Votn ,lumo 7 e.nw r 19 TransitionEconomicsDivision * PolicyResearchDepartient * TheWorldBank Market Liberalization in Ukraine To Regain a Lost Pillar of Economic Reform By Daniel Kaufmann n Ukraine the three key pillars of Stop-Go Cycles: Keeps Going and of monetary restraint, which was con- i a successful economic reform Going... ducted by the national bank, also be- * program-macroeconomic stabi- came more influertial as abhorrence of lization,privatization, andmarketliber- Ukraine, like the rest of the former So- hyperinflation became widespread, and alization-hadbeenlargelyignored.Dur- viet Union (FSU), had not experienced the importance of credit restraint be- irg 1993 the inflation ratewasthehighest serious inflation for many decades. The came better understood. of any country not at war. Less than 10 high inflation rate, rampant since 1992 percent of total assets have been offi- until recently, caught the public unpre- By contrast, the need forbudgetary (fis- cially privatized. Yet, liberalization has pared. Withtheirinterventionistrecipes, cal) restructuring and restraint was not been ignored and opposed the most- advocates for administrative controls equally emphasized and had no strong ithas becomethelostpillaroftransition. gained strength. Equally, the supporters constituency. Since Ukraine regained The reasons for this neglect include the following:,,,,. , What's Inside... WoildBanklinkstoPostsocialistEcono- -Public misunderstanding of economic nmies-ExcerptsfromtheAnnualReport issues. Recent polls indicatethat almost MeasuringAdministrative Control InFY94lendingsurgedtoFSU,butfellto (page 2) CentralandEasternEurope;anddhsburse- three-quarters of the population favor ment is still is at low level. (page 12) privatization; but atthe sametimethree- Ukraine's Reformers at the Crossroad Quotation ofthe Month: "Privatization quarters also oppose price liberaliza- (page 3) policy in Poland will remain a political tion-in the belief that it is largely re- battleground"--a privatization expert's sponsible for the inflationary spiral. Promoting Reforms in the World Bank warningintheFinancial 7)mes (page 13) CircumventBureaucratic Centralism To encourage government decentraliza-. Letters to the Editor-Opinions from -Persistence of controls over economic tion in the recipient countries, IDA fund, Padma Desai, William Easterly, Stanley activities (including the issuance of li- IFC quotas, and special units would be Fischer, andLucja Swiatkowski Cannon censes and permits) where vested in- able to assist local governments tangibly. (page 15) terests and rent seeking opportunity are (page 7) Milestones of Transition (page 17) at stake. RejuvenatePensionSystem inTransition WorldBank/D1FfAgenda(page21) *Inco.nsistencybetween lax fiscal policy Economies. AnamnbitiousnewWorldBank Conference Diary(page24) -Incnsisenc beteenlax iscl poicy study suggests pension systems that are ,and (since late 1993) restrictive mon- acceptable to the old and sustainable and NewBooks and Working Papers etary policy. growth-enhancingfortheyoung. (page 8) (page26) BibliographyofSelectedArticles (page 3 1) The Wordd BanklPRDTE Measuring Administrative Controls in Ukraine Inorderto"technocratize"thepoliticized only 30 percent of total output is in goods exchangeauction.Theadministrativecon- reintroduction of administrative controls not subjectto administrativeprice controls. trolindex inmid-1992droppedto35,asub- inUkraine, asimple, quantifiableindex of holesale price control index (figure 6) is stantial improvement,butstillveryhighby administrative controls was constructed the share of wholesale prices subject to ad- any market economy standards, and even bymeasuringthe degree ofadministrative rinistrative controls. by standards of economies in transition. intervention and market distortion in the foreign exchange, trade, and pricing re- Anoveralladminitrativecontrolindex(fig- Inthesummerofl993 Ukraine'snewgov- gimes. Each regime, in turn, includes two ure 7, see next page) is a simple average of ernmentbegantoreintroduce administra- indexes: the six indexes. (Some variables have not tive controls: the currency exchange auc- been considered, such as trade tariffs and tion was abolished, and the exchange rate *Foreign exchange regimeindexes income and profit taxes, which are essential was fixed atan artificially low level. Con- Exchange rate distortion index (figure 1) policytools in marketeconomies, similarly trolling the exchange rate forces controls is the percentage deviation of the market toantimonopoly, publicutility, andbankdng on the allocation offoreign exchange and exchange rate from the "effective" official regulations.)The index wouldbe zeroinan imports. Price controls have become per- exchange rate (where "effective"averages economy free of direct administrative con- vasive, which in turn has pressured thetwodifferentofficialrates,weightedby trols,whiletheindexwouldbe 100inacen- policymakers to control exports; as a re- the surrender requirement share). Anex- trally planned economy, as the Soviet sult, manyexportlicenseshavebeen rein- change rate distortion index of 0 means economy was in the 1970s. In Ukraine the stated. Bymid-1994 the degreeofadmin- that the official exchange rate is the same index ofadministrative controls reachedal- istrative control over the economy was as the market rate. An index of 66 means most 80 in early 1992. The advent ofanew virtually the same as it