profits tax would make capital gains socially legitimate and provide additional revenue for welfare proshygrams An efficient system for unshyemployment compensation and an effective bankruptcy mechanism are essential

Macroeconomic instability is endemic in economies with large public sec-

February1991

IIItorsand politicize4wage settlements Bulgaria for example seems fated to grapple with inflation as lOOn u price deregulation the monetary overhang and the budget deficit converge And in the Soviet Union mone~ overshyhang and huge budget deficits fishynanced by money creation also set the stage for a potentially serious inflashytion

Monetary adjustment can be accomshyplished in two ways either by a big possibly one-shot inflation Of by monetary reform that reduces effecshytive nominal money balancu cor COWM monetary reform itnot enough since it attends at best to the stock isaue the monetary overhang The flow problem calls for conventional budget cutting)

Conceptually a ~Hp- in the price level that reduces the real value of money-is a pollible solution But it is extremely hard to prevent the widenshyingofinflation Aconvenion ofmoney into interest-bearing debt is the wrong kind of monetary reform The budget problem is already serious in many countriu and thus the need to add extra charges is perilous The reshymaining options are a freeze a writeshyoft or a convenion of the money balshyances Leaving the overhang frozen risks financial instability down the road Conversion into useta is an attractive solution except for one problem the timetable for monetary reform is too short to allow for privatization An outright write-oftis equally attractive It reduces the risk ofmacroeconomic instability and creshyates an opening for a new financial system

Privatization and tree trade

Property rights can be used to drive the efficient use of resources One solution involves transferring assets to privatization funds that would be required to transfer a88ets to private hands in a specified number of yean (Multiple funds offer the best chance of ensuring competition in designing new ideas in this largely unexplored region) Citizens would receive tradshyable shares in these funds on a per capita basis The performance of the funds would be monitored by publir pressure which would serve as an

2

incentive to stimulate capitalism Foreign direct investment will ultishymately playa key role in rebuilding Eastern Europe but eV6n with very strong reform programs those inshyvestments may be slow to come

Currency convertibility for trade transactions is critical Trade proshyvides an imm~diate reference system ofprices stimulates competition and opportunity and offers access to sushyperior technology processes and products Thus prompt and unremiddot stricted accea to foreign markets is essential for bothmiddotexporters and imshyporters Domestic price liberalizashytion must go hand in hand with trade openness to prevent distorted prices from leading to irrational trade patmiddot tems

In the short run a fixed exchange rate can help to control inflation But within a year or two it can become a source of financial crisis Realistic exchange rates ifnecesampary crawling pep are the Bine quo non of a sucmiddot ceuful open trade policy Eastem European and Soviet wages in dollar term can be expected to rise once their economies are successf1l1y biteshygrated into the world market butmiddot initially wages in dollar terms will have to be low

Debt caaeellation

A firms debt burden presently has no relation to its usets The debt may reflect a history ofpricing below cost rather than real a88ets From this perspective even the most attractive firm might be unprofitable simply because of its debt burden Debt sershyvice should not stand in the way of prospective profitability Therefore the first priority ofimancial reform is to eliminate this debt The move would -also assure higher prices if these firms are privatized Debt cancellation is also essential if the banb are to compete with fo-reign entran ts Ifdomestic institutions have to charge high interest rates to covet non performing loans foreign banks with lower rates will attract the best loan customers

There iSal80 a need to create the basic vehicles for saving and intermediashytion Un]ess savers have accea to

VoIIme 2 NImber 2

The WOf1d BanklCECSE

stable and convenient uaets they will not ampave or they will take their asaets abroad Banks have little exshypertise in lending either and here the right response is to lend widely A common mistake is to go on lending to keep large firms alive long beyond solvency A better strategy might be to ration credit to help create new small and medium-size finns Regu lation of the financial system is entimiddot w Without regulation but with de facto deposit insurance financial inshystability becomes a strong risk

What should be done about extemal debt The West should be more inshyterested in ultimate political stability and economic prosperity in the East than in punetual service ofrelativeJy minor debts The most plausible way to ensure eventual debt service is to use those resources now for reconshystruction

For the policymakers in Eastem Eushyrope there are two ways to go backshyward to repressive control orforwani to the market The wont acenario is that of a mixed economy capitalism without prpfit and socialism without planning The new leadership is anxious to aVClid hardship by extrd ing discretionary controls and reshystrictions on trade property producshytion and employment But these tool were discredited under communism they should be thrown overboard imshymediately

Volrne 2 tbnbef 2

Mozambique Economic Adjustment in the Aftermath of War

Dupite good economic potential in fishing and qriculture transport1MJIYicea energyand

minera1a~ Moymbjque iI one of the poorest countri in the world Anmiddot nual per capita income is about $100 Infant mortality ratealevels of acute malnutrition and life expectancy are among the worst in sub-Saharan Mmiddot rica 111e country sutfers from poorly developed infrastructure one of the lowestliteracyratel in the world and an acute shortap of skilled manmiddot power Many of the problems are a legacy of the colonial era others reshyflect political instability in the counmiddot try and in the recion

A civil war pitting the Mozambique National Resistance (RENAMO) spinst government forces has di rupted production and led to an almiddot most complete breakdown of the rumiddot ral marketing system the destrucshytion ofbaaic infrastructure and masshysive displacement of the population Of Mozambiques IS million people about three million have become refugees in their own country and about 15 million have fled to neigh boring states

poundcoDomie rehabilltatiOD

Since independence in 1975 inapshypropriate economic policies have al80 contributed to Mozambiquel poor economic performance Govemmentshycontrolled prices and heavy capitalshyintenive investments in the public sector severely constrained agricul tural and industrial production The govemment al80 became heavilyinshyvolved in extemal trade and in the allocation offoreign exchange which wa undervalued By 19M real GOP had fanen to about two-thirds of the pre-independence level Thil represhysented a 50 percent decline inmiddot per capita terms In relpon to the wore

3

eningeconomic situation the govemshyment launched the Economic Rehashybilitation Program (ERP) in early 1987

A major objective of the ERP was to reverse the decline in production by reltoringfinancial incentives for proshyducers The first step was a ampharp devaluation of the currency - from 39 meticals to the dollar iD 1987 to about 1000 meticals to the dollar in 1990 Some imports were liberalized in 1989 (through the ao-ealledSNAAD PJOIP8Dl) permitting delivery ofspeshycific inputs for key industries without administrative restriction In late 1990 the govemment introduced a aecondary market for foreign exshy

chanp

The reforms were accompanied by major changes in pricing and marketshying policiel to allow a more marketshybaaed economic framework By the end of1990 products subject to fixed prices accounted for lesa than 2S pershycent of GOP compared to about 70 percent in 1987 The govemment allO opened up domestic trade pershymitting private enterprises to partici- pate in activities previously reserved for public corporations

A second objective ofthe ERP was to reduce financial imbalanceL Tu re~ forms were introduced recurrent exshypenditures were contained and steps were taken to improve the financial discipline of public enterprises Monshyetaryand credit aggregates were kept within a narrow range and interest rates were raised sharply

Sicu 01 recovery

Theae measures had a significant impact on the economy despite the continuing civil unrest in the counshytryside GOP increased an average

Februc1lY 1991

The WOf1d BanklCECSE

stable and convenient uaets they will not ampave or they will take their asaets abroad Banks have little exshypertise in lending either and here the right response is to lend widely A common mistake is to go on lending to keep large firms alive long beyond solvency A better strategy might be to ration credit to help create new small and medium-size finns Regu lation of the financial system is entimiddot w Without regulation but with de facto deposit insurance financial inshystability becomes a strong risk

What should be done about extemal debt The West should be more inshyterested in ultimate political stability and economic prosperity in the East than in punetual service ofrelativeJy minor debts The most plausible way to ensure eventual debt service is to use those resources now for reconshystruction

For the policymakers in Eastem Eushyrope there are two ways to go backshyward to repressive control orforwani to the market The wont acenario is that of a mixed economy capitalism without prpfit and socialism without planning The new leadership is anxious to aVClid hardship by extrd ing discretionary controls and reshystrictions on trade property producshytion and employment But these tool were discredited under communism they should be thrown overboard imshymediately

Volrne 2 tbnbef 2

Mozambique Economic Adjustment in the Aftermath of War

Dupite good economic potential in fishing and qriculture transport1MJIYicea energyand

minera1a~ Moymbjque iI one of the poorest countri in the world Anmiddot nual per capita income is about $100 Infant mortality ratealevels of acute malnutrition and life expectancy are among the worst in sub-Saharan Mmiddot rica 111e country sutfers from poorly developed infrastructure one of the lowestliteracyratel in the world and an acute shortap of skilled manmiddot power Many of the problems are a legacy of the colonial era others reshyflect political instability in the counmiddot try and in the recion

A civil war pitting the Mozambique National Resistance (RENAMO) spinst government forces has di rupted production and led to an almiddot most complete breakdown of the rumiddot ral marketing system the destrucshytion ofbaaic infrastructure and masshysive displacement of the population Of Mozambiques IS million people about three million have become refugees in their own country and about 15 million have fled to neigh boring states

poundcoDomie rehabilltatiOD

Since independence in 1975 inapshypropriate economic policies have al80 contributed to Mozambiquel poor economic performance Govemmentshycontrolled prices and heavy capitalshyintenive investments in the public sector severely constrained agricul tural and industrial production The govemment al80 became heavilyinshyvolved in extemal trade and in the allocation offoreign exchange which wa undervalued By 19M real GOP had fanen to about two-thirds of the pre-independence level Thil represhysented a 50 percent decline inmiddot per capita terms In relpon to the wore

3

eningeconomic situation the govemshyment launched the Economic Rehashybilitation Program (ERP) in early 1987

A major objective of the ERP was to reverse the decline in production by reltoringfinancial incentives for proshyducers The first step was a ampharp devaluation of the currency - from 39 meticals to the dollar iD 1987 to about 1000 meticals to the dollar in 1990 Some imports were liberalized in 1989 (through the ao-ealledSNAAD PJOIP8Dl) permitting delivery ofspeshycific inputs for key industries without administrative restriction In late 1990 the govemment introduced a aecondary market for foreign exshy

chanp

The reforms were accompanied by major changes in pricing and marketshying policiel to allow a more marketshybaaed economic framework By the end of1990 products subject to fixed prices accounted for lesa than 2S pershycent of GOP compared to about 70 percent in 1987 The govemment allO opened up domestic trade pershymitting private enterprises to partici- pate in activities previously reserved for public corporations

A second objective ofthe ERP was to reduce financial imbalanceL Tu re~ forms were introduced recurrent exshypenditures were contained and steps were taken to improve the financial discipline of public enterprises Monshyetaryand credit aggregates were kept within a narrow range and interest rates were raised sharply

Sicu 01 recovery

Theae measures had a significant impact on the economy despite the continuing civil unrest in the counshytryside GOP increased an average

Februc1lY 1991

The WOf1d BanicCecsc

45 percent a year from 1987 to 1989 and increased 31 percent in 1990 Consumer prices rose more than 160 percent in 1987 but the rate ofinflashytion fell to about 30-35 percent in 1990 ]lucigetary revenues rose durshyingtheperiodfrom 13percentofGDP to 21 percent while the current budshyget deficit feU from 12 percentofGDP to 3 percent

Further reform

Notwithstanding such significant progrell the economy continues to be weak and dependent on foreign aid In addition to the need for continuing macroeconomic stabilization meashysures further progress is essential to

bull broaden access to imports and gradually unify exchange rates

bull improve public expenditure management to bring the size and composition ofexpenditures into line with the countrys development prishyorities and limited implementation capacity and enhance the transparshyencyand accountability ofthe budget

bull reform the financial sector to improve the efficiency andsolvencyof domestic financial institutions and provide basic financial services that are required by a market-based economy

bull restructure and privatize entershy

prises to increase efficiency reduce the burden of enterprise deficita on the budget and make better use of scarce managerial akilla and

bull build capacity indudinc develshyopment policy to attract and retain skilled people to the public sector expand the limited pool of trained manpower and enhance the effecshytivenell of external technical asaisshytance

This agenda will require implemenshytation of the reform program as well as an end to hostilities Recent politishycal developmenta have implications for both security and the acijustment procell Under ita new constitution Mozambique will have a multiparty system direct elections andexpanded civil liberties Furthermore direct peace negotiations have been initiated with RENAMO

Although committed to the reform process the pace of adjustment may slow as the governments attention is diverted away from the ERP and tashyward the upcoming elections and peace negotiations It is likely that some personnel changes will OCNr as a result of the balloting and possiblemiddot agreements to share power with RENAMO

Nevertheless with the promise of peaceand the eatablishmentofa more appropriate macroeconomic environshyment as a reault ofthe last four years of reform the atage seems set for a rapid economic recovery In the short run however the end of hostilities will challenge the government which must resettle millions of displaced penona refugees and ex-military personnel These groups will need basicaocial services housing andjobs to enable them to resume economishycally productive lives

The achievement of sustainable ecoshynomic growth and the reduction of poverty will take manyyears During that time Mozambique will require atrong external support not only to maintain an appropriate macroecoshynomic framework but also to build capacity and strengthen the institushytional framework The extent of the job is magnified by the need to rebuild an infrastructure that baa been devshyastated by years of war and neglect

Mozambiques Aid Coordination with the World Bank and the IMF

Since Mozambique joined the World Bank in 1984 14 projecta involving IDA credi ta of lOme $580 million have been approved About 45 percent ofthe Bank auiatan~ haa been provided through three qUick-disbursing admiddot juatment operationa tofinance balance of payment The relatively high per centage of adjuatment lending to Mozambique reflecta the rapid pace of economic reform the critical need for importa and the difficultiea of impIeshymenting investment operationa durshying war A the aecurity situation imshyprove Bankauistaneeforrural reha bilitation operationa will increue aubshystantially To date the main focue haa been on rehabilitation ofeuential ec0shy

nomic and acxial infrutructure preshydominantly in urban areaa

The IMF under the ESAF (Enhanced Structural Adjuatment Facility) arrangeshyment approved 854 million SDRa (about $120 million) for Mozambique over three yeare at June 1990 The Fund diashybursed SDa 427 million to the country in 1987middot89 through previoua SAF (Strucshytural Adjuatment Facility) arrangementa

The World Bank ia coordinating outshyside aid to Mozambique The annual Conaultative Group meeting chaired by the Bank serve to mobilize external reshy80urcea to fill the financing gap and allow for donor conaultation on key iaaue auch public expenditure management povshyerty reduction and foodaecurity In reshycent yeara Mozambique drew over 1 billion dollare annually from donor countriea andmultilateral organization in the form

of gifts debt relief bilateral aid and development programa About 40 pershycent of the money geea toward writing offdebt for aervicing the countrya exmiddot ternal debt of about $47 biHiqn

Only recently the IMFamanaging director Michel Camdeaaue called on creditora to reduce Mozambiques debta At a pre conference after a two-clay visit to thecountry Camdel8Ua aaid that the country waa facing -an unbearable burden of external debt moatly public1y-owed debtmiddot He allO aaid that Mozambique should be reshywarded for following IMF guidelinetl th burden of debt ahould be related to what th country could pay

February1991 4 Vokme 2 Number 2

The WOI1d BankCEcse

Quotation of the Month We speak a different economic language Yuri Afanasyev on changes in the Soviet Union

Theonlywayoutoftbedifficulties we are in ie through the joint

efforia of all tbe republiCli The economy of the Soviet Union can be compared to an enonnous factory and the regions and republiCli to different shops within that factory Such an economy is notauited unfortunately to independent autonomous actions Gigantic regions are ineapable offuncshytioning alone -- Kazakbstan haa been turned into a source of raw materials and Uzbekistan an enormous republic with a larp poulation is hostage to ita

cotton monoculture The iuues facshying us can be 1Klved only through coopshyeration among repubIiCII but for deep historieal reUllla] that cooperation is impossible

While we must mcJYe to a market system-hardly anyone aJIiU6 against this now the] military-industrial complex distorts our entire economic life Shifting this economy to a marshyket system even by following the Shatalin plan will be Yery difficult Many paria of the economy - such III food proceuing and light industry III well III agricullur - simply will not be able to function in a market economy

In a world that haa cbiUlpd fundashymentally where eapitalism ie no lonpr pitted against communism and where communism bal ceued beingthe altershynative for th IIIIt of civilization we retain a atrallgely archaic attitude Notwithatanding the radical chan881 (in] the international SItuation our soshyciety is till thoroughly militarized

In thia lIOCiety bull almost eYeryone ia suppoeed to be theaameeveryone worka for the state ia on salary ia on a leaah MOlt people have not expreued a desire for anything new which aeema clear evidence that an enormous numshyber of people in our aociety do not want politive chanpa in it We ahould not have hopes tbat even greater diuatiashyfaction with the empty ahelvea in the

VOkrne 2 Nlrnbelt 2

sliope will create chanporthatchanpa will come about in reaction to increasshying inatability or ethnic tensiolla or riling crime UnlortuDately [tbere is ati1l1 no nee that a new or different lIOCial direction iI emerging On the one band there baa been a very proshynounced leveling of society accompashynied by a mood in favor of equalizing and on the other a willingneu to Jive in shabby cilCUrn8tancee and to disreshygard the humiliation III long III a guarshyanteed minimUm of aocial goods is available

Unleaa the Soviet Union becomes part of the larger European and world economyitcannot inmy view beaaved by any economic program We apeak a different economic language from the IIIIt of the modem world and we bave yet to howoUll8lveeeapableoftrading or of carrying on a political economic or financial dialogue

FroIa4~tJriicle ill tNt New YorkReYiew of Boob nc outAor 4 AUJIoIiGIt parlamptunDI t4ty dilputy 41fII direclDl oftNt amp1_HWorimiddot col AreAWn Iutitu ira MOCOfIIbull

Independence Potential in the Soviet Republics

Independence Potential Economic Facts

Reeublics I U III IV V VI vn VIII IX X Ukraine 9 7 8 6 8 3 83 -860 3910 $4700 Baltics 10 6 0 3 0 10 77

Estonia -210 6650 $6240 Latvia -270 6410 $6740 Lithuania -560 6090 $5880

Russia 8 8 10 3 10 2 71 6540 1800 $5810 Georgia 8 3 4 6 4 9 61 -280 5370 $4410 Belorussia 8 5 1 3 0 3 S5 -400 6960 $5960 Kazakhstan 5 3 9 4 9 5S -1210 3090 $3720 Moldavia 2 2 0 7 0 5 49 middot300 6210 $3830 Annenia 3 1 4 1 4 8 47 ()90 6370 $4710 Azerbaijan 3 2 7 2 8 2 47 -010 5870 $3750 Uzbekistan 3 6 3 6 2 31 -690 4320 $2750 Turkmenistan 2 5 3 5 1 17 ()20 5070 $3370 Kirghzia 2 4 3 4 I 14 -220 5020 $3030 Tadzhikist~n 2 1 3 18 -210 4180 $2340