hadbeen immedi- that the effective rate an exporter gets for govermnent in October 1992brought about atelyfollowingIndependence.Theoverall one dollar of exports is only one-third the some liberalization in the economy: partial index surgedtoalmost 75, meaningthatthe marketrate(a66percenteffective "tax"on liberalizationofprices,alimitedrelaxationof official economywasonlyminimally"'ib- foreignexchange earnings). export restrictions,introduction ofaforeign eralized." Foreign exchange allocahon distortion index (figure 2) measures the share offor- . . . . t eign exchange allocated according to Si Indices of Adminstrative Controls nonmarket administrative mechanisms, Fio- I F)- 3 and not sold on the official foreign ex- change auction (the closest thingto "mar- 10"STORTI iI iX DltTONTOiON INDEX ket-based" official allocation offoreign ex- :100 change in Ukraine). A foreign exchange 300 so allocationdistortionindexof90meansithat t0 only lOpercentofofficial foreign exchange revenues go through the auction mecha- _ / nism,whiletherestisatlocatedaccording so to administrative discretion (at a rate sig- 40 40 40 nificantlybelowamarket-determinedrate). so \ /o .20 0 20 *Traderegimeindexes 20 M. i * Export restriction index (figure 3) is the O_ _0__._ 0_._- shareofoverallexportsadministeredby a a 2, ,x a 3 r a S 3 a a 3 a a a a a quotas and licenses. An index of 80means I thatonly 20 percent ofexports are free from quotas or licenses. 4 R I WO P Domestic trade administrative index (fig- [100 o ~no Te ITAL PFUCE CONTROLS WIOL SALE PRICE ure 4) is the share of state orders and con- CTION INDEX O C10ROLS tractsintotaloutput. Theseareordersthat aO so enterprises are supposed to fill by provid- l\01 ing specific production volumes to the :1 stateortootherpredeterminedenterprises. to 7 I Anindexof55meansthatonly45percent s _ go of outputisnotsubjecttostateadministra- 40 s0 so tive decisions regardingprocurement and 30 l0o 40 internaldistribution. 0 't 20 T 20t /0 *PricingIregimeindex t0 | 0 10 Retailprice control index (figure 5) is the o o 0 . 0 - shareofretailpricessubjecttoadministra- a a a 'a a a a, a a 8 a 3 a a ' a I tive controls. An index of 70 means that _ _ . U__ 2 September 1994 Transition Ukraine: Reformers at a Crossroads Foreign assistance President Kuchma and Chairman Ukraine is $5 billion in debt to Russia; 20 Moroz percent of this is for Russian deliveries of Ukraine will need nearly US$1 billion in gastoUkrainefor 1994. Ukraine'sfailureto foreign assistance this year to implement Oleksandr Moroz, chairman of Ukraine's meet this obligation has ledto supplycuts radicaleconomicreforms,accordingtose- Supreme Council (Parliament)andleaderof from Russia, Ukraine is also in debt to niorUkrainianofficials.Ukrainianofficials the SocialistParty, saidon September 17 that Turkmenistanfor energyimports. reachedapreliminaryagreementwiththe Ukraine had accepted "on the whole" the LMF on an economic reform program that IMF conditions attached to an initial $720 Radiant Future with Nuclear they say is the first step in a comprehen- millionloan. Moroz's supportforany reform Energy? sive package of reforms to be announced packageagreedwiththeIMFwillbe critical soon. Thepreliminaryloanagreement,if to President Leonid Kuchma's ability to Thenuclearpowersectorproduced38 per- approved by the Ukrainian Cabinet and implement it. In lateJulytheUkrainianPar- centofUkraine's total electricity output in the IMF Board, would mean that a $360 liamentvotedtohaltallprivatizationuntil it the first half of 1994, despite the fact that million SystenmicTransformationFacility reconvenes to decide which state property it faced severe problems. Thermal power (STF) loan would be available before the toprivatize anddhowtoprivatize it. The gov- stations have significantly reduced elec- end of the year, and could be followed by enmment has to provide a list of "nationally tricityoutputbecause ofashortageoffuel. asecondtrancheofaboutthel amefsizedin important" enterprises excluded from Giventhisgrowingdependenceonnuclear 1995. Furtherinore,a$400millionWorld privatization,includingthoseinthe "fuels- power, Kiev insists that the closure of Bankrehabilitationloanisunderprepara- energycomplex, transport, and communi- Chernobyl-demanded by the West- tion. Disbursements could start before cations. would lead to a severe energy crisis this year-end if privatization and agricultural winter. Ukrainianauthorities andthe inter- reformsmoveforward. Moroz earlier argued that the state must nationalcommunityremainfar apart onthe assume control of several key aspects ofthe issue. ThereformprogramcommitsUkrainetoa economy, includingthe amount ofhard cur- seriesofmeasurestostabilizeprices, liber- rencyin circulation,theoperationsofenter- MikhailUmanets, theformerdirectorofthe alize theeconomy, speedupprivatization, prises vital tothe state and, above all, exter- Chemnobyl plant and current chairman of enact structural reforms, and tighten fiscal nal trade. Moroz anticipates a three-stage the State Committee for Atomic Energy, andcreditpolicies. Ukraine'sgovernment program of recovery, each of which would callstheG-7offerof$200millioninimme- has also pledged to strengthen its social require close government supervision and diateassistancetohelp shutthe Chernobyl safety net so as to protect its most vulner- state control of the "commanding heights" powerplant insufficient. He estimates the able citizens. IMF Managing Director of the economy, well into the next century. costs involved as $1.4 billion to close the Michael Camdessus has cautioned that The plan envisages a halt in industrial out- plant andan additional $1 billion to com- the success of the program will depend putdeclineby 1995-96, animprovementin plete the three reactors now under con- bothonitsvigilantimplementationandon livingstandardsin 1997-98 and,from 1998 struction. substantial financial assistance from the onward,alivingstandardcomparabletothat international community. (nternationalfi- in industrially developed countries. Without economic recovery, there is little nancial institutions areworkingon aplan prospect that Ukraine's longer-term en- tosecureUkrainecreditsofupto$5billion The Economy ergy program-which envisages 50 per- over two years to support the country's centself-sufficiencyby2OlO-willbeful- reform.) Meanwhile, economic decline continues. filled. Current energy output covers little Sectors such as oil processing, chemicals, more than 10 percent of the domestic re- Figure 7 and construction materials have suffered quirement. Ninety percent ofthe planned Overall Administrative Control index the most dramatic declines. The defense increased output would be in coal and complex(includingmachinebuilding),which nuclear-generated power, although out- accounts for a quarter of Ukraine's indus- put in both is currently falling-coal by trial output and "40 percent ofthe total sci- 13.4percentin 1993 over 1992, andelectric- entificandtechnicalpotential"(PrimeMin- ity by 9 percent. Still, given a projected isterVitaliiMasol),experienceda52percent decline in energy consumption of40 to 50 year-on-year fall in production. Fuel and percentby 1995 andUkraine's position as energy production continues to decline. one ofthe largest per capita producers of energyintheworld,officialsinUkraineare -Ukraine imports more than 60 percentofits bullishaboutfuturenuclearenergyexports. gasrequirementfromRussia,andthebulkof Ukraine's expenditure outflow is debt re- (Based on reports from the Oxford payment to Russia for oil and gas. Supply Analyticaresearchgroup, Oxford, UK, agreementsbetweenthetwocountrieshave and various articlesfrom the Financial repeatedlybrokendownasUTkrainehasbeen Times and New YorkTimes) unable to pay Russian prices that have risen '~ o~ onte 4steadilytowardinternational norms. Volume 5, Number 7 3 The World BanklPRDTE its independence in 1991, the budget has controls argue for a softer monetary cialandunofficialeconomiesinUkraine. continued to serve as the state's princi- policy, and thus for a monetary "go. " *The official economy has declined pal instrumentfor influencing economic The dissatisfaction of the public and dramatically since late 1991. Annual activity. Budgeted expenditures have enterprise sector, hurt by the payment GNP dropped by about 15 to 17 percent amounted on average to 70 percent of arrears (resulting from the inconsistent in both 1992 and 1993, and the free-fall GDP. Thus, inflationarypressures arose fiscal and monetarypolicy), encourages has cortinued, with GNP plummeting largely from financing the budget (and the advocates of administrativecontrols by 26 percent in the first half of 1994 quasi-budget) deficit. Public sectordefi- to reimpose "stable" administrativecon- comparedwiththe sameperiodlastyear. cit financing accounted for about 70 trols over the economy with the claim Real wages for the first quarter of 1994 percent of all credit emissions in late thattheywill beableto deal administra- shrunk by half compared with January 1992, andits shareincreasedto about 85 tively with inflation and output decline. 1992. Ukrainians on average earn less to 95 percent in late 1993 and early For many, this seems a lesser evil than than $15 a month. 1994. (By contrast, in Russia the cen- the "stop-and-go" monetary approach. *Hard cash currency exports, as reg- tral bank's straightcreditemissions have The administrative control power base istered by official data, declinedfrom made up 40 to 60 percent of all emis- is strengthened, the pure monetarists about $4.2 billion in 1992 to $2.8 sions, and the share of deficit financing are weakened-and the "fiscal-first" billion in 1993. At the same time, im- in credit emissions came to just 50 per- constituency remains as absent as ever. port requirements have increased as a cent on average.) (The evolution of administrative con- resultofthesharplyhigherenergyprices trols in Ukraine is tracedthrough a spe- charged by Russia and Turkmenistan. As monetary restraint has taken place ciallyconstructedindex,thatisdescribed By mid-1993 Ukraine concluded an without accompanying fiscal restruc- in detail on page 2.) agreement with Russia whereby $2.2 turing, liberalization lost out. Years after billion in arrears were converted into independence,thebudgetisstillamecha- Bleak Surface... long-term debt. During 1993 and 1994 nistic planming document driven by ac- substantial further arrears, exceeding countingandbylegalprinciplesthatdate The prevalence of administrative con- $2billion, haveaccumulated. Atpresent, from the Soviet era. Conservatives un- trols has had major effects on the offi- Ukraine consumes imported energy at a derstand that fiscal restructuring and restraint necessitates liberalization of trade and prices which they oppose. In fact, further administrative controls be- tween mid-1993 and early 1994, Legal Rollercoaster emerged, for several reasons: -Monetary stringency without the full support of an appropriate budgetary framework is not sustainable beyond ". a few months. Wage, pension, and enterprise arrears get out of hand. Sub- sidy pressures for key sectors such as coal andagriculturebuildup, andatleast some of the sectors are eventually paid. Thus, followingapure monetary "stop," which may be extended by a few months through the tightening of government controls,thereis an inevitable "go." (The late summer of 1994 saw such an ines- capable monetary "go," which is bound to translate into renewed inflationary pressures in October and Novernber of 1994. *Every time a monetary "stop" starts to bite, supporters of administrative From the Budapest magazine Hungarian Economy 4 September 1994 Transition cost of about $13 million a day, yet it exchange rate of the karbovanec for ate the official economy shrinks-often paysforlessthanone-halfofit. Official exporters was virtually the same as in with increasing speed. This means that export receipts cover only a fraction of the open market, a monthly average of beyond a certain point, tightening cen- the present energy import bill. (Domes- about $100 million came to auction, in tral administrative controls and inter- tic industry and agriculture are charged sharp contrast with the administrative ventions over the official economy will only a fraction ofworld prices-ranging control period of dual exchange rates, result in reduced administrative control between 25 percent for electricity and whenthemonthlyforeign exchange sup- of the overall economy gas to 33 percent for coal-and house- ply to the heavily taxed auctions was holds are charged only a fraction of lessthan $15 million. Much ofthe differ- (Since so many enterprises leave the what the industries pay.) ence was absorbed by the underground official economy as administrative con- *About 45 million tons of grain were economy. trol tightens, the relationship between produced during the 1993 season. administrative control over the official Fourteen million tons of the grain have A January 1993 survey of more than economy and management control over been procured through state orders and 200 officially registered private sector the overall economy becomes a variant about 4 million tons have been sold on firms also suggests that about half of of the inverted U-shape Laffer curve.) the market. The remaining 25 million their activities were in the unofficial tons (about 60 percent) have been re- economy. Furthermore, a separate and Significantmarketliberalizationhasthus tained at the farms for seeds and animal nonrandom survey of about 20 busi- taken place, in practice, as entrepre- feed. With low yields and high waste, nesses indicated that in 1992 private neurs haveleftthe official economy, the virtually no grain,exports were regis- businesses were conducting 25 percent sphere of government authority. The tered. Individuals last year held only 11 of their business outside of the official unofficial economy has become a large, percent of all agricultural land, yet they economy. By March 1994 that share and liberalized segment ofthe economy produced 43 percent of all livestock and had grown to 75 percent. For state- today. The emergence and growth of 37 percent of crops-in other words, owned businesses the estimated share this unofficial economy has both posi- they were almost four times more pro- of unofficial activities in 1992 was less tive and negative aspects. On the posi- ductive than state agriculture. Animal than 10 percent, yet by March 1994 it tiveside,ithaslargelykepttheeconomy husbandryandmeatproductiondeclined had increased to more than one-third. afloat, as incentives to efficient produc- by 23 percent in the first half of 1994. tion in the official economy have de- The total grain harvest in 1994 is likely Clearly, many state and private busi- clined. It has also debunked the myth to be about 34 million tons, the smallest nesses have adapted to the evolving that Ukrainians lack entrepreneurship. in twenty years and a sharp drop from circumstances by leaving the official Onthe contrary, in their entrepreneurial last year. economy altogether or at least for a activities they have demonstrated resil- significant portion of their activities. ience, creativity, andthe abilityto adjust Bright Underground? Businesses by now have a clear notion to changing economic and financial cir- To estimatethesizeofUlkraine's shadow of the "private payments" required to cumstances and policies. This bodes economy, it is telling to compare get pernits; to bypass reulations, offi- well for the future of Ukraine, if the Ukraine's officially reported hard cur- cial payments, and foreign exchange propereconomicpoliciesareputinplace. rency export figures (estimated at about surrender requirements; to gain advan- $2.8 billion in 1993) withtrade partner tages in acquiring subsidized foreign On the negative side, the shadow data on Ukraine's imports gathered at exchange; and to push through every economy undermines the state's man- the pon Ukrainesation (about $6.2 bil- bottleneck in the way of unofficial ex- agement of the economy. The legiti- lion in 1993). Evenaallowingforthe pos- porting.The"services" renderedtoavoid macy ofthe overall legal and regulatory sibility of methodological underestima- the official economy do not come system is being challenged or ignored, tion of official export statistics, the cheaply, often