USSR $5000 Klaquoy lndependenee Potential 10 - good So moderate 0 shy none Indeplaquondenlaquo Critlria Economic Fae I Degree of Industrialization VIII 1987 nellnlernpubLic shipments (Sbillion) II Degree of Selfsufficiency IX of GRP sold to olher npubli~s ( 1990) III Mineral Resources X 1989 Per capillll GRP (S) IV Agricullural nllfd currency

earning polenlial V Raw Malerials hard currency

earning potential VI Business Mindedness VII Total scon for 12 criteria (120 points poSSIble)

5

The WOI1d BankCEcse

Quotation of the Month We speak a different economic language Yuri Afanasyev on changes in the Soviet Union

Theonlywayoutoftbedifficulties we are in ie through the joint

efforia of all tbe republiCli The economy of the Soviet Union can be compared to an enonnous factory and the regions and republiCli to different shops within that factory Such an economy is notauited unfortunately to independent autonomous actions Gigantic regions are ineapable offuncshytioning alone -- Kazakbstan haa been turned into a source of raw materials and Uzbekistan an enormous republic with a larp poulation is hostage to ita

cotton monoculture The iuues facshying us can be 1Klved only through coopshyeration among repubIiCII but for deep historieal reUllla] that cooperation is impossible

While we must mcJYe to a market system-hardly anyone aJIiU6 against this now the] military-industrial complex distorts our entire economic life Shifting this economy to a marshyket system even by following the Shatalin plan will be Yery difficult Many paria of the economy - such III food proceuing and light industry III well III agricullur - simply will not be able to function in a market economy

In a world that haa cbiUlpd fundashymentally where eapitalism ie no lonpr pitted against communism and where communism bal ceued beingthe altershynative for th IIIIt of civilization we retain a atrallgely archaic attitude Notwithatanding the radical chan881 (in] the international SItuation our soshyciety is till thoroughly militarized

In thia lIOCiety bull almost eYeryone ia suppoeed to be theaameeveryone worka for the state ia on salary ia on a leaah MOlt people have not expreued a desire for anything new which aeema clear evidence that an enormous numshyber of people in our aociety do not want politive chanpa in it We ahould not have hopes tbat even greater diuatiashyfaction with the empty ahelvea in the

VOkrne 2 Nlrnbelt 2

sliope will create chanporthatchanpa will come about in reaction to increasshying inatability or ethnic tensiolla or riling crime UnlortuDately [tbere is ati1l1 no nee that a new or different lIOCial direction iI emerging On the one band there baa been a very proshynounced leveling of society accompashynied by a mood in favor of equalizing and on the other a willingneu to Jive in shabby cilCUrn8tancee and to disreshygard the humiliation III long III a guarshyanteed minimUm of aocial goods is available

Unleaa the Soviet Union becomes part of the larger European and world economyitcannot inmy view beaaved by any economic program We apeak a different economic language from the IIIIt of the modem world and we bave yet to howoUll8lveeeapableoftrading or of carrying on a political economic or financial dialogue

FroIa4~tJriicle ill tNt New YorkReYiew of Boob nc outAor 4 AUJIoIiGIt parlamptunDI t4ty dilputy 41fII direclDl oftNt amp1_HWorimiddot col AreAWn Iutitu ira MOCOfIIbull

Independence Potential in the Soviet Republics

Independence Potential Economic Facts

Reeublics I U III IV V VI vn VIII IX X Ukraine 9 7 8 6 8 3 83 -860 3910 $4700 Baltics 10 6 0 3 0 10 77

Estonia -210 6650 $6240 Latvia -270 6410 $6740 Lithuania -560 6090 $5880

Russia 8 8 10 3 10 2 71 6540 1800 $5810 Georgia 8 3 4 6 4 9 61 -280 5370 $4410 Belorussia 8 5 1 3 0 3 S5 -400 6960 $5960 Kazakhstan 5 3 9 4 9 5S -1210 3090 $3720 Moldavia 2 2 0 7 0 5 49 middot300 6210 $3830 Annenia 3 1 4 1 4 8 47 ()90 6370 $4710 Azerbaijan 3 2 7 2 8 2 47 -010 5870 $3750 Uzbekistan 3 6 3 6 2 31 -690 4320 $2750 Turkmenistan 2 5 3 5 1 17 ()20 5070 $3370 Kirghzia 2 4 3 4 I 14 -220 5020 $3030 Tadzhikist~n 2 1 3 18 -210 4180 $2340

USSR $5000 Klaquoy lndependenee Potential 10 - good So moderate 0 shy none Indeplaquondenlaquo Critlria Economic Fae I Degree of Industrialization VIII 1987 nellnlernpubLic shipments (Sbillion) II Degree of Selfsufficiency IX of GRP sold to olher npubli~s ( 1990) III Mineral Resources X 1989 Per capillll GRP (S) IV Agricullural nllfd currency

earning polenlial V Raw Malerials hard currency

earning potential VI Business Mindedness VII Total scon for 12 criteria (120 points poSSIble)

5

i

Trall1ltlon 1he WOI1d BankCECSE

I Milestones ot Transition

Bulgaria budget deficit will be cut from 10 percent ofGDP to less than 5 percent in 1991 under the terms ofthe new budget passed by the parliament Across-the-board reductions are scheduled in every spending category except educashytion and health To service the foreign debt of about $11 billion Bulgaria hopes to borrow about $4 billion from the IMF and other inshystitutions (see page 14)

All lines of credit were cut oftlast March when the government susshypended debt payments The reshysulting slowdown led to an 18 pershycent decline in production Some improvement is anticipated for 1991 according to Foreign Trade Minister Atanas Paparizov With inflation forecast to hit288 percent thia year the government haa struck a bargain with the trade unions In retum for a pledge not to strike before July the uniona have agreed to accept salary inshycreases equivalent to 70 percent of price hikes

The govemment wants to curtail domestic consumption by 30 pershycent and haa put preasure on spending by raising interest rates from 15 to 45 percent Authorities will make the leva convertible shortly according to Emil Harsev a senior official of the central bank The interbank leva rate will range from 15 to 30 leva to the doUar There are currently several official exchange rates rangingfrom three leva to the dollar for certain trade transactions to 15 for tourists Black market rates are 30 leva to the dollar

Algeria will ofter three-year inshyterest-free certificates of deposit that will give the holder the right to exchange 20 percen t of the amount deposited for hardcurrency at official rates central bank offishycials said in Algiers This scheme which will allow citizens to obtain hard currency at official rates for the first time since 1986 should

help mop up some ofthe more than 40 billion dinars circulating on the black market The move is a small tep toward currency convertibility which remains a goal ofthe central bank as the economy shifta to a market orienshytation after two decades of central planning

MoDlOliaD authorities say that 100 domestic companies have been granted permiuion to engap in forshyeign trade as part ofan 6rtto open the economy Mongolia had a trade deficit of$39 million last year Total trade volume was $840 million down 13 percent from the year earlier

The 24 leading industrial countries have pledged $38 billion to Euienl Europe during the past 18 months said Frans Anderssen European Community commissioner for extershynal relations Poland received about 40 percent Hungary 21 percent and Czechoslovakia 5 percent 23 percent baa not been allocated The total inshycludea $8 billion in grants $12 billion in loans or credits and $11 billion in capital to the New European Bank for Reconstruction andDevelopment The World Bank the European Inves~ ment Bank and other multinational financial institutions have oftered $6 billion About 35 percent of the total aid is in the form ofexport credits and investment support

The IMF and donors from the G-24 industrialized nations are puttingthe finishingtouchea to loan packages for Euienl Europe EC finance minshyisters have decided to lend up to $250 million to Hungary and $500 million to Czechoslovakia if the other G-24 nationsagree to lend similar amounts DilCUssions are under way to lend Bulgaria $800 million and Romania up to $1 billion to help the balance of payments

ChiDa GNP grew 5 percent last year up from percent in 1989 hut the economic uptum is wed acshycording to govemment officials who cite increasing inventories declining efficiency financial problems and

potential inflationary pressures Still exports grew 181 percent while imports fell 98 percent to give China a trade surplus of$871 billion its first since 1984 and a reversal of the $66 billion deficit recorded the previous year

Mihaly Kupamp Hungary finance minister in outlining the governmentl new economic proshygram said that a proposed charter for investors will include property legislation This will define what il owned by local authorities by the social security fund and by the state The move will eliminate a major lource of insecurity for forshyeign inveltors The government would retain a majority holding or would continue to regulate some secton expected to include petroshychemicals energy vehicle manushyfacturing aluminum production transportation and telecommunishycations In addition the governshyment win propose a new account in law to bring Hungarian pracshytices up to Western standards

Polaudhardcurrency trade surshyplus was the biggest on record but industrial output slumped 23 pershycent during the countrys first year ofradical market-oriented reform The shock therapy program brought about an unprecedented 34 percent growth in exports to the Welt amounting to $114 billion last year according to the Central Statistical Office Inflation was cut from 640 percent in 1989 to about 250 percent but wage inshycreases lagged reducing real inshycome 221 percent Although inshydustrial production declined 25 percent last year the private secshytor nearly doubled its share of outshyput growing 85 percent Unemshyployment grew faster than anticimiddot pated leaving 61 percent of the work force without jobs

The Soviet Union said it would attempt to reschedule its debt

(contued on pap 8)

FebnJaryl991 6 ~ VoIIme 2 NImber 2

TlOr1Sitton

Trad~ Impact of German Reunification on Eastern Europe

Tradamp orientationofCent1al and Eastern Europe could change dramatically as a result of

German reunification creation ofthe single-market Ew-opean Community collapse of the Council for Mutual Economic Assistance -andthe deteshyrioration ofthe Soviet economy (The eMEA the Soviet Union-led trading block of the Communist countries is now in the process of disaolution) However the speed and scope ofecoshynomic reorientation away from the Soviet Union and toward unified Germany show different patterns among the varioUi countries

Economic and tradereorientation was already oecurring during the 19801 West Germany was always the auijor non-CMEA trading partner of the Eastern European countries By 1989 Hungary and Poland were importing a larger share of goods from the two German states than from the Soviet Union (see table) a trade pattern that is expected to extend to their exports in the 1990s Czechoslovakias export orientation however may not shift for ampome time and Bulgaria is expected 10 remain highly dependent on the SOlriet Union

SipificaDt shifta

Two major challges occurred in trade with Gennany last year in the wake of German unification

bull In the first halfof 1990 exports from the eMEA countries to West Germany increased 26 percent Within this figure Polands exports grew 43 percent and Hungarys exshyports increased 36 percent This trend is attributed partly to the deterioratshying export opportunities in the Soviet Union but also to the collapse of the East German market

bull Individual countries of the CMEAsaw their trade with East Gelshymany shrink 25 to 40 percent last year and observers forecast a further decline of 50 percent this year The conapse of the East German market

VoIIrne 2 flaquoJTt)er 2

and the termination ofspecialization agreementa between East Germany and ita CMEA partners (mainly covshyering deli~ery of agricultural mashychinery and tranlportation equipshyment) have imposed an additional burden on the rforming economies Declining exports have led to underutilized capacity unemployshyment and burgeoniDa inventorieL

Despite the gravity of the situation the medium-term outJook seems enshycouraging

bull Rapid economic crowth could generate additional import demand in Germany Some of this demand could be met by Central and Eastern Europe

bull Germany could accelerate structural adjustment of ita eastern neighbors through dissemination of advanced technology

bull The economic center ofgravity in Europe might shift toward the

eutern flank of the European Comshymunity and pemaps include - or at least aubltantially influence - the neighborinamp economieL

Although tradeamoDCmembercounshytriMoftheEC wi1JdominateEuropean trade thedvnamipn oftraderelationa betweenthereformingeconomiesand certain memben of the EO particushylarly Germany is 1iIrely to lurps the growth of intramiddotEC trade Pr0sshypects for trade expansion in Eutern Europe are based on a growing intramiddot industry division of labor hiBber foreign investment and ambitious infrastrueture development projects

Limita ~ IIOwth

The ICOpe ofdevelopment depends on two baai facton First the efficient utilisation tI additional reaourcel is linked to the SUCCI of market reshyforin in Eastern and Central EUrope Second the use of these reeources will reflect the capacityoftheGerman

CMEA trade with the Soviet Union and the two Germanys 1989 (OJ 0 percent d fkJCh country expotl and ImpoIts)

PeclI JLpubUe 0 elo Debullbullanile u

amppabUo

Ezporlby

Bulgaria (1988) 10 52 IiU CuchotIlovakia 83 81 301 Hungary 120 5bullbull 2lU Poland 1 bull 8 bull 2 208 Soviet Union 39 97

110 by

Bulgaria (1988) bull9 5bullbull 535 Cucheloyakia 93 78 217 Huagary 181 82 221 Poland 161 bullbull5 181 Soviet Union 68 U

Stnu-et UnUed NGtJoru MWy Bulletin 0( SIalWia July 1990 Md 1IIIIiDrtol lomp tradtt talifli

7 FebtuaIv 1991

Transition The Wotid BonkCECSE

Milestones of Transitionmiddot (continued)

which is now at a level of $624 billion Originally officials planned to repay $155 bi11ionin 1991 and $9 billion in 1992 In an interview with the Soviet daily newspaper Trud Prime Minister Valentin Pavlov said forees in the West tried to overthrow Mikhail Gorbachev in January by flooding the country with billions of rubles The Lonshydon-based Oxford Analytica Reshysearch Group notes that Pavlovbeshylieves the government should dishyrect the economy by detennining its structure and controlJing major sectors He expects privatization the report said merely to fill in the cracks in this structure He also speaks of turning governmentshyowned enterprises into col1ective property and he objects to private ownership of land and to what he describes as dirty mi11ionaires operating in the black market

Yugoslavias Prime Minister Ante I Markovic is struggling to gain supshy

port for economic reform in order to secure a standby credit from the IMF Approval ofthe credit would pave the way for $25 bi11ion loan

from the World Bank and the Euroshypean Community said Zarko Trbojevic deputy governor of the Yugoslav National Bank The govshyernmentwants to reschedule between $800 million and 1 billion of debt Despite recent ethnic violence Markovic is confident that the m republic wiU approve the package of reforms But even 80 he is likely to face resiatance to hia proposed monshyetary policies

Bonn has approved tu increasea to raise OM36 billion a year in part to counter the economic crisis in eastern (krmany Emergency aid to that part of the country wi)) cost an addishytional OMI0 bilJion a year said Ec0shynomic Minister Juergen Moelleman Moreover about 3 million Gennana could lose their job thia year out of a workforce oflO miJJion ifthe governshyment fails to act The Finance Minshyistry has proposed transferring DM5 billion immediately as a stop-gap measure to ward off bankruptcy for the eastern statea and citiea Many economi~ts believe that middotthe cost of rebuilding eastem Gennany will be more than OM1 billion over the next

10 years For ita part the Treuhandanstalt privatization agency is moving ahead with sales of the 8000 atate-owned compashynies Officials said the agency has raiaed DM31 billion from the we of 700 firms 80 far primarily to West German investors In their lateat move Treuhand haa invited bids for 5tSOO shopa and restaushyrants owned by the former East German state

Czechoslovakia voted recently to open aU nationalized industry to private investment All 4500 inshydustrial enterprises valued at $130 billion should be available to domeatic or foreign invetors by yeara end Sharea in many of the companie will be available to prishyvate citizens through an intricate system ofgovernment-illUed coushypona Under the new law ofrestitushytion businesses and other propershyties confiscated by the former regime betwen 1948 and 1989 will be returned to the owners or their heirs Officials expect that thia couldamountto 10 percent ofatateshyowned property

economy (and the EC) to finance the integration of eastern Germany into a united country

One fear is that badly needed largeshyscale investment in the eastern Gershyman states may divert German direct capital investments from the reformshying CMEA economies At present German companies are the leading investors in Poland and with US and Austrian enterprises the most important ones in Hungary Another concern is the spillover effect of the anticipated high budget deficit in Germany This would raise the level of international interest rates and consequently the burden of the in~ debted countries For example a 1 percent increase in interest rates would require an additional payment of $400 million by Poland and $200 million by Hungary each year

AndnY 1104Qi World BorIJc CECTP

FebnJory1991 8 Volme 2 Nlmber 2

TlOr1Sitton

Trad~ Impact of German Reunification on Eastern Europe

Tradamp orientationofCent1al and Eastern Europe could change dramatically as a result of

German reunification creation ofthe single-market Ew-opean Community collapse of the Council for Mutual Economic Assistance -andthe deteshyrioration ofthe Soviet economy (The eMEA the Soviet Union-led trading block of the Communist countries is now in the process of disaolution) However the speed and scope ofecoshynomic reorientation away from the Soviet Union and toward unified Germany show different patterns among the varioUi countries

Economic and tradereorientation was already oecurring during the 19801 West Germany was always the auijor non-CMEA trading partner of the Eastern European countries By 1989 Hungary and Poland were importing a larger share of goods from the two German states than from the Soviet Union (see table) a trade pattern that is expected to extend to their exports in the 1990s Czechoslovakias export orientation however may not shift for ampome time and Bulgaria is expected 10 remain highly dependent on the SOlriet Union

SipificaDt shifta

Two major challges occurred in trade with Gennany last year in the wake of German unification

bull In the first halfof 1990 exports from the eMEA countries to West Germany increased 26 percent Within this figure Polands exports grew 43 percent and Hungarys exshyports increased 36 percent This trend is attributed partly to the deterioratshying export opportunities in the Soviet Union but also to the collapse of the East German market

bull Individual countries of the CMEAsaw their trade with East Gelshymany shrink 25 to 40 percent last year and observers forecast a further decline of 50 percent this year The conapse of the East German market

VoIIrne 2 flaquoJTt)er 2

and the termination ofspecialization agreementa between East Germany and ita CMEA partners (mainly covshyering deli~ery of agricultural mashychinery and tranlportation equipshyment) have imposed an additional burden on the rforming economies Declining exports have led to underutilized capacity unemployshyment and burgeoniDa inventorieL

Despite the gravity of the situation the medium-term outJook seems enshycouraging

bull Rapid economic crowth could generate additional import demand in Germany Some of this demand could be met by Central and Eastern Europe

bull Germany could accelerate structural adjustment of ita eastern neighbors through dissemination of advanced technology

bull The economic center ofgravity in Europe might shift toward the

eutern flank of the European Comshymunity and pemaps include - or at least aubltantially influence - the neighborinamp economieL