exceeding 25 percent of and the tax and foreign exchange base, remaininggap couldwell implythat over tumover. crucial for economic management, is half ofall exports ($200millionmonthlyj rapidly dwindling. Also, the informal are divelted to the unofficial economy Central, state-administered controls, economy, despite its rapid growth, is a even if intended for all agents in the survival economy where trading, ser- Fluctuationoftheforeignexdianlgesup- economy, actually apply only to those vices, and short-term concems domi- plyuto the official foreign exchange auc- agents operatingintheofficial economy. nate longer-term activities. Large-scale tions is also telling: when the official And as admniistrative controls prolifer- investments and sophisticated produc- Volume 5, Number 7 5 The World Bank/PRDTE tion-crucial for Ukraine-are virtu- industry. Production increases would agentsoperatingintheshadoweconomy ally absent. Many of the assets being spur aggregate demand and boost do- should be induced to surface "voluntar- used in the unofficial sector are in effect mestic consumption. Liberalization of ily" in the official economy. Their con- derived from the spontaneous prices and trade would also translate fidence and trust have to be restored. decapitalization of the state sector. It is into dynamic growth bythe private sec- Establishing an appropriate market- far less efficient for a large segment of tor as well as by entrepreneurial seg- friendly environment for the official theeconomytooperateunofficiallythan ments of the state sector. economyisthusthefirstpriority. Herein it would be for that segment to operate lies the Ukrainian paradox: To regain within the first economy in a liberalized *Privatization. Market liberalization (in- control of overall economic manage- market environment. And society pays cluding price, trade, and foreign ex- ment, administrative controls on the of- the price in wasted effort and nonpro- change liberalization) is important for ficial economy must be loosened. ductive payments. privatization to succeed. A supportive framework of market incentives cre- Such paradox appears to have been Finding the Lost Pillar atesdemandforprivatizedenterprises- grasped by the new administration that and for the normal operation of these has come to power during the summer Market liberalization could become a businesses. of 1994. The economic reform program major pillar of structural reform in being drafted includes macroeconomic Ukraine, providing impetus for a tum- *Investment. Ukraine has seen little stabilization (through appropriate bud- around in the economy and for future foreign investment so far. Its attractions getaryandmonitarypolicies), exchange growth. And contrary to prevailing (location, a skilled, educated laborforce, rate unification, significantliberalization myths, liberalization could improve the high-technology niches, and so on) will of prices and trade, and rapid social conditions of the population-if continue to be ignored unless privatization. done appropriately. Market liberaliza- macroeconomic stability and liberalized tion would also facilitate: markets (includingforforeign exchange) The author is Head of the World are in place. A credible program of Bank's resident office in Kiev, *Macroeconomic stabilization. Nar- stabilization and market liberalization Ukraine. row attempts to impose macroeconomnic would bring back much of the foreign discipline without accompanying liber- currency that left the country as a result This article is an updated version of alizationmeasureswouldamounttotry- of capital flight. the author ' paper presented at the ing to stabilize a quickly disappearing Economic Policy Journal-sponsored (official) economy. The tax base has The Ukrainian experience demonstrates conference "Societies in Transition: already been eroded significantly. Large that attempts to control the unofficial Market Reform Experience for subsidies to the enterprise sector, par- economy through administrative and Ukraine," held in Kiev in May 1994. ticularly on account of low domestic legal measures will not work. Instead, prices for energy, are being barely fi- nanced by the rapidly shrinking official exporter base (the result of the artifi- cially low official exchange rate). Lib- _ = eralization of prices would alleviate the - pressure on direct subsidies still pro- 1 vided from the budget, such as those to services, while liberalization of state contracts would bring about budgetary savings. *Exports and production. Large ex- -- port gains could be expected from a unified, market-based exchange rate.- "Chief, give me 5 more vouchers. They taste great when used as roil- A rapid increase in exports would pro- ing papers for my cigarettes..." vide foreign exchange for imports, as well as an impetus to troubled domestic From the Russian daily lzvestia 6 September 1994 Transition How To Encourage Govermnente Decetitralization Interesting Ideas for Redirecting Lending T he Bretton Woods Commission, the Association's membership, a politi- Going Local a private U.S .