Although tradeamoDCmembercounshytriMoftheEC wi1JdominateEuropean trade thedvnamipn oftraderelationa betweenthereformingeconomiesand certain memben of the EO particushylarly Germany is 1iIrely to lurps the growth of intramiddotEC trade Pr0sshypects for trade expansion in Eutern Europe are based on a growing intramiddot industry division of labor hiBber foreign investment and ambitious infrastrueture development projects

Limita ~ IIOwth

The ICOpe ofdevelopment depends on two baai facton First the efficient utilisation tI additional reaourcel is linked to the SUCCI of market reshyforin in Eastern and Central EUrope Second the use of these reeources will reflect the capacityoftheGerman

CMEA trade with the Soviet Union and the two Germanys 1989 (OJ 0 percent d fkJCh country expotl and ImpoIts)

PeclI JLpubUe 0 elo Debullbullanile u

amppabUo

Ezporlby

Bulgaria (1988) 10 52 IiU CuchotIlovakia 83 81 301 Hungary 120 5bullbull 2lU Poland 1 bull 8 bull 2 208 Soviet Union 39 97

110 by

Bulgaria (1988) bull9 5bullbull 535 Cucheloyakia 93 78 217 Huagary 181 82 221 Poland 161 bullbull5 181 Soviet Union 68 U

Stnu-et UnUed NGtJoru MWy Bulletin 0( SIalWia July 1990 Md 1IIIIiDrtol lomp tradtt talifli

7 FebtuaIv 1991

Transition The Wotid BonkCECSE

Milestones of Transitionmiddot (continued)

which is now at a level of $624 billion Originally officials planned to repay $155 bi11ionin 1991 and $9 billion in 1992 In an interview with the Soviet daily newspaper Trud Prime Minister Valentin Pavlov said forees in the West tried to overthrow Mikhail Gorbachev in January by flooding the country with billions of rubles The Lonshydon-based Oxford Analytica Reshysearch Group notes that Pavlovbeshylieves the government should dishyrect the economy by detennining its structure and controlJing major sectors He expects privatization the report said merely to fill in the cracks in this structure He also speaks of turning governmentshyowned enterprises into col1ective property and he objects to private ownership of land and to what he describes as dirty mi11ionaires operating in the black market

Yugoslavias Prime Minister Ante I Markovic is struggling to gain supshy

port for economic reform in order to secure a standby credit from the IMF Approval ofthe credit would pave the way for $25 bi11ion loan

from the World Bank and the Euroshypean Community said Zarko Trbojevic deputy governor of the Yugoslav National Bank The govshyernmentwants to reschedule between $800 million and 1 billion of debt Despite recent ethnic violence Markovic is confident that the m republic wiU approve the package of reforms But even 80 he is likely to face resiatance to hia proposed monshyetary policies

Bonn has approved tu increasea to raise OM36 billion a year in part to counter the economic crisis in eastern (krmany Emergency aid to that part of the country wi)) cost an addishytional OMI0 bilJion a year said Ec0shynomic Minister Juergen Moelleman Moreover about 3 million Gennana could lose their job thia year out of a workforce oflO miJJion ifthe governshyment fails to act The Finance Minshyistry has proposed transferring DM5 billion immediately as a stop-gap measure to ward off bankruptcy for the eastern statea and citiea Many economi~ts believe that middotthe cost of rebuilding eastem Gennany will be more than OM1 billion over the next

10 years For ita part the Treuhandanstalt privatization agency is moving ahead with sales of the 8000 atate-owned compashynies Officials said the agency has raiaed DM31 billion from the we of 700 firms 80 far primarily to West German investors In their lateat move Treuhand haa invited bids for 5tSOO shopa and restaushyrants owned by the former East German state

Czechoslovakia voted recently to open aU nationalized industry to private investment All 4500 inshydustrial enterprises valued at $130 billion should be available to domeatic or foreign invetors by yeara end Sharea in many of the companie will be available to prishyvate citizens through an intricate system ofgovernment-illUed coushypona Under the new law ofrestitushytion businesses and other propershyties confiscated by the former regime betwen 1948 and 1989 will be returned to the owners or their heirs Officials expect that thia couldamountto 10 percent ofatateshyowned property

economy (and the EC) to finance the integration of eastern Germany into a united country

One fear is that badly needed largeshyscale investment in the eastern Gershyman states may divert German direct capital investments from the reformshying CMEA economies At present German companies are the leading investors in Poland and with US and Austrian enterprises the most important ones in Hungary Another concern is the spillover effect of the anticipated high budget deficit in Germany This would raise the level of international interest rates and consequently the burden of the in~ debted countries For example a 1 percent increase in interest rates would require an additional payment of $400 million by Poland and $200 million by Hungary each year

AndnY 1104Qi World BorIJc CECTP

FebnJory1991 8 Volme 2 Nlmber 2

Transition The Wotid BonkCECSE

Milestones of Transitionmiddot (continued)

which is now at a level of $624 billion Originally officials planned to repay $155 bi11ionin 1991 and $9 billion in 1992 In an interview with the Soviet daily newspaper Trud Prime Minister Valentin Pavlov said forees in the West tried to overthrow Mikhail Gorbachev in January by flooding the country with billions of rubles The Lonshydon-based Oxford Analytica Reshysearch Group notes that Pavlovbeshylieves the government should dishyrect the economy by detennining its structure and controlJing major sectors He expects privatization the report said merely to fill in the cracks in this structure He also speaks of turning governmentshyowned enterprises into col1ective property and he objects to private ownership of land and to what he describes as dirty mi11ionaires operating in the black market

Yugoslavias Prime Minister Ante I Markovic is struggling to gain supshy

port for economic reform in order to secure a standby credit from the IMF Approval ofthe credit would pave the way for $25 bi11ion loan

from the World Bank and the Euroshypean Community said Zarko Trbojevic deputy governor of the Yugoslav National Bank The govshyernmentwants to reschedule between $800 million and 1 billion of debt Despite recent ethnic violence Markovic is confident that the m republic wiU approve the package of reforms But even 80 he is likely to face resiatance to hia proposed monshyetary policies

Bonn has approved tu increasea to raise OM36 billion a year in part to counter the economic crisis in eastern (krmany Emergency aid to that part of the country wi)) cost an addishytional OMI0 bilJion a year said Ec0shynomic Minister Juergen Moelleman Moreover about 3 million Gennana could lose their job thia year out of a workforce oflO miJJion ifthe governshyment fails to act The Finance Minshyistry has proposed transferring DM5 billion immediately as a stop-gap measure to ward off bankruptcy for the eastern statea and citiea Many economi~ts believe that middotthe cost of rebuilding eastem Gennany will be more than OM1 billion over the next

10 years For ita part the Treuhandanstalt privatization agency is moving ahead with sales of the 8000 atate-owned compashynies Officials said the agency has raiaed DM31 billion from the we of 700 firms 80 far primarily to West German investors In their lateat move Treuhand haa invited bids for 5tSOO shopa and restaushyrants owned by the former East German state

Czechoslovakia voted recently to open aU nationalized industry to private investment All 4500 inshydustrial enterprises valued at $130 billion should be available to domeatic or foreign invetors by yeara end Sharea in many of the companie will be available to prishyvate citizens through an intricate system ofgovernment-illUed coushypona Under the new law ofrestitushytion businesses and other propershyties confiscated by the former regime betwen 1948 and 1989 will be returned to the owners or their heirs Officials expect that thia couldamountto 10 percent ofatateshyowned property

economy (and the EC) to finance the integration of eastern Germany into a united country

One fear is that badly needed largeshyscale investment in the eastern Gershyman states may divert German direct capital investments from the reformshying CMEA economies At present German companies are the leading investors in Poland and with US and Austrian enterprises the most important ones in Hungary Another concern is the spillover effect of the anticipated high budget deficit in Germany This would raise the level of international interest rates and consequently the burden of the in~ debted countries For example a 1 percent increase in interest rates would require an additional payment of $400 million by Poland and $200 million by Hungary each year

AndnY 1104Qi World BorIJc CECTP

FebnJory1991 8 Volme 2 Nlmber 2

Transition The World BanklCECSE

Albanias Bumpy Road to Market

Albania faces a deepening ec0shynomic crisis that threatena to

bull engulf that small Balkan country in political turmoil Recent official pronouncements by President Ramiz Alia indicate that the country the poorest in Europe faces more serious problems than previously reshyported A prolonged drought last summer led to a poor harvest and a drastic shortfall in hydroelectric power production Used to supplying power to other Balkan countries Alshybania was forced to importelectricity Hard currency earnings declined by $150 million in 1990 because of serishyous cutbacks in exports particularly oil and coal Recent official reports refer to an economy far poorer than previously believed plagued by chronic shortages of basic food failshying infrastructure lack of raw mateshyrials shortages I)fski lled worken and managers low Iroductivity and poor discipline

Widespread social malaise and labor unrest have brought the countrys command-style economy practically to a standstill The dire economic situation is dramatically refleaed by the mass exodusofAJbanians to other countries Since July 1990 some 20000 people have left Albania many of them highly educated workers

Some changes are in the offing Alia sanctione-d the creation of indepenshydent political parties last December followin g four days of studentdemonshystrations in Tirana The first multishyparty elections for the Peoples AJJshysembly are scheduled for March 31 1991 In addition to the ruling Albashynian WorkersFarty (the official name of the Commwlist Party) three new opposition parties Will participate the Democratic Party and the smaller Republican and EcolOgical parties

Legacy of mismanagemeDt

For more than 40 years Albanias economy has been controlledby a cen-

VoILIne 2 JIUrber 2

tra1 plan that allocated 8IOWC8a to heavy industry at the ezpen of all otheraectorLThe atatecontrolledthe meana ofproduction apiculture Was fully collectivized and private entershyprise wu prohibited After it break withChinain 1978Albaniaembarbd on a policy ofIf-reliance Cooperashytion with the outlide world was limshyited Only bartertradewaspermitted foreign credit and investment were outlawed

Albania iaendowed with rich reaervea ofchrome nickel copper naturalgu iron coal lignite and oil But a lack oftechnica1 expertise poor organizashytion obeolete equipment and the difshyficulty ofadapting imported technolshyogy have hampered the exploitation of the natural NIOUJCeI Governshyment subsidies aupported unprofit shyable enterpri reaulting in wideshyspread economic waate and ineffishyciency Rapid induatrialization haa

9

done conaiderable environmental damageasweU

In the late 19eo~revened tradishytional development prioriae emshypbuizingfuterlPOwtb ratesfbilight industry food proceuing aDd apishycultural production In thetpringof 1990 the govemment annotlDced creation of a new economic mechashyniam that would decentraliampe t1ampe deciaionmaking procell and replaee central control with incentives to enshycourage prodUction

Reatricpona on private trade in se vices and in handicrafta w lifted the size and number of priYatefann plot waa increased In a sharp de-shyparture from put policies the lOYshyernmentannouncedthatitwould foreign credit and inveatmenta and would encourage joint ventureamp The decree iaaued in July 1990 included guaranteea again~t expropriation or

FebruoIv 1991

------___ ---__----+_-

Trarwtion The Watd Bankcecse

nationalization and supported the right to repatriate capital and profits No maximum limit was set for inshyvested capital

Albanian officialsstartednegotiations with foreign companies to renovate existing plants and build new ones jointly A top priority was the develshyopmentof export-orienteci induatries such as shoes mining energy texshytiles agriculture food processing enshygineering and construction

This piecemeal approach to refonn however did not bring the desired results The economy continued to deteriorate To reverse the precipishytous decline of its political prestige the Workers Party pledged to introshyduce market mechanisms and to deshycentralize the decisionmakingprocess further It called for allocating more resources to the consumer and service sectors and proposed combining state and private property

Although the new prognun represhysented a significant ideological shift it stops short of embracing freeshymarket policies and continues to maintain a powerful state sector Despite efforts to shed ita rigid image the party faces deep-seated distrust and finds it difficult to marshal the political support necessary to carry out reforms The regime has thus far been unsuccessful in attracting forshyeign investments or foreign credit~

Is there an alternative

The Democratic Party the most imshyportant emerging opposition party is sharply critical of the Communist Partys program All attempts to creshyate a mixed economy will fail as they did in other East European countries argues Gramoz Pashko a professor of economi ~s at Tirana University and a leadingflgue in the Democratic party He believes that the country can be revived only by moving toward a genuine market economy

His party advocates a total overhaul of the economic structure and a radical revision of existing legislation to atshytract foreign capital and technology to develop Albanias abundant minshyeral resources Recognizing the difshyficult task of moving from a comshy

Febuoty1991

mand- to 1 free-market economy the Democratic Party envisions a twoshyphase transition period The proshyposed timetable would allow the govmiddot ernment to phase in the participation of private sector entrepreneurs

During the fint phase estimated to take twoyean thegovemmentwould continue to intervene in the economy to minimize the advene effect ofthe transition on the population With foreign aaaistance the government would provide a aocial safety net for those who face difficulties a result of economic restructuring

In the second phase governmentshyowned industries and agriculture would be privatized Land and liveshystock would be turned over to fannshyen FulJ integration of the country into the world economy is the goal

Both the reformen and the opposition recognize the powerful impedimenta to radical change Maaaive industrial restructuring would mean the shutshydown ofmany outmoded and unprof

Albania In Nutshell

Albania gained independence in 1912 after 450 yean or Turkih rule Durmiddot ing World War II it wu occupied by Germany and Italy and liberated by Albanian partisan in 1944 Poetwar leader Enver Hoxha introduced a Stalinit-typedictatcrahip cnJlhing all potential oppomtion He died in 1985 and waa lUCCeeded by hi handpicked choice Ramiz Alia who after the popularrnolution in Eaatern Europe in early 1990 began opening the counshytry to the outBide world and introducshyingreform

The geographic area of Albania cover 11101 square mile (roughly the trize of the ltate rA Maryland) A of 1990 the population compri_d 322 million people (up from 311 million in 1989) two-third of whom an under the age of 35 nul population figure include a Greek minority of about 60000 ale though IIOme of the_ have emigrated to Greece in recent yean

itable enterprises with large-scale unemployment and bankruptcy Elimination of state subsidiel and liberalization of prices would genershyate inflation aignifieantlyincreaaing the cost ofliving Ashock treatment similar to the one implemented in Poland could be too severe for the population to bear As Albania enters a period ofpolitical instability foreign economic involvement remains unmiddot certain

Regardles of the outcome of the March parliamentary electiona Alshybanian may di8COver thai it W8J easier to break the rulintJ partys monopolythan to pick up the pieceof an economy on the verge ofcollapse

wriIcIia1uJad001IwIAlbGIUMamp1viotto(lIwI Voice 0( AmtriaI Dodor 0( PolItMol ScicIIa froM ~u~ GIld 0IIIADr 0( IIwI hoM Albania ASoclalIAMamcll (19190) lliaR ilaIJUeGlfldtluo( IIwI CUIIhGr

Having been part rA the Turkish emmiddot pire Alhaniamiddot dominant religion i~ I1am but all religion wu banned in 1961 and moeqlUNl and chunhwere clOlNd They have jWlt reeently reshyopened

The Albanian economy i Europe poore81 The grou national product in 1990 (hued on purchuinc power parity)wu Ubillion and the GNPper capita w about $1250 The averace monthly wap for an Albanian worker i lt600-500 leb

The current officlal exchange rate atand at 1$-52266 leb The commiddot mercial rate i 1$15 leb and the black market rate i 1$25 1eitl

The main indutrie include food proshyceuing textil and chemical bullbull Albamiddot nia i the world aecond larct pr0shyducer of chromium Ita main exporta include ferrochrome copper wire toshybacco and cigarette timber tatU and foodatuft

10 Vokme 2 tlaquoIT1ber 2

the Watd BanklCECSE

New Research

Private Manufacturers In Eastern Europe

A Eastern European countriea go through a tranlitionfrom centrallyshyplanned to market-oriented eeonoshymiesa UDiqueopportunitypreeeota itaelf for the study of emercing entrepren8Wl A new rnearch pwojectfundedbytheWorldBanlr1 Reaearch Committee and impleshymented by the Industry Developshyment Division (lENIN) will gather detailed baseline information on private manUfacturing companiel in Poland Hungary and CzechoshyIlovwL The objectives of the project are to use data obtained through sample lurveys of apshyproximately 120 manufacturing finnl in each country to

bull use the current status and prolpecta private sector manushyfacturing

bull formulate recommendationa for policymaken on how to imshyprove current laws po1iciea and regulations to lupport private enshyterprise better

bull eetablilh benchmark datathat can be used to chari the future performante of sample firma and

bull formulate hypoth abOut the private lector particularly manufacturing tbatcouJd beteated in a future project

ReM8lCb queftiolU

The crowth of the private sector will be a key factor for the succeu of the transition currently undershyway in Eutem Europe Adynamic private eector il required to introshyducecompetition serveasa conduit for new technology and contribute to national income AlaWi pershymitting private enterprisel to 0pshyerate have been pused in each of the three lurvey countriel the number of private lmall and meshydium-lize enterprisel has lurged A central research queltion il whether these new firma will be able to take on an euential role required for market eeonomiel

Specifically the reeearcb project will addrell the iuue entrepreneurshyIhip alking entrepreneun about theirbackgroundamotivations IkiIla and plana Firma will be evaluated according to both quutitaiive meashyIUrelofprociuctivity and qualitative aspecta related to ill and olliput marhta technoloeiea and manapshyment ayatema Ownen offirml will be asked to delCribe the impact on their operationa ofchanging policiea regulations and lawa Conatrainta to further crowth will be delCribed and weighted

Beeucb methoclolo

Litile il known about Eastern Euroshypean entrepreneuraand their compashyRiea beyond the agncated quantishytative data recorded by national ItashytiItical offices Theheartthe lENIN IeH8ftlh will be the on-site1UrVeyof firm Thefint aurvey will take place

o in Poland in April and Mayen the secshyond in Hunpry in September and the lutone in Czechollovakia in Deshycember or in January 1992 The project will take eighteen montha

Surveys will be carried out by teamI composed of lENIN ltd and local reaearchen Survey team will comshyprise the project director a consultshyant and an in-country project manshyager Graduate ltudenta in eeonomshyicslOCiolocy and business will actas junior team membeR

Sample firms will be limited to incor- porated enterprisea that are joint atock and limited liabilitycompaniea tbemtJorityprivatelyownedengapd in manufacturing and employing 20 ormore worken Soleproprietonhips joint ventures and ltate enterprisel thuaareeltcluded Ofthetotalaample in each country about50firml will be chosen randomly from the entire population of companiel that meet the criteriaandabout20 from each of four lubeecton (meta1lhaping injecshytion molding plaltics knitting and clothing manufacturing) Croslshy

country analysia will be facilitated through comparison of firml manufacturinglimilarproducts in each country