-based multina- cal subdivision of any of the foregoing, T tional group of prominent busi- apublicorprivateentityintheterritories In developed countries, local govern- nesspeople, academics,andformergov- of a member or members, orto a public ments characteristically dominate or enment officials, recently advised the international or regional organization," have a large share in the delivery of World Bank Group to shift funds to the withorwithoutcentralgovernmentguar- manypublic goods and services such as Industrial Finance Corporation (IFC), antees; only the World Bank is con- local roads, primaryandsecondaryedu- its affiliate for private finance, and to strained to lend solely through central cation, police protection, law enforce- "expand [its] activities that deal directly governments. (The World Bank Group ment through courts, water and sanita- with the private sector..."(see Transi- includes the World Bank and three af- tion services, surfaceirrigation, andmany tion, July-August 1994, p. 3). The con- filiated organizations, the Intemational others. In less-developed countries, cen- ventional focus on public versus private Development Association [IDA], the tral governments (or state-level govern- sector lending may be too narrow to Industrial Finance Corporation [IFC], ments in larger countries) often claim address many ofthe obstacles to reform and the Multilateral Investment Guar- responsibilityforprovidingthesegoods anddevelopmentintheborrowingcoun- antee Agency.) and services, but perform poorly. tries. In many ofthesecountries, central government agencies still dominate the The Bank and IDA have increasingly Reforms that split off from central gov- formal economy and society. A more refrained from lending to governments emments the responsibility to produce open institutional framework therefore for activities appropriate for the private or to provide public goods and services wouldallowmorepeopleandmorenon- sector, such as manufacturing, banking, appropriate for other levels of govem- central govenument institutions to take and importing and distributing agricul- ment, and that assign those tasks to more initiative. Bypassing central gov- tural inputs. Over the past decade, IFC other levels of government, create new eminent agencies, and shifting authority financial assistancehasmultiplied,while channels for peopleto participateand to to markets and to subnational govern- Bank and IDA lending has stopped exercise judgment and initiative to buy ments, would link decisionmakers more growing. Clearly, scoperemains in many the publicgoods and services theywant. closely with incentives and could speed countries to reassign more tasks to free Fiscal autonomy for subnational gov- up change and economic growth. The markets and to cut bureaucratic ob- enmuents is a concept that is not exclu- Bank Group could accelerate this pro- stacles to private economic initiative. sivetorichdeveloped countries; China's cess by channeling more funds through But there are many examples of bu- reformers promote "eating out of sepa- non-central government institutions, in- reaucratic centralism coexisting with rate kitchens" and Russian cluding not only private companies but private ownership. Mounting economic decentralizers advocate "each pot sit- also multiple levels of subnational gov- crime in Russia and other transition ting on its own bottom" as down-to- effments. economies in Central and Eastem Eu- earth descriptions of fiscal autonomy rope inhabits the interface between pub- for local governments. Giving Bypass Operations lic and private sectors: favored busi- subnational governments autonomy to nesses make money as govemnment tax and spend maybe considered a form Articles of Agreement for two of the officials give special assistance or look oftrade liberalization, with central gov- three Bank Group lending institutions the other way. Such crimes of the new emnent agencies abandoning their mo- already allow loans to non-central gov- "kleptocracy" metamorphosed from the nopolies intheprovision ofpublic goods emmnent institutions: IFC's Articles of old nomenklatura and reflect a lack of and services, allowing markets for pub- Agreement allow loans directly to "pro- government accountability to cifizens. lic goods to emerge. ductive private enterprises" in member Institutions preserve too great a "dis- countries without central government tance" between citizens and officials, Some Suggestions guarantees; IDA's Articles of Agree- so that levers for accountability such as ment allow loans "to a member, the law,public opinion, and elections aretoo If the World Bank Group intends to govenmmentofaterritoryincludedwithin weak to restrain government antisocial encourage government decentralization behavior. Volume 5, Number 7 7 The Wolid Bank/PRDTE in borrowing countries, some modest limit support for BOO/BOT schemes IDA loans are to be collectible and if reforms may be accomplished within for electricity generation or retail distri- BOO/BOT contracts are to be sound. the current Articles of Agreement: bution to those negotiated with subnational governments such as city The World Bank Group's endorsement *IDA could establish a jund or quota and state-levelgovernments. This would offiscal decentralization would create a to assist subnational governments in encourage central government agen- tremendous opportunity to strengthen member countries in selling bonds on cies to devolve electricity regulation to subnational governments' tax pro- national or international bond mar- subnational governments; over time grams-and their legal and voting ar- kets, taking advantage of the fact that, these changes could be expectedto lead rangements. Capital markets can be of thethree Bank Group lending institu- to the emergence of a wholesale market expected