Given that thesamplea will be choshysenatrandomandtheirgeographic locations diapened each survey il likely to take fo1D weeD Data analyBia will be atraigbtforward Ineach countryltatisticalcharacshytenatiel and diltribution of reshysponsea will be obtained by prodshytlct group and broken down by liM and location Data will be erosampshytabulated for comparisonl of the differencel among firml in the three economies

BeIearch output

Research output will consiat of three country-Ipecific reportl IUmllUUiampiDg the aurvey finctinp with a final report to include croushycountry analyllia and overall conshyclusion These reporia will benshyefit

bull policymakera in Poland Hungary andCzechollovakia who are devising legal regulatory and institutional reforms to foster the private sector

bull donon including the World Bank who are planning large as- liatance project for private buaishynels-foreumple the6ntWorld Bank loan for private small and medium-lizeenterpriaesin Poland which is to be appraised in the coming months and

bull observen ofEaatem Europe forwhom charting the transition il difficult ifnot impouible without accurate benchmark

n project g IIIt4ItII(ed by LriJG W (lENIN) IrvliWWo1 or iIWiAI wUA ~ ptOjetU III IAI a6Guc lIN lIwiad ID IIOIIIod JIamp W 1 llIutIGplMllt ~n World 11 H SL NW bull 8-41Jl W~ DC raquoW 7W ClOII) 4f3 1070

11 Februcry 1991

bullbullbull

bullbullbull

bullbullbull

Transttton The WOfId BonkCECSE

Book and Working Paper Briefs

ANGOLA-ANINTRODUcroBY ECONOMIC REVIEW A World Bank Country Study The World Bank Washington 1991 394p

Baaed on the findings of a mission to Angola in November-December 1987 the review examines the structure and evolution of the economy snd recommends an economic rehabilitashytion strategy Despite abundant natural resources and the rapid de-shyvelopment of the oil industry since independence in 1975 the Angolan economy had been characterized by enormous distortions and poor pershyformance - attributed to the proshytracted civil wars having destroyed much of the production capacity and economic and social infrastructure the severe sho1tage of skilled tbor and poor economic managP1Dent inshyadequate policies inefficient public enterprises and a distorted incentive framework (Recently President dos Santos told the third COIlgleU of the ruling MPLA the Jutunder a singleshyparty system that Angola must abandon its Marxist economic model to embrace the free market and democratic socialism)

In the context of Angolas program of Economic and Financial Restructurshying (SEF) the report recommends that the govemment contain demand by requcing the budget deficit and that it introduce hard budget conshystraints To achieve a positive supply response agricultural prices should be increased small enterpriaea proshymoted and allocation of resources improved through price liberalization realistic exchange rates more compeshytition and public enterprise reform The report suggests that the Angolan govemment take strong measures toshyward price wage and exchange rate policy and in public resource manshyagement This would accelerate re- habilitation after war-related conshystraints ease although such policy changes are appropriate already

~1991

Gregon W Kolodko INFLATION STABnIZATION IN POLAND A YEAR AJ1TER Institute of Finance Warsaw Workshying Paper No 17 1991 (forthcoming) 36p

In the late 19801 prices were accelershyating and shortages deepening By mid-1989 hyperinflation had ocshycurred due to Polands accelerated transition toamarketeconomy Antishyinflationary shock therapy in early 1990 was intended to eliminate shortages radically reduce inflation and improve the current account balshyance The program overshot its aim Prograu toward market transformashytion has been achieved but at imshymense cost Inflation has stabilized at the highest level in Europe unemshyployment is growing and production declining The inflation-versusshyshortage trade-off has been replaced by inflation-veraus-receaaion Thus Polands example shows the impoaaishybility ofdirect transition from a crisis typical ofa state-controlled economy toan equilibrated capitalist economy However the Polish erperiene shyimplementing a stabilization policy that entails high social costs-can be a particularly useful example for ot1ier reforming economies Tlwoaihorg Ipro(~1II1MW_ampJaool 0(amp0-- and Dinlew 0(1M ampan41middot ltiatto(1f__(w_S~12)

PoI4IId

David M Newbery THE SAFETY NET DURING TRANSFOBMATIONBUNGABY Being presented at the Prague Conshyference on Institutional Reform in Emerging Democracies (see Conershyenlaquo Diary this issue)

Moat Eastem European countries face the double difficulty ofm attempting systemic transformation while facshying severe extemal constraints and (ii) trying to reduce domestic absorpshytion Social wety nets are important to sustain political consensus and offset adverse impaeta that 0CCIlLJ as social income determination is reshy

12

placed by the market middotHow might systemic transformation aifectincome distribution What methods are available to provide safety nets The papers analysis concentrates on Hungary but stresses the wider imshyplications for other economies

FormerEastEurope govemmentshad devised redistribution systems that achieved remarkably low poverty for such low-income countries Many well-targeted programs should be preserved to deal with unemployment inflation and theremovalofconsumer subsidies Adjustment will most probably mean scaling back egalitarshyian policies The author adds that if the object of reform is to unleash reshypressed forces for greater efficiency and higher incomes the tax and inshycentive systems will have to become less progressive Thus ifoutput for domestic consumption does not inshycrease much in the first few years some members of society will gain substantially (pouibly those whose capital and expertise is required to bolster the private sector) and others will become more vulnerable The key political iaaue iswhose interest should be protected during the transition

The natural solution to theproblem of low pay and high unemployment in certain sectors of the population is to provide income supplementation baaed on need family structure inshycome and assets Subsidies on goods should be replaced by indexed meansshytested supplementary benefits (in cash) particularly for housing alshythough contingent on existing rents TIw ~ g Prof_middotlJWtior 0( 1M Dtmiddot port 0(Applied Eeono UrtoWmtily 0(

Ctambridrt Ctam~ E1IUmd CB3 9DE

William W Ambrose Paul R Hennemeyer Jean-Paul Chapon PRIVATIZING TELECOMMUNIshyCATIONS SYSTEMS World Bank IFC Discuuion Paper No10 Waahington 199059 p

Chin~ India and Indonesia comprise 40 percent of the Wlrlds population

Vaune 2 tbnber 2

bullbullbull

TratI9t1on The WOOd Ban(CECSE

but account for fewer than 20 million New Books and Working Papers telephones In 1988 new subscribers in Poland had to wait 122 years for telephone installation in Algeria 85 years and in Tanzania 109 years Communication systems possess conshysiderable potential for investment and growth but developing countries and Eastern Europe face constraints that hinder their ability to garner the enormous investments required for modem telecommunication systems Inefficient bureaucracies and vested political interests often stand in the way of new capital

Privatization of the sector also may set business interests against the states social goals For example it is questionable whether a purely comshymercial telecom enterprise would inshyvest in low- or no-profit rural areas

Gershon Feder Lawrence J Lau Justin Y Lin and Xiaopeng Luo CREDIT EFFECT ON PRODUCshyTIVITY IN CHINESE AGRlClJL TURE- A MICROECONOMIC MODEL OF DISEQUJLIBRIUM World Bank PRE WP Series No 571 Washington 1991 27 p

Many government programs attempt to provide more credit to the farm sector to increase agricultural proshyductivity but ifthe marginal effeeton productivity is small those resources might be used better elsewhere The authors conducted an econometric analysis of the effect of credit on outshyput supply The results indicate that one additional yuan of liquidity (credit) yielded 0235 yuan of addishytional gr088 value of output A good part of the short-term credit availshyable to the agricultural houaeholds studied was diverted on average about 30 percent for consumption and about 40 pelcent for small-scale inshyvestments

The analysis suggests that not a11 farmers - in fact sometimes only a minority - are constrained by inadshyequate cremt Furthermore more fomal credit will be diverted in part to consumptionso the likely effect on output is smal1er than what might be expected ifit is assumed that all funds are used productively

Vokme 2 NImber 2

Karel Dyba and Jan Svejnar CuchoalovaJda Recent Ecoshynomic Developmeau aacl ProtshypecCa (forthcoming) American Economic Review May 1991 1 p

Nikolai Shmel and Vladimir PoPov ReviralizjDI ihe Soviet Ecoaomy IB Tawil and Co Iondon 1990 33Op

Laszlo Cuba Eutena Europe ia the World Economy Cambridge Univenity Preas CamshybridgelNew York 1990403 p

Alec Nove Studioia EconomiCiaDdRuuia StMartins Preas New York 1990 375p

China Economic Reform aDd Macroeconomic Maaaaement IMF Occasional Paper Series No76 WlUlhington 1991

Paul Craig Roberts and Karen LaFolette MeltdoWll Inaide the Soviet EcoDomy Cato Institute Washington 1990 152 p

Branislav Durie (ed) The Law on Eaterprilea in Yuaoshyslavia

Poslovna Poltika Belgrade 1990 l04p

Stephen White Political and EcoDoiDic Encyclopaedia of the Soviet Union aDdButera EuropeLongman Harlow UK1990 328 p

Poland Statiftieal Data 1990 CentnLl Statistical Office Warsaw 199099 p

Keith Hartley and Todd Sandler The Economici of Defense Speadina AD IaterDatioaal Surshyvey Routledge Press 1990 304 p

Baadbookofeconomic atatistics 1990 a refereDce aid US Central InteJligence Agency Library of Congress Washington 1990220 p

Henze Zhang (ed) Chiaa Statistical Abstract 1990 State Statistical Bureau of China Praeger New York 1990 106 p

Robert A Levine and David A Ochmanek Toward a Stable Traasition iD Europe a conservativeactivist Itrategy for the UDited Statea Rand Corporation LosAngeles 1990 47 p

lflpickyou up

13 FebnJory 1991

Transition The WOI1d BankCECSE

On the World lBanklMF Agenda

Bulgaria - IMF ~meDt

Bulgaria is expecting up to $271 milshylion by the end ofJune 1991 from the International Monetary Fund under a tentative recent agreement The Fund will provide about $87 million (SDR 606 million) from the Comshypensatory and Contingency Financshying Facility (CCFF) to help meet Bulgarias increased cost of oil imshyports Until 1990 most of Bulgarias oil came from the Soviet Union or indirectly from Iraq In 1990 delivshyeries from the Soviet Union were about 30 percent below the 1989 level and Iraqi imports ended According to the IMF if relevant conditionI are met Bulgaria c8n expect another $47 milshylion from the CCFF later thil year Bulgaria has already uaed a onCHiay credit from the Netherlandl to pay the hard currency segment valued at about $100 million of its IMP quota (about $446 million) becsuae its own foreign exchange reserves are exshyhausted

Increased World Bank 108l1l to Ethiopia

The World Bank is increasing its anshynual project lending to Ethiopia from $100 million to $125 million this year The reforms already have a positive effect on small-fann agriculture World Bank Resident Representative James G1lering has said He told the Ethiopian News Agency that aid would be in the fonn of long-tenn low-interest credit and that projects to be financed by the Bank this year would inelude re habilitation of a major road from the port of Asab improveshyment of seed production population planning and development of the coffee industry

Polands expectations

The IMF is nearing agreement on a $2 billion financial package for Poshyland that will help the country out of its economic troubles The Polish

February1991

govemment baa announced the tenshytative accord with the IMFon a threeshyyear arrangement of $2 billion Thil amount includel about $3lSO million from the Compensatory and Continshygency Financial Facility to counter the higher coat of energy importl Further contingency tinancinrmight be mad available in the event that intemational energy pricel riM ligshynificantly more than anticipated Agreement with the IMP would pave the way for a Paris Clubagreement to forgive part of Polandi $485 billion debt Aceording to Finance Minister Laszek Balcerowicz outright debt forgiveness is neceuary as partofthe solution for Polandi debt problem and could be combined with other forms ofdebt reduction Foreumple he cited the pouibility of converting the debt into an environmental fund

Lari OD World Baak apport to Eaten Europe

Nmon KeizGi S4imbun recently quoted Eugenio Lari European Dishyrector of the World Bank saying that the Bank will provide $25 to $30 billion to support Eastern Europe in thil fiscal year He added that in a fewmonthl the Bank win extend loans to Czechoslovakia and Bulgaria for the fint time and willrelume loans to Romania after a nine years pause

Packaae to Bunlary

On February 21 the IMF approved a $16 billion (SDR 1114 billion) threeshyyear extended credit facility for Hunshygary to support the govemments reshyfonn program The eltenomic program for 1991 aiml at holding the budget deficit to 15 percent of the GOP and limiting the end-year inflation rate to about 30 percent A new bankruptcy law should accelerate the liquidation ofbankrupt enterprisel The governshyment hal further liberalized imports and will introduce a social safety net to provide unemployment assiltance and retraining Further contingency

14

financing might become available should a larger payments deficit reshysult from extemal factors including higher than projected oil prices (In January the IMF approved a package of $318 million from the CCFF to cover the increued cost ofHungarys oil importa- see TRANSITION Vol 2 no 1 plbull) A second package of $171 million could become available in June if conditionl are met Asshysuming full utilization ofthose fBeilishytiel the IMF package of loana to Hungary could reach $256 billion the largest amount it haa given 80 far to any reforming East European country

Albanian officials viait the IMF

Albanian officiall met with the IMFs Michel Camdessusand officialaofthe World Bank about membership in the two institutions According to APshyDow Jones delegationl from the World Bank and the IMF will lOon visit Tirana the capital for negotiashytionl which could last several months

New member MODCOli

Mongolia has joined the World Bank and the Fund Ita contribution to the 1MF was set at 25 million SOil or about $36 million The World Bank and the IMP now have 155 member states each

4lutDnyn BaDrlctrw FlNItIIfraquo 01 the MongOlIM PHplI RtlpcIblJc Mg IN IIF Aftk_ 01 Ag

Vokme 2 Nunber 2

TnnrttIon The WOI1d BonkCECSE

Conference Dloty

ForibCltMDnl CoIafenD_

Tnuuddon to a MarJretBco ba the EmerPlII DeJDocrad_ of Eutena EUIOpe March 24-27 Prague Czecboelovamiddot )da

CoBpODlOredbythebtituteofPolicy Reform aPR) and the Project on Inmiddot ltitutional Reform and the Informal Sector (IRIS) at the Untvnity of Maryland Both IPR and IRIS aN

funded by USAID Topica property rilhtl ed the tranaition inltitumiddot tiODl for a competitive private Memiddot

tor demonopolization and foreign trade policiel macroeconomic balshyance and financial clblcipline the privatiution PIC)(aI and the Ipeed andll8qUeDCingoftranlritionFInance miDilter Vadav maUil will addreu the conference Participanu include lAwrence Summen or the World shyBankandformer World BankoftkJall Stanley Pilcher and Anne Jtruepr u weD u hip-level IOWrnDIInlt ofshyficiall from the US andEurope and leading repreMDtatiWi of the Us acaclemic community

PubUc veWI Private Entershyprie April +-6 1991 Liep Belgium

International conference of the CIRIEC (Centre International de Recherch1 et dInformation lur lEconomie Pubtiqwa Socia1e et Coshyopentive)UnivenityofLiegeThree working group will dilcull privatization iIUM performance meuWM and comparilODI and inshycmtivellCbemea andmixed marketl nepectively

Almual World Bank CoIafereaoe 011 Development poundCOllom April25-261991 Wuhington DC

Organized by the World BanklPRE Topa wiD inciude the tranaformashytion PIC)(aI in the lOCialiit 8COnGshymibull Jeffrey Sacha (Harvard Unimiddot venity)Jan VanoUl(PlanEcon)and Ancien Allund (Stockholm Scbool of

Economica)have__invitedtoptWent papers Other tDpia IIIilitarJupendishytuzM and~ of shyernance in dneIopsMDtadurbaniashytiOD Open tontdoftheBankGroup and the IMP Varioua IICholan reshyI8alChen and po1iqmabn will parshyticipate

BoPoRefbaEuampena B1IIOpe May 6-9 Prape C-=boIlovakia

Hiahmiddotlevel holllina policy MIllin orshyganized by the Economic Development btitut and the EMENA TechDical DepartmentortheWortelBank anel the Faculty or lAw Prague UDivenity coshy8pODIIOnd by the French Caiue Depamptlet CoDlignatioM Paria AboUt

30participantlIIininenhiIhoftIcialI mor civil Mrvantl from Bulgaria CleChollovalda Romania Hungary Polad and Yuplavia involved in deftDing and implementing DlW hoashyinltnteaiM in the EuternEuropean COUDtne TopiCl to be dillCUlMClare bull Mjuangthedirectroleortheltateto achieve a marbt-oriented houmn 1JStiem(Wrn European operieDC8 privatization techDiquet rental techshyniquel manapment of rental 8tock redeaiping hoUling ubRdi) bull Creating an enabling environment for alUltainable houinl8Ctor (devel oping ftnancial iDltrumeDti and intershyJIIIeCtiarieI vi mobilization and aifordability _ue enhancingthe role ofJocal 8Qvernmentl in hOUling facili- tating the emerpDC8 of developen rental ltack managen builderl) bull Sequencing refonDI the inteJllCtion of houting Itrategy componentl and IOdaJ coati of reform

The Baltic Gateway to the 8oeamp UalOllf May 10-13 1991 Middlebury VT

Seminar will ctiacuA the Balticlevolvshyin role u a bridge between the Soviet Union and itl foreian inWiton and trading partnen Among the 40 (IUeIU will be the prime miDilten of Etonia and lAtvia the pneident of the GeorshygianRepublic and the vice plMicientof

the Ruuian Republic ~ thorp lWluoetr Dimiddot0 00110= IIItitut 14 BillcIwt AotIaw Middlebury VT OIS1IS3 TeL (BO) 381J9619

TIae TraufonudOll ofSoclalW Bcoaom JUDe 26-28 mel Germany

0rpniIecl by the mel Inltitute or WorIdEcooomica PoeuIingonpolicy Itntegiee for tranaition in particushylar the DeCIIIIarychanaeI in inltitumiddot tional infrutructure to wa to privati_ firmI and reatructure economiel timingand l8quencingof privatiutionimacroeconomic ltammiddot liutiOD microeconomic deregulamiddot

tioll and edemal liberalization Participantl will diIcuu the 8JClI)

nomic interration of Germany and the policy optioDl for the individual But European COuntril

TIae CluaDlbsI structure of IIIshymiddotooaae IUICl Social PoUey mEutshy EUIOpeI A Comparatln FoshyaufarLISCLUUlDboUlIDcome 8tady) July 21-23 Walfemnge Iuumshybourg

Four-day international confereDCle COIPODlOnci by the Ford Foundashytion National btitute on Aging and IJS The Luxembourg Income Study baa a unique role in comparshying the economic ltatUI or hoUle- holda in Butern and Wtern Eushyrope it baa done for hOUMhold income elata-Cor at leat 16 Wtern European countri and four Eatshyern European on The conference iI for Eutern European ltatiltical ofBciali and reeeanhen Wtem open and World Bank ltatr will deal with illuea luch u the criteria forcomparlnglOcial polici (children and family benefitl peuionl 1mshy

employmentiDiurance anti-poverty lDUIurea) and hOUMhold welfare in economiin trauition One ion will fOCWlon acomparillon of diatrishybution of ineome in the But and Wt UIin uilting IJS elatuela