to respond favorably to re- tions, the IDA alone is empowered for electric power.) forms that will make local governments through its Articles of Agreement to and associated utilities autonomous lend to subnational governments. *The World Bank and the IFC could from central governments and account- Through bond sales city governments set up separate units to deal with able to local taxpayers and voters. could raise funds for urban infrastruc- subnational government issues (in- ture, water districts could raise funds cluding taxing, spending, and regu- David Gisselquist for irrigation and drainage infrastruc- latory activities) and to support initia- ture, and state and local-level govern- tives to lend directly to subnational The author is an independent con- ments could raise funds for rural roads governments and to private utilities that sultant, former university professor, or other rural infrastructure. For sub- contract with subnational governments. and author of several books on inter- national government bond sales to be Those governments must have stronger national economics. successful, central govemments would tax bases and stronger management if have to relinquish control over taxing and spending policies to subnational govermments, and move away from ad hoc revenue-sharing schemes. -Although the IFC cannot lend to Foreign Direct Investment subnational governments, it can and does lend to private utilities, which f may be associated with central or f subnational governments. The cur- rent interest in BOO (build-own-oper- ate) and BOT (buJild-operate-transfer) schemes for electricity, gas, and other utilities and for infrastructure creates tremendous opportunities to promote lm efficiency through competition. But to the extent that the IFC accepts schemes thathave beennegotiated and contracted with central government agencies, those agencies' authority will expand and the Z opportunity to strengthen competition b and to weaken bureaucratic centralism will be lost. Al The IFC should consider establish- ing guidelines or quotas to direct BOO/BOT investments toward con- Let's try to bargain. His last offer was 2 bars of American chocolates. tracts with subnational govern- ments. (For example, the IFC could From the Budapest magazine The Hungarian Economy 8 September 1994 Transifion How to Rejuvenate a Greying Pension System in Transition Economies Suggestions of a New World Bank Study In Eastern Europe and the former redistributing real income, both across investment returns, recession, inflation, Soviet Union, which can no longer and within generations. and private market failures. The public afford the formal old age security *Occupational plans: privately man- pillar shouldberelatively small andbased programs they introduced long ago, lib- aged, partially funded plans with de- on pay-as-you-go. Eligibility could be eral earlyretirementprovisions andgen- fined benefits; offered by employers to limited to the poor, or could serve as a erous benefits have required high con- attract and retainworkers. Increasingly, universal minimum pension guarantee tribution rates, leading to widespread however, contributions are specified and to a mandatory saving pillar. As a third evasion. (On "Reforming Pensions in benefits depend on contributions plus option, it could take the form of a flat tdeTn rnsk±nEcm:ias," eTransi- investment returns. More than 40 per- benefit, applied universally or employ- tion, February-March 1994, p. 3.) The cent of workers are covered by occupa- ment-related. large informal sector reflects in part the tional schemes in Germany, Japan, the -A second-mandatory-pillar, fully efforts of workers and employers to Netherlands, Switzerland, the United fundedandprivatelymanaged, would escape wage taxes. The resulting labor Kingdom, and the United States-but link benefits actuarially to costs and market distortions reduce productivity, far fewer in developing countries. fulfiUl the income-smoothing or sav- pushing contribution rates and evasion *Personal saving and annuity plans: ing function for all income groups. still higher, even as limited long-term fullyfunded, defined contributionplans. Full funding should boost capital accu- saving and capital accumulation further Workers save when young to support mulation and financial market develop- dampen economicgrowth. Most ofthese themselves when they are old. Since ment. It could take two forms: personal countries have cut the cost of benefits benefits are not defined in advance, saving accounts or occupational plans. by allowing inflation to erode their real workers and retirees bear the invest- In either case, mandatory programs re- value. The challenge is to devise a new ment risk on their savings. Mandatory quire regulation. system and a transition path that is ac- saving plans are managed by govem- *Voluntary occupational or personal ceptabletotheold,whohavebeenledto ment (as in Malaysia, Singapore, and savingplans would be the thirdpillar, expect more, butthat is also sustainable several African countries) or by mul- providing additional protection for and growth-enhancing for the young. tipleprivatecompaniesonacompetitive people who want nore income and basis (Chile). insurance in their old age. Combining Arrangements A country's old age security program Step-by-Step Approach Three different financing and manage- should provide for all three functions of rial arrangements for old age security