Vokme2~2 15 Febuary 1991

the Watd BanklCECSE

New Research

Private Manufacturers In Eastern Europe

A Eastern European countriea go through a tranlitionfrom centrallyshyplanned to market-oriented eeonoshymiesa UDiqueopportunitypreeeota itaelf for the study of emercing entrepren8Wl A new rnearch pwojectfundedbytheWorldBanlr1 Reaearch Committee and impleshymented by the Industry Developshyment Division (lENIN) will gather detailed baseline information on private manUfacturing companiel in Poland Hungary and CzechoshyIlovwL The objectives of the project are to use data obtained through sample lurveys of apshyproximately 120 manufacturing finnl in each country to

bull use the current status and prolpecta private sector manushyfacturing

bull formulate recommendationa for policymaken on how to imshyprove current laws po1iciea and regulations to lupport private enshyterprise better

bull eetablilh benchmark datathat can be used to chari the future performante of sample firma and

bull formulate hypoth abOut the private lector particularly manufacturing tbatcouJd beteated in a future project

ReM8lCb queftiolU

The crowth of the private sector will be a key factor for the succeu of the transition currently undershyway in Eutem Europe Adynamic private eector il required to introshyducecompetition serveasa conduit for new technology and contribute to national income AlaWi pershymitting private enterprisel to 0pshyerate have been pused in each of the three lurvey countriel the number of private lmall and meshydium-lize enterprisel has lurged A central research queltion il whether these new firma will be able to take on an euential role required for market eeonomiel

Specifically the reeearcb project will addrell the iuue entrepreneurshyIhip alking entrepreneun about theirbackgroundamotivations IkiIla and plana Firma will be evaluated according to both quutitaiive meashyIUrelofprociuctivity and qualitative aspecta related to ill and olliput marhta technoloeiea and manapshyment ayatema Ownen offirml will be asked to delCribe the impact on their operationa ofchanging policiea regulations and lawa Conatrainta to further crowth will be delCribed and weighted

Beeucb methoclolo

Litile il known about Eastern Euroshypean entrepreneuraand their compashyRiea beyond the agncated quantishytative data recorded by national ItashytiItical offices Theheartthe lENIN IeH8ftlh will be the on-site1UrVeyof firm Thefint aurvey will take place

o in Poland in April and Mayen the secshyond in Hunpry in September and the lutone in Czechollovakia in Deshycember or in January 1992 The project will take eighteen montha

Surveys will be carried out by teamI composed of lENIN ltd and local reaearchen Survey team will comshyprise the project director a consultshyant and an in-country project manshyager Graduate ltudenta in eeonomshyicslOCiolocy and business will actas junior team membeR

Sample firms will be limited to incor- porated enterprisea that are joint atock and limited liabilitycompaniea tbemtJorityprivatelyownedengapd in manufacturing and employing 20 ormore worken Soleproprietonhips joint ventures and ltate enterprisel thuaareeltcluded Ofthetotalaample in each country about50firml will be chosen randomly from the entire population of companiel that meet the criteriaandabout20 from each of four lubeecton (meta1lhaping injecshytion molding plaltics knitting and clothing manufacturing) Croslshy

country analysia will be facilitated through comparison of firml manufacturinglimilarproducts in each country

Given that thesamplea will be choshysenatrandomandtheirgeographic locations diapened each survey il likely to take fo1D weeD Data analyBia will be atraigbtforward Ineach countryltatisticalcharacshytenatiel and diltribution of reshysponsea will be obtained by prodshytlct group and broken down by liM and location Data will be erosampshytabulated for comparisonl of the differencel among firml in the three economies

BeIearch output

Research output will consiat of three country-Ipecific reportl IUmllUUiampiDg the aurvey finctinp with a final report to include croushycountry analyllia and overall conshyclusion These reporia will benshyefit

bull policymakera in Poland Hungary andCzechollovakia who are devising legal regulatory and institutional reforms to foster the private sector

bull donon including the World Bank who are planning large as- liatance project for private buaishynels-foreumple the6ntWorld Bank loan for private small and medium-lizeenterpriaesin Poland which is to be appraised in the coming months and

bull observen ofEaatem Europe forwhom charting the transition il difficult ifnot impouible without accurate benchmark

n project g IIIt4ItII(ed by LriJG W (lENIN) IrvliWWo1 or iIWiAI wUA ~ ptOjetU III IAI a6Guc lIN lIwiad ID IIOIIIod JIamp W 1 llIutIGplMllt ~n World 11 H SL NW bull 8-41Jl W~ DC raquoW 7W ClOII) 4f3 1070

11 Februcry 1991

bullbullbull

bullbullbull

bullbullbull

Transttton The WOfId BonkCECSE

Book and Working Paper Briefs

ANGOLA-ANINTRODUcroBY ECONOMIC REVIEW A World Bank Country Study The World Bank Washington 1991 394p

Baaed on the findings of a mission to Angola in November-December 1987 the review examines the structure and evolution of the economy snd recommends an economic rehabilitashytion strategy Despite abundant natural resources and the rapid de-shyvelopment of the oil industry since independence in 1975 the Angolan economy had been characterized by enormous distortions and poor pershyformance - attributed to the proshytracted civil wars having destroyed much of the production capacity and economic and social infrastructure the severe sho1tage of skilled tbor and poor economic managP1Dent inshyadequate policies inefficient public enterprises and a distorted incentive framework (Recently President dos Santos told the third COIlgleU of the ruling MPLA the Jutunder a singleshyparty system that Angola must abandon its Marxist economic model to embrace the free market and democratic socialism)

In the context of Angolas program of Economic and Financial Restructurshying (SEF) the report recommends that the govemment contain demand by requcing the budget deficit and that it introduce hard budget conshystraints To achieve a positive supply response agricultural prices should be increased small enterpriaea proshymoted and allocation of resources improved through price liberalization realistic exchange rates more compeshytition and public enterprise reform The report suggests that the Angolan govemment take strong measures toshyward price wage and exchange rate policy and in public resource manshyagement This would accelerate re- habilitation after war-related conshystraints ease although such policy changes are appropriate already

~1991

Gregon W Kolodko INFLATION STABnIZATION IN POLAND A YEAR AJ1TER Institute of Finance Warsaw Workshying Paper No 17 1991 (forthcoming) 36p

In the late 19801 prices were accelershyating and shortages deepening By mid-1989 hyperinflation had ocshycurred due to Polands accelerated transition toamarketeconomy Antishyinflationary shock therapy in early 1990 was intended to eliminate shortages radically reduce inflation and improve the current account balshyance The program overshot its aim Prograu toward market transformashytion has been achieved but at imshymense cost Inflation has stabilized at the highest level in Europe unemshyployment is growing and production declining The inflation-versusshyshortage trade-off has been replaced by inflation-veraus-receaaion Thus Polands example shows the impoaaishybility ofdirect transition from a crisis typical ofa state-controlled economy toan equilibrated capitalist economy However the Polish erperiene shyimplementing a stabilization policy that entails high social costs-can be a particularly useful example for ot1ier reforming economies Tlwoaihorg Ipro(~1II1MW_ampJaool 0(amp0-- and Dinlew 0(1M ampan41middot ltiatto(1f__(w_S~12)

PoI4IId

David M Newbery THE SAFETY NET DURING TRANSFOBMATIONBUNGABY Being presented at the Prague Conshyference on Institutional Reform in Emerging Democracies (see Conershyenlaquo Diary this issue)

Moat Eastem European countries face the double difficulty ofm attempting systemic transformation while facshying severe extemal constraints and (ii) trying to reduce domestic absorpshytion Social wety nets are important to sustain political consensus and offset adverse impaeta that 0CCIlLJ as social income determination is reshy

12

placed by the market middotHow might systemic transformation aifectincome distribution What methods are available to provide safety nets The papers analysis concentrates on Hungary but stresses the wider imshyplications for other economies

FormerEastEurope govemmentshad devised redistribution systems that achieved remarkably low poverty for such low-income countries Many well-targeted programs should be preserved to deal with unemployment inflation and theremovalofconsumer subsidies Adjustment will most probably mean scaling back egalitarshyian policies The author adds that if the object of reform is to unleash reshypressed forces for greater efficiency and higher incomes the tax and inshycentive systems will have to become less progressive Thus ifoutput for domestic consumption does not inshycrease much in the first few years some members of society will gain substantially (pouibly those whose capital and expertise is required to bolster the private sector) and others will become more vulnerable The key political iaaue iswhose interest should be protected during the transition

The natural solution to theproblem of low pay and high unemployment in certain sectors of the population is to provide income supplementation baaed on need family structure inshycome and assets Subsidies on goods should be replaced by indexed meansshytested supplementary benefits (in cash) particularly for housing alshythough contingent on existing rents TIw ~ g Prof_middotlJWtior 0( 1M Dtmiddot port 0(Applied Eeono UrtoWmtily 0(

Ctambridrt Ctam~ E1IUmd CB3 9DE

William W Ambrose Paul R Hennemeyer Jean-Paul Chapon PRIVATIZING TELECOMMUNIshyCATIONS SYSTEMS World Bank IFC Discuuion Paper No10 Waahington 199059 p

Chin~ India and Indonesia comprise 40 percent of the Wlrlds population

Vaune 2 tbnber 2

bullbullbull

TratI9t1on The WOOd Ban(CECSE

but account for fewer than 20 million New Books and Working Papers telephones In 1988 new subscribers in Poland had to wait 122 years for telephone installation in Algeria 85 years and in Tanzania 109 years Communication systems possess conshysiderable potential for investment and growth but developing countries and Eastern Europe face constraints that hinder their ability to garner the enormous investments required for modem telecommunication systems Inefficient bureaucracies and vested political interests often stand in the way of new capital

Privatization of the sector also may set business interests against the states social goals For example it is questionable whether a purely comshymercial telecom enterprise would inshyvest in low- or no-profit rural areas

Gershon Feder Lawrence J Lau Justin Y Lin and Xiaopeng Luo CREDIT EFFECT ON PRODUCshyTIVITY IN CHINESE AGRlClJL TURE- A MICROECONOMIC MODEL OF DISEQUJLIBRIUM World Bank PRE WP Series No 571 Washington 1991 27 p

Many government programs attempt to provide more credit to the farm sector to increase agricultural proshyductivity but ifthe marginal effeeton productivity is small those resources might be used better elsewhere The authors conducted an econometric analysis of the effect of credit on outshyput supply The results indicate that one additional yuan of liquidity (credit) yielded 0235 yuan of addishytional gr088 value of output A good part of the short-term credit availshyable to the agricultural houaeholds studied was diverted on average about 30 percent for consumption and about 40 pelcent for small-scale inshyvestments

The analysis suggests that not a11 farmers - in fact sometimes only a minority - are constrained by inadshyequate cremt Furthermore more fomal credit will be diverted in part to consumptionso the likely effect on output is smal1er than what might be expected ifit is assumed that all funds are used productively

Vokme 2 NImber 2

Karel Dyba and Jan Svejnar CuchoalovaJda Recent Ecoshynomic Developmeau aacl ProtshypecCa (forthcoming) American Economic Review May 1991 1 p

Nikolai Shmel and Vladimir PoPov ReviralizjDI ihe Soviet Ecoaomy IB Tawil and Co Iondon 1990 33Op

Laszlo Cuba Eutena Europe ia the World Economy Cambridge Univenity Preas CamshybridgelNew York 1990403 p

Alec Nove Studioia EconomiCiaDdRuuia StMartins Preas New York 1990 375p

China Economic Reform aDd Macroeconomic Maaaaement IMF Occasional Paper Series No76 WlUlhington 1991

Paul Craig Roberts and Karen LaFolette MeltdoWll Inaide the Soviet EcoDomy Cato Institute Washington 1990 152 p

Branislav Durie (ed) The Law on Eaterprilea in Yuaoshyslavia

Poslovna Poltika Belgrade 1990 l04p

Stephen White Political and EcoDoiDic Encyclopaedia of the Soviet Union aDdButera EuropeLongman Harlow UK1990 328 p

Poland Statiftieal Data 1990 CentnLl Statistical Office Warsaw 199099 p

Keith Hartley and Todd Sandler The Economici of Defense Speadina AD IaterDatioaal Surshyvey Routledge Press 1990 304 p

Baadbookofeconomic atatistics 1990 a refereDce aid US Central InteJligence Agency Library of Congress Washington 1990220 p

Henze Zhang (ed) Chiaa Statistical Abstract 1990 State Statistical Bureau of China Praeger New York 1990 106 p

Robert A Levine and David A Ochmanek Toward a Stable Traasition iD Europe a conservativeactivist Itrategy for the UDited Statea Rand Corporation LosAngeles 1990 47 p

lflpickyou up

13 FebnJory 1991

Transition The WOI1d BankCECSE

On the World lBanklMF Agenda

Bulgaria - IMF ~meDt

Bulgaria is expecting up to $271 milshylion by the end ofJune 1991 from the International Monetary Fund under a tentative recent agreement The Fund will provide about $87 million (SDR 606 million) from the Comshypensatory and Contingency Financshying Facility (CCFF) to help meet Bulgarias increased cost of oil imshyports Until 1990 most of Bulgarias oil came from the Soviet Union or indirectly from Iraq In 1990 delivshyeries from the Soviet Union were about 30 percent below the 1989 level and Iraqi imports ended According to the IMF if relevant conditionI are met Bulgaria c8n expect another $47 milshylion from the CCFF later thil year Bulgaria has already uaed a onCHiay credit from the Netherlandl to pay the hard currency segment valued at about $100 million of its IMP quota (about $446 million) becsuae its own foreign exchange reserves are exshyhausted

Increased World Bank 108l1l to Ethiopia

The World Bank is increasing its anshynual project lending to Ethiopia from $100 million to $125 million this year The reforms already have a positive effect on small-fann agriculture World Bank Resident Representative James G1lering has said He told the Ethiopian News Agency that aid would be in the fonn of long-tenn low-interest credit and that projects to be financed by the Bank this year would inelude re habilitation of a major road from the port of Asab improveshyment of seed production population planning and development of the coffee industry

Polands expectations

The IMF is nearing agreement on a $2 billion financial package for Poshyland that will help the country out of its economic troubles The Polish

February1991

govemment baa announced the tenshytative accord with the IMFon a threeshyyear arrangement of $2 billion Thil amount includel about $3lSO million from the Compensatory and Continshygency Financial Facility to counter the higher coat of energy importl Further contingency tinancinrmight be mad available in the event that intemational energy pricel riM ligshynificantly more than anticipated Agreement with the IMP would pave the way for a Paris Clubagreement to forgive part of Polandi $485 billion debt Aceording to Finance Minister Laszek Balcerowicz outright debt forgiveness is neceuary as partofthe solution for Polandi debt problem and could be combined with other forms ofdebt reduction Foreumple he cited the pouibility of converting the debt into an environmental fund

Lari OD World Baak apport to Eaten Europe

Nmon KeizGi S4imbun recently quoted Eugenio Lari European Dishyrector of the World Bank saying that the Bank will provide $25 to $30 billion to support Eastern Europe in thil fiscal year He added that in a fewmonthl the Bank win extend loans to Czechoslovakia and Bulgaria for the fint time and willrelume loans to Romania after a nine years pause

Packaae to Bunlary

On February 21 the IMF approved a $16 billion (SDR 1114 billion) threeshyyear extended credit facility for Hunshygary to support the govemments reshyfonn program The eltenomic program for 1991 aiml at holding the budget deficit to 15 percent of the GOP and limiting the end-year inflation rate to about 30 percent A new bankruptcy law should accelerate the liquidation ofbankrupt enterprisel The governshyment hal further liberalized imports and will introduce a social safety net to provide unemployment assiltance and retraining Further contingency

14

financing might become available should a larger payments deficit reshysult from extemal factors including higher than projected oil prices (In January the IMF approved a package of $318 million from the CCFF to cover the increued cost ofHungarys oil importa- see TRANSITION Vol 2 no 1 plbull) A second package of $171 million could become available in June if conditionl are met Asshysuming full utilization ofthose fBeilishytiel the IMF package of loana to Hungary could reach $256 billion the largest amount it haa given 80 far to any reforming East European country

Albanian officials viait the IMF

Albanian officiall met with the IMFs Michel Camdessusand officialaofthe World Bank about membership in the two institutions According to APshyDow Jones delegationl from the World Bank and the IMF will lOon visit Tirana the capital for negotiashytionl which could last several months

New member MODCOli

Mongolia has joined the World Bank and the Fund Ita contribution to the 1MF was set at 25 million SOil or about $36 million The World Bank and the IMP now have 155 member states each

4lutDnyn BaDrlctrw FlNItIIfraquo 01 the MongOlIM PHplI RtlpcIblJc Mg IN IIF Aftk_ 01 Ag

Vokme 2 Nunber 2

TnnrttIon The WOI1d BonkCECSE

Conference Dloty

ForibCltMDnl CoIafenD_

Tnuuddon to a MarJretBco ba the EmerPlII DeJDocrad_ of Eutena EUIOpe March 24-27 Prague Czecboelovamiddot )da

CoBpODlOredbythebtituteofPolicy Reform aPR) and the Project on Inmiddot ltitutional Reform and the Informal Sector (IRIS) at the Untvnity of Maryland Both IPR and IRIS aN

funded by USAID Topica property rilhtl ed the tranaition inltitumiddot tiODl for a competitive private Memiddot

tor demonopolization and foreign trade policiel macroeconomic balshyance and financial clblcipline the privatiution PIC)(aI and the Ipeed andll8qUeDCingoftranlritionFInance miDilter Vadav maUil will addreu the conference Participanu include lAwrence Summen or the World shyBankandformer World BankoftkJall Stanley Pilcher and Anne Jtruepr u weD u hip-level IOWrnDIInlt ofshyficiall from the US andEurope and leading repreMDtatiWi of the Us acaclemic community

PubUc veWI Private Entershyprie April +-6 1991 Liep Belgium

International conference of the CIRIEC (Centre International de Recherch1 et dInformation lur lEconomie Pubtiqwa Socia1e et Coshyopentive)UnivenityofLiegeThree working group will dilcull privatization iIUM performance meuWM and comparilODI and inshycmtivellCbemea andmixed marketl nepectively

Almual World Bank CoIafereaoe 011 Development poundCOllom April25-261991 Wuhington DC

Organized by the World BanklPRE Topa wiD inciude the tranaformashytion PIC)(aI in the lOCialiit 8COnGshymibull Jeffrey Sacha (Harvard Unimiddot venity)Jan VanoUl(PlanEcon)and Ancien Allund (Stockholm Scbool of

Economica)have__invitedtoptWent papers Other tDpia IIIilitarJupendishytuzM and~ of shyernance in dneIopsMDtadurbaniashytiOD Open tontdoftheBankGroup and the IMP Varioua IICholan reshyI8alChen and po1iqmabn will parshyticipate

BoPoRefbaEuampena B1IIOpe May 6-9 Prape C-=boIlovakia

Hiahmiddotlevel holllina policy MIllin orshyganized by the Economic Development btitut and the EMENA TechDical DepartmentortheWortelBank anel the Faculty or lAw Prague UDivenity coshy8pODIIOnd by the French Caiue Depamptlet CoDlignatioM Paria AboUt

30participantlIIininenhiIhoftIcialI mor civil Mrvantl from Bulgaria CleChollovalda Romania Hungary Polad and Yuplavia involved in deftDing and implementing DlW hoashyinltnteaiM in the EuternEuropean COUDtne TopiCl to be dillCUlMClare bull Mjuangthedirectroleortheltateto achieve a marbt-oriented houmn 1JStiem(Wrn European operieDC8 privatization techDiquet rental techshyniquel manapment of rental 8tock redeaiping hoUling ubRdi) bull Creating an enabling environment for alUltainable houinl8Ctor (devel oping ftnancial iDltrumeDti and intershyJIIIeCtiarieI vi mobilization and aifordability _ue enhancingthe role ofJocal 8Qvernmentl in hOUling facili- tating the emerpDC8 of developen rental ltack managen builderl) bull Sequencing refonDI the inteJllCtion of houting Itrategy componentl and IOdaJ coati of reform

The Baltic Gateway to the 8oeamp UalOllf May 10-13 1991 Middlebury VT

Seminar will ctiacuA the Balticlevolvshyin role u a bridge between the Soviet Union and itl foreian inWiton and trading partnen Among the 40 (IUeIU will be the prime miDilten of Etonia and lAtvia the pneident of the GeorshygianRepublic and the vice plMicientof

the Ruuian Republic ~ thorp lWluoetr Dimiddot0 00110= IIItitut 14 BillcIwt AotIaw Middlebury VT OIS1IS3 TeL (BO) 381J9619

TIae TraufonudOll ofSoclalW Bcoaom JUDe 26-28 mel Germany

0rpniIecl by the mel Inltitute or WorIdEcooomica PoeuIingonpolicy Itntegiee for tranaition in particushylar the DeCIIIIarychanaeI in inltitumiddot tional infrutructure to wa to privati_ firmI and reatructure economiel timingand l8quencingof privatiutionimacroeconomic ltammiddot liutiOD microeconomic deregulamiddot

tioll and edemal liberalization Participantl will diIcuu the 8JClI)

nomic interration of Germany and the policy optioDl for the individual But European COuntril

TIae CluaDlbsI structure of IIIshymiddotooaae IUICl Social PoUey mEutshy EUIOpeI A Comparatln FoshyaufarLISCLUUlDboUlIDcome 8tady) July 21-23 Walfemnge Iuumshybourg

Four-day international confereDCle COIPODlOnci by the Ford Foundashytion National btitute on Aging and IJS The Luxembourg Income Study baa a unique role in comparshying the economic ltatUI or hoUle- holda in Butern and Wtern Eushyrope it baa done for hOUMhold income elata-Cor at leat 16 Wtern European countri and four Eatshyern European on The conference iI for Eutern European ltatiltical ofBciali and reeeanhen Wtem open and World Bank ltatr will deal with illuea luch u the criteria forcomparlnglOcial polici (children and family benefitl peuionl 1mshy

employmentiDiurance anti-poverty lDUIurea) and hOUMhold welfare in economiin trauition One ion will fOCWlon acomparillon of diatrishybution of ineome in the But and Wt UIin uilting IJS elatuela

Vokme2~2 15 Febuary 1991

bullbullbull

bullbullbull

bullbullbull

Transttton The WOfId BonkCECSE

Book and Working Paper Briefs

ANGOLA-ANINTRODUcroBY ECONOMIC REVIEW A World Bank Country Study The World Bank Washington 1991 394p

Baaed on the findings of a mission to Angola in November-December 1987 the review examines the structure and evolution of the economy snd recommends an economic rehabilitashytion strategy Despite abundant natural resources and the rapid de-shyvelopment of the oil industry since independence in 1975 the Angolan economy had been characterized by enormous distortions and poor pershyformance - attributed to the proshytracted civil wars having destroyed much of the production capacity and economic and social infrastructure the severe sho1tage of skilled tbor and poor economic managP1Dent inshyadequate policies inefficient public enterprises and a distorted incentive framework (Recently President dos Santos told the third COIlgleU of the ruling MPLA the Jutunder a singleshyparty system that Angola must abandon its Marxist economic model to embrace the free market and democratic socialism)

In the context of Angolas program of Economic and Financial Restructurshying (SEF) the report recommends that the govemment contain demand by requcing the budget deficit and that it introduce hard budget conshystraints To achieve a positive supply response agricultural prices should be increased small enterpriaea proshymoted and allocation of resources improved through price liberalization realistic exchange rates more compeshytition and public enterprise reform The report suggests that the Angolan govemment take strong measures toshyward price wage and exchange rate policy and in public resource manshyagement This would accelerate re- habilitation after war-related conshystraints ease although such policy changes are appropriate already

~1991

Gregon W Kolodko INFLATION STABnIZATION IN POLAND A YEAR AJ1TER Institute of Finance Warsaw Workshying Paper No 17 1991 (forthcoming) 36p

In the late 19801 prices were accelershyating and shortages deepening By mid-1989 hyperinflation had ocshycurred due to Polands accelerated transition toamarketeconomy Antishyinflationary shock therapy in early 1990 was intended to eliminate shortages radically reduce inflation and improve the current account balshyance The program overshot its aim Prograu toward market transformashytion has been achieved but at imshymense cost Inflation has stabilized at the highest level in Europe unemshyployment is growing and production declining The inflation-versusshyshortage trade-off has been replaced by inflation-veraus-receaaion Thus Polands example shows the impoaaishybility ofdirect transition from a crisis typical ofa state-controlled economy toan equilibrated capitalist economy However the Polish erperiene shyimplementing a stabilization policy that entails high social costs-can be a particularly useful example for ot1ier reforming economies Tlwoaihorg Ipro(~1II1MW_ampJaool 0(amp0-- and Dinlew 0(1M ampan41middot ltiatto(1f__(w_S~12)

PoI4IId

David M Newbery THE SAFETY NET DURING TRANSFOBMATIONBUNGABY Being presented at the Prague Conshyference on Institutional Reform in Emerging Democracies (see Conershyenlaquo Diary this issue)

Moat Eastem European countries face the double difficulty ofm attempting systemic transformation while facshying severe extemal constraints and (ii) trying to reduce domestic absorpshytion Social wety nets are important to sustain political consensus and offset adverse impaeta that 0CCIlLJ as social income determination is reshy

12

placed by the market middotHow might systemic transformation aifectincome distribution What methods are available to provide safety nets The papers analysis concentrates on Hungary but stresses the wider imshyplications for other economies

FormerEastEurope govemmentshad devised redistribution systems that achieved remarkably low poverty for such low-income countries Many well-targeted programs should be preserved to deal with unemployment inflation and theremovalofconsumer subsidies Adjustment will most probably mean scaling back egalitarshyian policies The author adds that if the object of reform is to unleash reshypressed forces for greater efficiency and higher incomes the tax and inshycentive systems will have to become less progressive Thus ifoutput for domestic consumption does not inshycrease much in the first few years some members of society will gain substantially (pouibly those whose capital and expertise is required to bolster the private sector) and others will become more vulnerable The key political iaaue iswhose interest should be protected during the transition

The natural solution to theproblem of low pay and high unemployment in certain sectors of the population is to provide income supplementation baaed on need family structure inshycome and assets Subsidies on goods should be replaced by indexed meansshytested supplementary benefits (in cash) particularly for housing alshythough contingent on existing rents TIw ~ g Prof_middotlJWtior 0( 1M Dtmiddot port 0(Applied Eeono UrtoWmtily 0(

Ctambridrt Ctam~ E1IUmd CB3 9DE

William W Ambrose Paul R Hennemeyer Jean-Paul Chapon PRIVATIZING TELECOMMUNIshyCATIONS SYSTEMS World Bank IFC Discuuion Paper No10 Waahington 199059 p

Chin~ India and Indonesia comprise 40 percent of the Wlrlds population

Vaune 2 tbnber 2

bullbullbull

TratI9t1on The WOOd Ban(CECSE

but account for fewer than 20 million New Books and Working Papers telephones In 1988 new subscribers in Poland had to wait 122 years for telephone installation in Algeria 85 years and in Tanzania 109 years Communication systems possess conshysiderable potential for investment and growth but developing countries and Eastern Europe face constraints that hinder their ability to garner the enormous investments required for modem telecommunication systems Inefficient bureaucracies and vested political interests often stand in the way of new capital

Privatization of the sector also may set business interests against the states social goals For example it is questionable whether a purely comshymercial telecom enterprise would inshyvest in low- or no-profit rural areas

Gershon Feder Lawrence J Lau Justin Y Lin and Xiaopeng Luo CREDIT EFFECT ON PRODUCshyTIVITY IN CHINESE AGRlClJL TURE- A MICROECONOMIC MODEL OF DISEQUJLIBRIUM World Bank PRE WP Series No 571 Washington 1991 27 p

Many government programs attempt to provide more credit to the farm sector to increase agricultural proshyductivity but ifthe marginal effeeton productivity is small those resources might be used better elsewhere The authors conducted an econometric analysis of the effect of credit on outshyput supply The results indicate that one additional yuan of liquidity (credit) yielded 0235 yuan of addishytional gr088 value of output A good part of the short-term credit availshyable to the agricultural houaeholds studied was diverted on average about 30 percent for consumption and about 40 pelcent for small-scale inshyvestments

The analysis suggests that not a11 farmers - in fact sometimes only a minority - are constrained by inadshyequate cremt Furthermore more fomal credit will be diverted in part to consumptionso the likely effect on output is smal1er than what might be expected ifit is assumed that all funds are used productively

Vokme 2 NImber 2

Karel Dyba and Jan Svejnar CuchoalovaJda Recent Ecoshynomic Developmeau aacl ProtshypecCa (forthcoming) American Economic Review May 1991 1 p

Nikolai Shmel and Vladimir PoPov ReviralizjDI ihe Soviet Ecoaomy IB Tawil and Co Iondon 1990 33Op

Laszlo Cuba Eutena Europe ia the World Economy Cambridge Univenity Preas CamshybridgelNew York 1990403 p

Alec Nove Studioia EconomiCiaDdRuuia StMartins Preas New York 1990 375p

China Economic Reform aDd Macroeconomic Maaaaement IMF Occasional Paper Series No76 WlUlhington 1991

Paul Craig Roberts and Karen LaFolette MeltdoWll Inaide the Soviet EcoDomy Cato Institute Washington 1990 152 p

Branislav Durie (ed) The Law on Eaterprilea in Yuaoshyslavia

Poslovna Poltika Belgrade 1990 l04p

Stephen White Political and EcoDoiDic Encyclopaedia of the Soviet Union aDdButera EuropeLongman Harlow UK1990 328 p

Poland Statiftieal Data 1990 CentnLl Statistical Office Warsaw 199099 p

Keith Hartley and Todd Sandler The Economici of Defense Speadina AD IaterDatioaal Surshyvey Routledge Press 1990 304 p

Baadbookofeconomic atatistics 1990 a refereDce aid US Central InteJligence Agency Library of Congress Washington 1990220 p

Henze Zhang (ed) Chiaa Statistical Abstract 1990 State Statistical Bureau of China Praeger New York 1990 106 p

Robert A Levine and David A Ochmanek Toward a Stable Traasition iD Europe a conservativeactivist Itrategy for the UDited Statea Rand Corporation LosAngeles 1990 47 p

lflpickyou up

13 FebnJory 1991

Transition The WOI1d BankCECSE

On the World lBanklMF Agenda

Bulgaria - IMF ~meDt

Bulgaria is expecting up to $271 milshylion by the end ofJune 1991 from the International Monetary Fund under a tentative recent agreement The Fund will provide about $87 million (SDR 606 million) from the Comshypensatory and Contingency Financshying Facility (CCFF) to help meet Bulgarias increased cost of oil imshyports Until 1990 most of Bulgarias oil came from the Soviet Union or indirectly from Iraq In 1990 delivshyeries from the Soviet Union were about 30 percent below the 1989 level and Iraqi imports ended According to the IMF if relevant conditionI are met Bulgaria c8n expect another $47 milshylion from the CCFF later thil year Bulgaria has already uaed a onCHiay credit from the Netherlandl to pay the hard currency segment valued at about $100 million of its IMP quota (about $446 million) becsuae its own foreign exchange reserves are exshyhausted

Increased World Bank 108l1l to Ethiopia

The World Bank is increasing its anshynual project lending to Ethiopia from $100 million to $125 million this year The reforms already have a positive effect on small-fann agriculture World Bank Resident Representative James G1lering has said He told the Ethiopian News Agency that aid would be in the fonn of long-tenn low-interest credit and that projects to be financed by the Bank this year would inelude re habilitation of a major road from the port of Asab improveshyment of seed production population planning and development of the coffee industry

Polands expectations

The IMF is nearing agreement on a $2 billion financial package for Poshyland that will help the country out of its economic troubles The Polish

February1991

govemment baa announced the tenshytative accord with the IMFon a threeshyyear arrangement of $2 billion Thil amount includel about $3lSO million from the Compensatory and Continshygency Financial Facility to counter the higher coat of energy importl Further contingency tinancinrmight be mad available in the event that intemational energy pricel riM ligshynificantly more than anticipated Agreement with the IMP would pave the way for a Paris Clubagreement to forgive part of Polandi $485 billion debt Aceording to Finance Minister Laszek Balcerowicz outright debt forgiveness is neceuary as partofthe solution for Polandi debt problem and could be combined with other forms ofdebt reduction Foreumple he cited the pouibility of converting the debt into an environmental fund

Lari OD World Baak apport to Eaten Europe

Nmon KeizGi S4imbun recently quoted Eugenio Lari European Dishyrector of the World Bank saying that the Bank will provide $25 to $30 billion to support Eastern Europe in thil fiscal year He added that in a fewmonthl the Bank win extend loans to Czechoslovakia and Bulgaria for the fint time and willrelume loans to Romania after a nine years pause

Packaae to Bunlary

On February 21 the IMF approved a $16 billion (SDR 1114 billion) threeshyyear extended credit facility for Hunshygary to support the govemments reshyfonn program The eltenomic program for 1991 aiml at holding the budget deficit to 15 percent of the GOP and limiting the end-year inflation rate to about 30 percent A new bankruptcy law should accelerate the liquidation ofbankrupt enterprisel The governshyment hal further liberalized imports and will introduce a social safety net to provide unemployment assiltance and retraining Further contingency

14

financing might become available should a larger payments deficit reshysult from extemal factors including higher than projected oil prices (In January the IMF approved a package of $318 million from the CCFF to cover the increued cost ofHungarys oil importa- see TRANSITION Vol 2 no 1 plbull) A second package of $171 million could become available in June if conditionl are met Asshysuming full utilization ofthose fBeilishytiel the IMF package of loana to Hungary could reach $256 billion the largest amount it haa given 80 far to any reforming East European country

Albanian officials viait the IMF

Albanian officiall met with the IMFs Michel Camdessusand officialaofthe World Bank about membership in the two institutions According to APshyDow Jones delegationl from the World Bank and the IMF will lOon visit Tirana the capital for negotiashytionl which could last several months

New member MODCOli

Mongolia has joined the World Bank and the Fund Ita contribution to the 1MF was set at 25 million SOil or about $36 million The World Bank and the IMP now have 155 member states each

4lutDnyn BaDrlctrw FlNItIIfraquo 01 the MongOlIM PHplI RtlpcIblJc Mg IN IIF Aftk_ 01 Ag

Vokme 2 Nunber 2

TnnrttIon The WOI1d BonkCECSE

Conference Dloty

ForibCltMDnl CoIafenD_

Tnuuddon to a MarJretBco ba the EmerPlII DeJDocrad_ of Eutena EUIOpe March 24-27 Prague Czecboelovamiddot )da

CoBpODlOredbythebtituteofPolicy Reform aPR) and the Project on Inmiddot ltitutional Reform and the Informal Sector (IRIS) at the Untvnity of Maryland Both IPR and IRIS aN

funded by USAID Topica property rilhtl ed the tranaition inltitumiddot tiODl for a competitive private Memiddot

tor demonopolization and foreign trade policiel macroeconomic balshyance and financial clblcipline the privatiution PIC)(aI and the Ipeed andll8qUeDCingoftranlritionFInance miDilter Vadav maUil will addreu the conference Participanu include lAwrence Summen or the World shyBankandformer World BankoftkJall Stanley Pilcher and Anne Jtruepr u weD u hip-level IOWrnDIInlt ofshyficiall from the US andEurope and leading repreMDtatiWi of the Us acaclemic community

PubUc veWI Private Entershyprie April +-6 1991 Liep Belgium

International conference of the CIRIEC (Centre International de Recherch1 et dInformation lur lEconomie Pubtiqwa Socia1e et Coshyopentive)UnivenityofLiegeThree working group will dilcull privatization iIUM performance meuWM and comparilODI and inshycmtivellCbemea andmixed marketl nepectively

Almual World Bank CoIafereaoe 011 Development poundCOllom April25-261991 Wuhington DC

Organized by the World BanklPRE Topa wiD inciude the tranaformashytion PIC)(aI in the lOCialiit 8COnGshymibull Jeffrey Sacha (Harvard Unimiddot venity)Jan VanoUl(PlanEcon)and Ancien Allund (Stockholm Scbool of

Economica)have__invitedtoptWent papers Other tDpia IIIilitarJupendishytuzM and~ of shyernance in dneIopsMDtadurbaniashytiOD Open tontdoftheBankGroup and the IMP Varioua IICholan reshyI8alChen and po1iqmabn will parshyticipate

BoPoRefbaEuampena B1IIOpe May 6-9 Prape C-=boIlovakia

Hiahmiddotlevel holllina policy MIllin orshyganized by the Economic Development btitut and the EMENA TechDical DepartmentortheWortelBank anel the Faculty or lAw Prague UDivenity coshy8pODIIOnd by the French Caiue Depamptlet CoDlignatioM Paria AboUt

30participantlIIininenhiIhoftIcialI mor civil Mrvantl from Bulgaria CleChollovalda Romania Hungary Polad and Yuplavia involved in deftDing and implementing DlW hoashyinltnteaiM in the EuternEuropean COUDtne TopiCl to be dillCUlMClare bull Mjuangthedirectroleortheltateto achieve a marbt-oriented houmn 1JStiem(Wrn European operieDC8 privatization techDiquet rental techshyniquel manapment of rental 8tock redeaiping hoUling ubRdi) bull Creating an enabling environment for alUltainable houinl8Ctor (devel oping ftnancial iDltrumeDti and intershyJIIIeCtiarieI vi mobilization and aifordability _ue enhancingthe role ofJocal 8Qvernmentl in hOUling facili- tating the emerpDC8 of developen rental ltack managen builderl) bull Sequencing refonDI the inteJllCtion of houting Itrategy componentl and IOdaJ coati of reform

The Baltic Gateway to the 8oeamp UalOllf May 10-13 1991 Middlebury VT

Seminar will ctiacuA the Balticlevolvshyin role u a bridge between the Soviet Union and itl foreian inWiton and trading partnen Among the 40 (IUeIU will be the prime miDilten of Etonia and lAtvia the pneident of the GeorshygianRepublic and the vice plMicientof

the Ruuian Republic ~ thorp lWluoetr Dimiddot0 00110= IIItitut 14 BillcIwt AotIaw Middlebury VT OIS1IS3 TeL (BO) 381J9619

TIae TraufonudOll ofSoclalW Bcoaom JUDe 26-28 mel Germany

0rpniIecl by the mel Inltitute or WorIdEcooomica PoeuIingonpolicy Itntegiee for tranaition in particushylar the DeCIIIIarychanaeI in inltitumiddot tional infrutructure to wa to privati_ firmI and reatructure economiel timingand l8quencingof privatiutionimacroeconomic ltammiddot liutiOD microeconomic deregulamiddot

tioll and edemal liberalization Participantl will diIcuu the 8JClI)

nomic interration of Germany and the policy optioDl for the individual But European COuntril

TIae CluaDlbsI structure of IIIshymiddotooaae IUICl Social PoUey mEutshy EUIOpeI A Comparatln FoshyaufarLISCLUUlDboUlIDcome 8tady) July 21-23 Walfemnge Iuumshybourg

Four-day international confereDCle COIPODlOnci by the Ford Foundashytion National btitute on Aging and IJS The Luxembourg Income Study baa a unique role in comparshying the economic ltatUI or hoUle- holda in Butern and Wtern Eushyrope it baa done for hOUMhold income elata-Cor at leat 16 Wtern European countri and four Eatshyern European on The conference iI for Eutern European ltatiltical ofBciali and reeeanhen Wtem open and World Bank ltatr will deal with illuea luch u the criteria forcomparlnglOcial polici (children and family benefitl peuionl 1mshy

employmentiDiurance anti-poverty lDUIurea) and hOUMhold welfare in economiin trauition One ion will fOCWlon acomparillon of diatrishybution of ineome in the But and Wt UIin uilting IJS elatuela

Vokme2~2 15 Febuary 1991

bullbullbull

TratI9t1on The WOOd Ban(CECSE

but account for fewer than 20 million New Books and Working Papers telephones In 1988 new subscribers in Poland had to wait 122 years for telephone installation in Algeria 85 years and in Tanzania 109 years Communication systems possess conshysiderable potential for investment and growth but developing countries and Eastern Europe face constraints that hinder their ability to garner the enormous investments required for modem telecommunication systems Inefficient bureaucracies and vested political interests often stand in the way of new capital

Privatization of the sector also may set business interests against the states social goals For example it is questionable whether a purely comshymercial telecom enterprise would inshyvest in low- or no-profit rural areas

Gershon Feder Lawrence J Lau Justin Y Lin and Xiaopeng Luo CREDIT EFFECT ON PRODUCshyTIVITY IN CHINESE AGRlClJL TURE- A MICROECONOMIC MODEL OF DISEQUJLIBRIUM World Bank PRE WP Series No 571 Washington 1991 27 p

Many government programs attempt to provide more credit to the farm sector to increase agricultural proshyductivity but ifthe marginal effeeton productivity is small those resources might be used better elsewhere The authors conducted an econometric analysis of the effect of credit on outshyput supply The results indicate that one additional yuan of liquidity (credit) yielded 0235 yuan of addishytional gr088 value of output A good part of the short-term credit availshyable to the agricultural houaeholds studied was diverted on average about 30 percent for consumption and about 40 pelcent for small-scale inshyvestments

The analysis suggests that not a11 farmers - in fact sometimes only a minority - are constrained by inadshyequate cremt Furthermore more fomal credit will be diverted in part to consumptionso the likely effect on output is smal1er than what might be expected ifit is assumed that all funds are used productively

Vokme 2 NImber 2

Karel Dyba and Jan Svejnar CuchoalovaJda Recent Ecoshynomic Developmeau aacl ProtshypecCa (forthcoming) American Economic Review May 1991 1 p

Nikolai Shmel and Vladimir PoPov ReviralizjDI ihe Soviet Ecoaomy IB Tawil and Co Iondon 1990 33Op

Laszlo Cuba Eutena Europe ia the World Economy Cambridge Univenity Preas CamshybridgelNew York 1990403 p

Alec Nove Studioia EconomiCiaDdRuuia StMartins Preas New York 1990 375p

China Economic Reform aDd Macroeconomic Maaaaement IMF Occasional Paper Series No76 WlUlhington 1991

Paul Craig Roberts and Karen LaFolette MeltdoWll Inaide the Soviet EcoDomy Cato Institute Washington 1990 152 p

Branislav Durie (ed) The Law on Eaterprilea in Yuaoshyslavia

Poslovna Poltika Belgrade 1990 l04p

Stephen White Political and EcoDoiDic Encyclopaedia of the Soviet Union aDdButera EuropeLongman Harlow UK1990 328 p

Poland Statiftieal Data 1990 CentnLl Statistical Office Warsaw 199099 p

Keith Hartley and Todd Sandler The Economici of Defense Speadina AD IaterDatioaal Surshyvey Routledge Press 1990 304 p

Baadbookofeconomic atatistics 1990 a refereDce aid US Central InteJligence Agency Library of Congress Washington 1990220 p

Henze Zhang (ed) Chiaa Statistical Abstract 1990 State Statistical Bureau of China Praeger New York 1990 106 p

Robert A Levine and David A Ochmanek Toward a Stable Traasition iD Europe a conservativeactivist Itrategy for the UDited Statea Rand Corporation LosAngeles 1990 47 p

lflpickyou up

13 FebnJory 1991

Transition The WOI1d BankCECSE

On the World lBanklMF Agenda

Bulgaria - IMF ~meDt

Bulgaria is expecting up to $271 milshylion by the end ofJune 1991 from the International Monetary Fund under a tentative recent agreement The Fund will provide about $87 million (SDR 606 million) from the Comshypensatory and Contingency Financshying Facility (CCFF) to help meet Bulgarias increased cost of oil imshyports Until 1990 most of Bulgarias oil came from the Soviet Union or indirectly from Iraq In 1990 delivshyeries from the Soviet Union were about 30 percent below the 1989 level and Iraqi imports ended According to the IMF if relevant conditionI are met Bulgaria c8n expect another $47 milshylion from the CCFF later thil year Bulgaria has already uaed a onCHiay credit from the Netherlandl to pay the hard currency segment valued at about $100 million of its IMP quota (about $446 million) becsuae its own foreign exchange reserves are exshyhausted

Increased World Bank 108l1l to Ethiopia

The World Bank is increasing its anshynual project lending to Ethiopia from $100 million to $125 million this year The reforms already have a positive effect on small-fann agriculture World Bank Resident Representative James G1lering has said He told the Ethiopian News Agency that aid would be in the fonn of long-tenn low-interest credit and that projects to be financed by the Bank this year would inelude re habilitation of a major road from the port of Asab improveshyment of seed production population planning and development of the coffee industry

Polands expectations

The IMF is nearing agreement on a $2 billion financial package for Poshyland that will help the country out of its economic troubles The Polish

February1991

govemment baa announced the tenshytative accord with the IMFon a threeshyyear arrangement of $2 billion Thil amount includel about $3lSO million from the Compensatory and Continshygency Financial Facility to counter the higher coat of energy importl Further contingency tinancinrmight be mad available in the event that intemational energy pricel riM ligshynificantly more than anticipated Agreement with the IMP would pave the way for a Paris Clubagreement to forgive part of Polandi $485 billion debt Aceording to Finance Minister Laszek Balcerowicz outright debt forgiveness is neceuary as partofthe solution for Polandi debt problem and could be combined with other forms ofdebt reduction Foreumple he cited the pouibility of converting the debt into an environmental fund

Lari OD World Baak apport to Eaten Europe

Nmon KeizGi S4imbun recently quoted Eugenio Lari European Dishyrector of the World Bank saying that the Bank will provide $25 to $30 billion to support Eastern Europe in thil fiscal year He added that in a fewmonthl the Bank win extend loans to Czechoslovakia and Bulgaria for the fint time and willrelume loans to Romania after a nine years pause

Packaae to Bunlary

On February 21 the IMF approved a $16 billion (SDR 1114 billion) threeshyyear extended credit facility for Hunshygary to support the govemments reshyfonn program The eltenomic program for 1991 aiml at holding the budget deficit to 15 percent of the GOP and limiting the end-year inflation rate to about 30 percent A new bankruptcy law should accelerate the liquidation ofbankrupt enterprisel The governshyment hal further liberalized imports and will introduce a social safety net to provide unemployment assiltance and retraining Further contingency

14

financing might become available should a larger payments deficit reshysult from extemal factors including higher than projected oil prices (In January the IMF approved a package of $318 million from the CCFF to cover the increued cost ofHungarys oil importa- see TRANSITION Vol 2 no 1 plbull) A second package of $171 million could become available in June if conditionl are met Asshysuming full utilization ofthose fBeilishytiel the IMF package of loana to Hungary could reach $256 billion the largest amount it haa given 80 far to any reforming East European country

Albanian officials viait the IMF

Albanian officiall met with the IMFs Michel Camdessusand officialaofthe World Bank about membership in the two institutions According to APshyDow Jones delegationl from the World Bank and the IMF will lOon visit Tirana the capital for negotiashytionl which could last several months

New member MODCOli

Mongolia has joined the World Bank and the Fund Ita contribution to the 1MF was set at 25 million SOil or about $36 million The World Bank and the IMP now have 155 member states each

4lutDnyn BaDrlctrw FlNItIIfraquo 01 the MongOlIM PHplI RtlpcIblJc Mg IN IIF Aftk_ 01 Ag

Vokme 2 Nunber 2

TnnrttIon The WOI1d BonkCECSE

Conference Dloty

ForibCltMDnl CoIafenD_

Tnuuddon to a MarJretBco ba the EmerPlII DeJDocrad_ of Eutena EUIOpe March 24-27 Prague Czecboelovamiddot )da

CoBpODlOredbythebtituteofPolicy Reform aPR) and the Project on Inmiddot ltitutional Reform and the Informal Sector (IRIS) at the Untvnity of Maryland Both IPR and IRIS aN

funded by USAID Topica property rilhtl ed the tranaition inltitumiddot tiODl for a competitive private Memiddot

tor demonopolization and foreign trade policiel macroeconomic balshyance and financial clblcipline the privatiution PIC)(aI and the Ipeed andll8qUeDCingoftranlritionFInance miDilter Vadav maUil will addreu the conference Participanu include lAwrence Summen or the World shyBankandformer World BankoftkJall Stanley Pilcher and Anne Jtruepr u weD u hip-level IOWrnDIInlt ofshyficiall from the US andEurope and leading repreMDtatiWi of the Us acaclemic community

PubUc veWI Private Entershyprie April +-6 1991 Liep Belgium

International conference of the CIRIEC (Centre International de Recherch1 et dInformation lur lEconomie Pubtiqwa Socia1e et Coshyopentive)UnivenityofLiegeThree working group will dilcull privatization iIUM performance meuWM and comparilODI and inshycmtivellCbemea andmixed marketl nepectively

Almual World Bank CoIafereaoe 011 Development poundCOllom April25-261991 Wuhington DC

Organized by the World BanklPRE Topa wiD inciude the tranaformashytion PIC)(aI in the lOCialiit 8COnGshymibull Jeffrey Sacha (Harvard Unimiddot venity)Jan VanoUl(PlanEcon)and Ancien Allund (Stockholm Scbool of

Economica)have__invitedtoptWent papers Other tDpia IIIilitarJupendishytuzM and~ of shyernance in dneIopsMDtadurbaniashytiOD Open tontdoftheBankGroup and the IMP Varioua IICholan reshyI8alChen and po1iqmabn will parshyticipate

BoPoRefbaEuampena B1IIOpe May 6-9 Prape C-=boIlovakia

Hiahmiddotlevel holllina policy MIllin orshyganized by the Economic Development btitut and the EMENA TechDical DepartmentortheWortelBank anel the Faculty or lAw Prague UDivenity coshy8pODIIOnd by the French Caiue Depamptlet CoDlignatioM Paria AboUt

30participantlIIininenhiIhoftIcialI mor civil Mrvantl from Bulgaria CleChollovalda Romania Hungary Polad and Yuplavia involved in deftDing and implementing DlW hoashyinltnteaiM in the EuternEuropean COUDtne TopiCl to be dillCUlMClare bull Mjuangthedirectroleortheltateto achieve a marbt-oriented houmn 1JStiem(Wrn European operieDC8 privatization techDiquet rental techshyniquel manapment of rental 8tock redeaiping hoUling ubRdi) bull Creating an enabling environment for alUltainable houinl8Ctor (devel oping ftnancial iDltrumeDti and intershyJIIIeCtiarieI vi mobilization and aifordability _ue enhancingthe role ofJocal 8Qvernmentl in hOUling facili- tating the emerpDC8 of developen rental ltack managen builderl) bull Sequencing refonDI the inteJllCtion of houting Itrategy componentl and IOdaJ coati of reform

The Baltic Gateway to the 8oeamp UalOllf May 10-13 1991 Middlebury VT

Seminar will ctiacuA the Balticlevolvshyin role u a bridge between the Soviet Union and itl foreian inWiton and trading partnen Among the 40 (IUeIU will be the prime miDilten of Etonia and lAtvia the pneident of the GeorshygianRepublic and the vice plMicientof

the Ruuian Republic ~ thorp lWluoetr Dimiddot0 00110= IIItitut 14 BillcIwt AotIaw Middlebury VT OIS1IS3 TeL (BO) 381J9619

TIae TraufonudOll ofSoclalW Bcoaom JUDe 26-28 mel Germany

0rpniIecl by the mel Inltitute or WorIdEcooomica PoeuIingonpolicy Itntegiee for tranaition in particushylar the DeCIIIIarychanaeI in inltitumiddot tional infrutructure to wa to privati_ firmI and reatructure economiel timingand l8quencingof privatiutionimacroeconomic ltammiddot liutiOD microeconomic deregulamiddot

tioll and edemal liberalization Participantl will diIcuu the 8JClI)

nomic interration of Germany and the policy optioDl for the individual But European COuntril

TIae CluaDlbsI structure of IIIshymiddotooaae IUICl Social PoUey mEutshy EUIOpeI A Comparatln FoshyaufarLISCLUUlDboUlIDcome 8tady) July 21-23 Walfemnge Iuumshybourg

Four-day international confereDCle COIPODlOnci by the Ford Foundashytion National btitute on Aging and IJS The Luxembourg Income Study baa a unique role in comparshying the economic ltatUI or hoUle- holda in Butern and Wtern Eushyrope it baa done for hOUMhold income elata-Cor at leat 16 Wtern European countri and four Eatshyern European on The conference iI for Eutern European ltatiltical ofBciali and reeeanhen Wtem open and World Bank ltatr will deal with illuea luch u the criteria forcomparlnglOcial polici (children and family benefitl peuionl 1mshy

employmentiDiurance anti-poverty lDUIurea) and hOUMhold welfare in economiin trauition One ion will fOCWlon acomparillon of diatrishybution of ineome in the But and Wt UIin uilting IJS elatuela

Vokme2~2 15 Febuary 1991

Transition The WOI1d BankCECSE

On the World lBanklMF Agenda

Bulgaria - IMF ~meDt

Bulgaria is expecting up to $271 milshylion by the end ofJune 1991 from the International Monetary Fund under a tentative recent agreement The Fund will provide about $87 million (SDR 606 million) from the Comshypensatory and Contingency Financshying Facility (CCFF) to help meet Bulgarias increased cost of oil imshyports Until 1990 most of Bulgarias oil came from the Soviet Union or indirectly from Iraq In 1990 delivshyeries from the Soviet Union were about 30 percent below the 1989 level and Iraqi imports ended According to the IMF if relevant conditionI are met Bulgaria c8n expect another $47 milshylion from the CCFF later thil year Bulgaria has already uaed a onCHiay credit from the Netherlandl to pay the hard currency segment valued at about $100 million of its IMP quota (about $446 million) becsuae its own foreign exchange reserves are exshyhausted

Increased World Bank 108l1l to Ethiopia

The World Bank is increasing its anshynual project lending to Ethiopia from $100 million to $125 million this year The reforms already have a positive effect on small-fann agriculture World Bank Resident Representative James G1lering has said He told the Ethiopian News Agency that aid would be in the fonn of long-tenn low-interest credit and that projects to be financed by the Bank this year would inelude re habilitation of a major road from the port of Asab improveshyment of seed production population planning and development of the coffee industry

Polands expectations

The IMF is nearing agreement on a $2 billion financial package for Poshyland that will help the country out of its economic troubles The Polish

February1991

govemment baa announced the tenshytative accord with the IMFon a threeshyyear arrangement of $2 billion Thil amount includel about $3lSO million from the Compensatory and Continshygency Financial Facility to counter the higher coat of energy importl Further contingency tinancinrmight be mad available in the event that intemational energy pricel riM ligshynificantly more than anticipated Agreement with the IMP would pave the way for a Paris Clubagreement to forgive part of Polandi $485 billion debt Aceording to Finance Minister Laszek Balcerowicz outright debt forgiveness is neceuary as partofthe solution for Polandi debt problem and could be combined with other forms ofdebt reduction Foreumple he cited the pouibility of converting the debt into an environmental fund

Lari OD World Baak apport to Eaten Europe

Nmon KeizGi S4imbun recently quoted Eugenio Lari European Dishyrector of the World Bank saying that the Bank will provide $25 to $30 billion to support Eastern Europe in thil fiscal year He added that in a fewmonthl the Bank win extend loans to Czechoslovakia and Bulgaria for the fint time and willrelume loans to Romania after a nine years pause

Packaae to Bunlary

On February 21 the IMF approved a $16 billion (SDR 1114 billion) threeshyyear extended credit facility for Hunshygary to support the govemments reshyfonn program The eltenomic program for 1991 aiml at holding the budget deficit to 15 percent of the GOP and limiting the end-year inflation rate to about 30 percent A new bankruptcy law should accelerate the liquidation ofbankrupt enterprisel The governshyment hal further liberalized imports and will introduce a social safety net to provide unemployment assiltance and retraining Further contingency

14

financing might become available should a larger payments deficit reshysult from extemal factors including higher than projected oil prices (In January the IMF approved a package of $318 million from the CCFF to cover the increued cost ofHungarys oil importa- see TRANSITION Vol 2 no 1 plbull) A second package of $171 million could become available in June if conditionl are met Asshysuming full utilization ofthose fBeilishytiel the IMF package of loana to Hungary could reach $256 billion the largest amount it haa given 80 far to any reforming East European country

Albanian officials viait the IMF

Albanian officiall met with the IMFs Michel Camdessusand officialaofthe World Bank about membership in the two institutions According to APshyDow Jones delegationl from the World Bank and the IMF will lOon visit Tirana the capital for negotiashytionl which could last several months

New member MODCOli

Mongolia has joined the World Bank and the Fund Ita contribution to the 1MF was set at 25 million SOil or about $36 million The World Bank and the IMP now have 155 member states each

4lutDnyn BaDrlctrw FlNItIIfraquo 01 the MongOlIM PHplI RtlpcIblJc Mg IN IIF Aftk_ 01 Ag

Vokme 2 Nunber 2

TnnrttIon The WOI1d BonkCECSE

Conference Dloty

ForibCltMDnl CoIafenD_

Tnuuddon to a MarJretBco ba the EmerPlII DeJDocrad_ of Eutena EUIOpe March 24-27 Prague Czecboelovamiddot )da

CoBpODlOredbythebtituteofPolicy Reform aPR) and the Project on Inmiddot ltitutional Reform and the Informal Sector (IRIS) at the Untvnity of Maryland Both IPR and IRIS aN

funded by USAID Topica property rilhtl ed the tranaition inltitumiddot tiODl for a competitive private Memiddot

tor demonopolization and foreign trade policiel macroeconomic balshyance and financial clblcipline the privatiution PIC)(aI and the Ipeed andll8qUeDCingoftranlritionFInance miDilter Vadav maUil will addreu the conference Participanu include lAwrence Summen or the World shyBankandformer World BankoftkJall Stanley Pilcher and Anne Jtruepr u weD u hip-level IOWrnDIInlt ofshyficiall from the US andEurope and leading repreMDtatiWi of the Us acaclemic community

PubUc veWI Private Entershyprie April +-6 1991 Liep Belgium

International conference of the CIRIEC (Centre International de Recherch1 et dInformation lur lEconomie Pubtiqwa Socia1e et Coshyopentive)UnivenityofLiegeThree working group will dilcull privatization iIUM performance meuWM and comparilODI and inshycmtivellCbemea andmixed marketl nepectively

Almual World Bank CoIafereaoe 011 Development poundCOllom April25-261991 Wuhington DC

Organized by the World BanklPRE Topa wiD inciude the tranaformashytion PIC)(aI in the lOCialiit 8COnGshymibull Jeffrey Sacha (Harvard Unimiddot venity)Jan VanoUl(PlanEcon)and Ancien Allund (Stockholm Scbool of

Economica)have__invitedtoptWent papers Other tDpia IIIilitarJupendishytuzM and~ of shyernance in dneIopsMDtadurbaniashytiOD Open tontdoftheBankGroup and the IMP Varioua IICholan reshyI8alChen and po1iqmabn will parshyticipate

BoPoRefbaEuampena B1IIOpe May 6-9 Prape C-=boIlovakia

Hiahmiddotlevel holllina policy MIllin orshyganized by the Economic Development btitut and the EMENA TechDical DepartmentortheWortelBank anel the Faculty or lAw Prague UDivenity coshy8pODIIOnd by the French Caiue Depamptlet CoDlignatioM Paria AboUt

30participantlIIininenhiIhoftIcialI mor civil Mrvantl from Bulgaria CleChollovalda Romania Hungary Polad and Yuplavia involved in deftDing and implementing DlW hoashyinltnteaiM in the EuternEuropean COUDtne TopiCl to be dillCUlMClare bull Mjuangthedirectroleortheltateto achieve a marbt-oriented houmn 1JStiem(Wrn European operieDC8 privatization techDiquet rental techshyniquel manapment of rental 8tock redeaiping hoUling ubRdi) bull Creating an enabling environment for alUltainable houinl8Ctor (devel oping ftnancial iDltrumeDti and intershyJIIIeCtiarieI vi mobilization and aifordability _ue enhancingthe role ofJocal 8Qvernmentl in hOUling facili- tating the emerpDC8 of developen rental ltack managen builderl) bull Sequencing refonDI the inteJllCtion of houting Itrategy componentl and IOdaJ coati of reform

The Baltic Gateway to the 8oeamp UalOllf May 10-13 1991 Middlebury VT

Seminar will ctiacuA the Balticlevolvshyin role u a bridge between the Soviet Union and itl foreian inWiton and trading partnen Among the 40 (IUeIU will be the prime miDilten of Etonia and lAtvia the pneident of the GeorshygianRepublic and the vice plMicientof

the Ruuian Republic ~ thorp lWluoetr Dimiddot0 00110= IIItitut 14 BillcIwt AotIaw Middlebury VT OIS1IS3 TeL (BO) 381J9619

TIae TraufonudOll ofSoclalW Bcoaom JUDe 26-28 mel Germany

0rpniIecl by the mel Inltitute or WorIdEcooomica PoeuIingonpolicy Itntegiee for tranaition in particushylar the DeCIIIIarychanaeI in inltitumiddot tional infrutructure to wa to privati_ firmI and reatructure economiel timingand l8quencingof privatiutionimacroeconomic ltammiddot liutiOD microeconomic deregulamiddot

tioll and edemal liberalization Participantl will diIcuu the 8JClI)

nomic interration of Germany and the policy optioDl for the individual But European COuntril

TIae CluaDlbsI structure of IIIshymiddotooaae IUICl Social PoUey mEutshy EUIOpeI A Comparatln FoshyaufarLISCLUUlDboUlIDcome 8tady) July 21-23 Walfemnge Iuumshybourg

Four-day international confereDCle COIPODlOnci by the Ford Foundashytion National btitute on Aging and IJS The Luxembourg Income Study baa a unique role in comparshying the economic ltatUI or hoUle- holda in Butern and Wtern Eushyrope it baa done for hOUMhold income elata-Cor at leat 16 Wtern European countri and four Eatshyern European on The conference iI for Eutern European ltatiltical ofBciali and reeeanhen Wtem open and World Bank ltatr will deal with illuea luch u the criteria forcomparlnglOcial polici (children and family benefitl peuionl 1mshy

employmentiDiurance anti-poverty lDUIurea) and hOUMhold welfare in economiin trauition One ion will fOCWlon acomparillon of diatrishybution of ineome in the But and Wt UIin uilting IJS elatuela

Vokme2~2 15 Febuary 1991

TnnrttIon The WOI1d BonkCECSE

Conference Dloty

ForibCltMDnl CoIafenD_

Tnuuddon to a MarJretBco ba the EmerPlII DeJDocrad_ of Eutena EUIOpe March 24-27 Prague Czecboelovamiddot )da

CoBpODlOredbythebtituteofPolicy Reform aPR) and the Project on Inmiddot ltitutional Reform and the Informal Sector (IRIS) at the Untvnity of Maryland Both IPR and IRIS aN

funded by USAID Topica property rilhtl ed the tranaition inltitumiddot tiODl for a competitive private Memiddot

tor demonopolization and foreign trade policiel macroeconomic balshyance and financial clblcipline the privatiution PIC)(aI and the Ipeed andll8qUeDCingoftranlritionFInance miDilter Vadav maUil will addreu the conference Participanu include lAwrence Summen or the World shyBankandformer World BankoftkJall Stanley Pilcher and Anne Jtruepr u weD u hip-level IOWrnDIInlt ofshyficiall from the US andEurope and leading repreMDtatiWi of the Us acaclemic community

PubUc veWI Private Entershyprie April +-6 1991 Liep Belgium

International conference of the CIRIEC (Centre International de Recherch1 et dInformation lur lEconomie Pubtiqwa Socia1e et Coshyopentive)UnivenityofLiegeThree working group will dilcull privatization iIUM performance meuWM and comparilODI and inshycmtivellCbemea andmixed marketl nepectively

Almual World Bank CoIafereaoe 011 Development poundCOllom April25-261991 Wuhington DC

Organized by the World BanklPRE Topa wiD inciude the tranaformashytion PIC)(aI in the lOCialiit 8COnGshymibull Jeffrey Sacha (Harvard Unimiddot venity)Jan VanoUl(PlanEcon)and Ancien Allund (Stockholm Scbool of

Economica)have__invitedtoptWent papers Other tDpia IIIilitarJupendishytuzM and~ of shyernance in dneIopsMDtadurbaniashytiOD Open tontdoftheBankGroup and the IMP Varioua IICholan reshyI8alChen and po1iqmabn will parshyticipate

BoPoRefbaEuampena B1IIOpe May 6-9 Prape C-=boIlovakia

Hiahmiddotlevel holllina policy MIllin orshyganized by the Economic Development btitut and the EMENA TechDical DepartmentortheWortelBank anel the Faculty or lAw Prague UDivenity coshy8pODIIOnd by the French Caiue Depamptlet CoDlignatioM Paria AboUt

30participantlIIininenhiIhoftIcialI mor civil Mrvantl from Bulgaria CleChollovalda Romania Hungary Polad and Yuplavia involved in deftDing and implementing DlW hoashyinltnteaiM in the EuternEuropean COUDtne TopiCl to be dillCUlMClare bull Mjuangthedirectroleortheltateto achieve a marbt-oriented houmn 1JStiem(Wrn European operieDC8 privatization techDiquet rental techshyniquel manapment of rental 8tock redeaiping hoUling ubRdi) bull Creating an enabling environment for alUltainable houinl8Ctor (devel oping ftnancial iDltrumeDti and intershyJIIIeCtiarieI vi mobilization and aifordability _ue enhancingthe role ofJocal 8Qvernmentl in hOUling facili- tating the emerpDC8 of developen rental ltack managen builderl) bull Sequencing refonDI the inteJllCtion of houting Itrategy componentl and IOdaJ coati of reform

The Baltic Gateway to the 8oeamp UalOllf May 10-13 1991 Middlebury VT

Seminar will ctiacuA the Balticlevolvshyin role u a bridge between the Soviet Union and itl foreian inWiton and trading partnen Among the 40 (IUeIU will be the prime miDilten of Etonia and lAtvia the pneident of the GeorshygianRepublic and the vice plMicientof

the Ruuian Republic ~ thorp lWluoetr Dimiddot0 00110= IIItitut 14 BillcIwt AotIaw Middlebury VT OIS1IS3 TeL (BO) 381J9619

TIae TraufonudOll ofSoclalW Bcoaom JUDe 26-28 mel Germany

0rpniIecl by the mel Inltitute or WorIdEcooomica PoeuIingonpolicy Itntegiee for tranaition in particushylar the DeCIIIIarychanaeI in inltitumiddot tional infrutructure to wa to privati_ firmI and reatructure economiel timingand l8quencingof privatiutionimacroeconomic ltammiddot liutiOD microeconomic deregulamiddot

tioll and edemal liberalization Participantl will diIcuu the 8JClI)

nomic interration of Germany and the policy optioDl for the individual But European COuntril

TIae CluaDlbsI structure of IIIshymiddotooaae IUICl Social PoUey mEutshy EUIOpeI A Comparatln FoshyaufarLISCLUUlDboUlIDcome 8tady) July 21-23 Walfemnge Iuumshybourg

Four-day international confereDCle COIPODlOnci by the Ford Foundashytion National btitute on Aging and IJS The Luxembourg Income Study baa a unique role in comparshying the economic ltatUI or hoUle- holda in Butern and Wtern Eushyrope it baa done for hOUMhold income elata-Cor at leat 16 Wtern European countri and four Eatshyern European on The conference iI for Eutern European ltatiltical ofBciali and reeeanhen Wtem open and World Bank ltatr will deal with illuea luch u the criteria forcomparlnglOcial polici (children and family benefitl peuionl 1mshy

employmentiDiurance anti-poverty lDUIurea) and hOUMhold welfare in economiin trauition One ion will fOCWlon acomparillon of diatrishybution of ineome in the But and Wt UIin uilting IJS elatuela

Vokme2~2 15 Febuary 1991

Tronsfflorl The WOI1d SonkCECSE

BIBLIOGRAPHY OF SELECTED ARTICLES bull

(Post) SociaJiat Economies

BradaJoeef C Indicative plaDDne in lIOCialUIlMOOOmi_ doeithave a role JoW7t41 of Compartltiw Ecoshy1IOmiu (Us) 145saool December 1990

Broad Robin Cavanagh John and Bello Walden Deveampopmni The Market is Not Enough FOIfign Policy (US) 144-163 Winter 1990

I Ellerman David P Report on bull 110shy

I cialiat reform tour Poland BUDshygary Soviet Union and Yqolashyvia ampanomic and lndtrial De mccracy All 1ntel1l4tw1I41 JOUlfUll (UK) 11205-15 May 1990

Holman Robert and Sevcik Mil08lav and Schwartz Jiri Traullfol1lUltion of a poi-coDlDlunist ecouomy C~hoampov~e~pleC~um bio JoUlfUll of World Buaina (Us) 255-7 Winter 1990

Mizsei Kalman Shock or therapy PolandYucoviaBuupryNew Hungarion QU41Urly(Hunpry) 3173- 78 Autumn 1990

RoMfielde Steven and Mins D Quinn Tr-ampuition hock caa t Euieet there from here Cauf0mi4 Manshyagement RellieW (US) 329-21 Sumshymer 1990

USSR

Alexeev Michael Dilftribution of houainC ubaidiM in the USSR

i with 80me SovietBunerin comparillODLCompartltiwEctgt1lomU Studia (US) 32138-57 Fall 1990

Anikin A Financial CriB8 in the USSR problema and implicationa for the West JOUIfUIl of ampgional Policy (US) 10167-74 AprilJune 1990

Bond Andrew R and Belkindaa Misha V and Treyvish AL Economic devl shyopment treuda in the USSB 1970shy1888 pari I production and produoshytivity Souie Geography (Us) 31 706shy31 December 1990

Flaherty Patrick The State auG thAt Dominnt CI in the Sovit Petroik Reuarch in Political Economy (US) 12253-294

Hertzfeld Jeffrey M Joint Vtar SaviDc tSovi_froa Prelltroikamp Haruard BiMbullbull Reuiew (US) 80 JanuaryFebruary 1991

Steinberg Dimitry Trend in Soviet Dailitary expenditure Soviet Studia (UK) 42 No 4675middot99 1990

Ticktin HiUel H n Nature 01 th DimltegrationoltheStaJiDUIt SyIIIIeaa 01 the USSR 1ltMarch in the Political Economy (US) 12209middot252

Eaten Europe

Ben-Ner Avner and Neuberger Egon Feuibility 01 plauued market tea the Yugolav viaible hand and otiated plauaine J0W7t41ofCom poratiw EconomiCI (Us) 14768-90 Deshycember 1990

Caabe Lazlo Crinc up lor th eooshynolDic future NftIJ H Ulll(ariGn Quormiddot teny (Hunpry) 3166-72 Autumn 1990

Dyson Esther Micro Cpitalim Eatera Europe Computer Future Harvard BiMbullbull Reuiew (US) 80 JanuaryFebruary 1991

Ealdera Europe in tnuaition Finanshycial Timbullbull Survey Fi1l4nciol Timu (UK) p 11-16 February 4 1991

Ellerman David P Perestroika with worker oWDhip An1l4U of Puhlic andCo-OperatiwEconomy (belgium) 61 [519]-535 OctoberlOecember 1990

Marendic Bozo RelollllYipolicy 01 th deYelopmni 01 Yugoelavia ampview of bte11ltJtiolltJi Affairt (Yumiddot goslavia) 411-4 November 20 1990

Slupinski Zbigniew M Sumi1aar7 01 jointvenAire lecialationin Poland 1Iltenlatio1t4iBuainadawyerI8401 41990

I Swaan Wim Price recuJation in I B1IJlCIUYlM8087 bull behaviouralmiddot iDIItitutioual rplauation CGmshybrU4le JOUIftIJl of Economu (UK) 14247-65 September 1990

Traullfol1lUltion Proce in Ea era Europe Economic and lndmiddot trial Democracy An Inter1l4tio1l41 JoUntal(UK) 11167middot215 May 1990

Werner Malcolm Tacoalav 11shymnt and indWlCrial relashytiona in traufttiunlndtriGl Rea tioM Jountol (US) 21 209-20 Aumiddot tumn 1990

Africa

Clapham Cbrltopher Th political MOnomy oloomet in thAt Bora 01 Africa SlIJuival (US) 32403-19 SeptemberOctober 1990

Mosambique a Finaucial Tim Survy FinarsciGl7inta (UK) plmiddot IV January IS 1991

A8ia

Gillepie John Foreip invlft mnu in sa Viebuua reviaited IlltenlatiollGIBuainadawyer18416shy241990

MingWu Chine MODOmy at the crourodCommunit Ecoraomie (UK) 2 No 3 2Sn-~13 1990

Sandera Alan MOD801ia JMtrucshyturiDc Far amputcrn Economic ampshyview (Hong Kong) IS120-23January 1991

TRANSITION (formeriy Soci4ltt EcoN)ua ill 1rcuLf~) ita lUlu pubUcation for intemal u of the World Bank SociaU EcollOaUM Unit (CECSE) in tM Bank Policy Reeeareh and Enemal Relationa ctlmpla The findiDgl VIew aDd interplllltaUou publiabed ill the artie

are thOM of the authon aDd lhouid not be ttributed to tM World BIlDlt or ita aifillaied orpnilationa Nor do aD of the illtetiona or ooncluiona IIeOISMrily repletlllnt official poUcy of the World BIlDlt or of ita Executive DilllCton or the ctlUnUiM they repllllleld Richar4 Hinchler it the editor aDd production maoager Deaigo aDd detlktoppilll are by S Gerard in the PRE Dl8MIIliIIaioa Uo1L To OD the dillUibution U nd your name aDd adclreu to Richard Hinchler Room N~27TheWorld Bank 1818 H Stree NW W uhizlctoo DC lI04a3 or call (202) 73-6982 Information on upoomiOC ctlnfereDCIIII on eociaU ecDlIOmies indication of IUbjeeta of lI]ialiDtereIIamp ill our rean letten to the editor aDd any otMr reader oontributiona are appreciated

Februoryl991 16 V0Un8 2 tUnber 2

I