saving, redistribution, andinsurance, but Eastern European countries, rather than are most common. They are: with very different government roles relying on an ever more costly public *Public pay-as-you-go plans: the most for each. Countries should rely on mul- pillar to do it all, at high tax rates that common formal system, mandatory for tiple financing and managerial arrange- inhibit growth and bring low rates of covered workers in all countries. Cov- ments, that is, they should share respon- return to workers, need to make the erageis almost universal in high-income sibility among multiplepillars: transitionto amandatorymultipillar sys- countries and widespread in middle-in- tem. come countries. Governments mandate, *The public pillar would have the lim- finance, manage, and insure publicpen- ited objective of alleviating old age The first step is to reform the public sions, offering defined benefits that are poverty and coinsuring againstanwl- pillarbyraisingtheretirementage, elimi- not actuarially tied to contributions. titude of risks. Backed by government nating rewards for early retirement and Governments usually finance benefits taxation, this pillar can pay benefits to penalties for lateretirement; downsizing out of a payroll tax (sometimes with peoplegrowingoldshortlyaftertheplan benefit levels, and making the benefit supplements from general government is introduced, redistribute income to- structureflatter-to emphasizethepov- revenues) on a pay-as-you-go basis, wardthepoor,andcoinsure against low Volume 5, Number 7 9 The World Bank/PRDTE erty reduction function-- the tax rate t4e year 2000. Thereafter, it is)raised six by 2035 itis 45 percent-on top oftaxes lower, and the tax base broader. months per year until it reaches age 65 for health and other purposes. The im- in 2010. This means that no retirement plied total tax rate could easily exceed The second step is to launch the second takes place after 1995 until 2002, when 80 percent-a political and economic pillar in one of the following ways: all new retirees are 61. (Effectively, this impossibility. Thus, benefitswill inevita- *Downsizing;the public pillar gradually couldbeachieved byeliminatingspecial bly decline-the only questions are how whilerealloc4tjgcontributionstoasec- early retirement regimes.) and when? ond, mandatory pillar. *Replacement rates in the public pillar As a resul of the reform, the depen- -Holding the public benefit relatively are cut to 40 percent of the gross dency rate and required contribution constant (in cases in which it is low to economywide average wage in 2000. rate drop sharply by 2000 and con- beginwith)butraisingcontributionrates *After 2000 the real value ofthepension tinue to drop thereafter. Even after a and assigning them to the second pillar. is augmented by half the rate of real 10 percent contribution is allocated to *Recognizing accrued entitlements un- wage growth annually-that is, index- the second pillar, the total contribution der the existing system and agreeing to ation is 50 percent to prices and 50 rate is cut almost in half by 2010. Most paythem offwhile starting a completely percent to wages. So if growth occurs, of the initial decrease is caused by the new system right away. This involves the real value of the pension rises, but raise in retirement age. Subsequent de- designing the new systemn, calculating not by as much as the average wage, creases are due to the change in method the implicit social security debt that is requiringadecliningcontribution rateto of indexation. owed underthe old system, and figuring financethe public pillar. -The tax rate is much lower, and by out how to finance it all in a way that is the time middle-age workers retire, bothpoliticallyandeconomicallyaccept- This "shock treatment" generates re- benefits are higher under the new able. sources to reduce the tax rate and fi- system than they would have been nance the second pillar. The rise in re- under the old system. While the public Reform Simulaion tirement age increases GDP, the total pension drops relative to the wage bill, and the tax base. In 2000 the economywide average wage, if the ben- The demography ofHungary is used for reformedpublicpillarwill requirea con- efit from the mandatory saving pillar is this stylizedtransitionfromasinglepillar tribution rate of only 17.5 percent, in- added back in, the combined replace- to amultipillar system in a Central Euro- stead of 30 percent. At that point, a ment rate climbs above 40 percent for pean economy (seetable). Forthe initial mandatory saving pillar is introduced, cohorts retiring in 2010 and above 50 situation in 1995 it is assumed that all with a 10 percent contribution rate. The percentfor cohorts retiringin2020 (slow people begin working at age 20 and simulations show the benefits derived growth) and 2030 (fast growth). The retire at age 55. Although the statutory from and contribution rates required by combined pension rises above its 1995 retirement age is higher, early retire- thismultipillarsystem,betweentheyears real value even sooner. ment, disabilty, andotherspecialprovi- 2000 and 2065, under two altemative -The determination of winners and sions have brought the effective retire- scenarios: slow growth (1 percent an- losers depends on how the rise in ment age down to 55 in most Eastem nual wage growth, 2 percent real inter- retirement age is valued, whether the European countries. The dominant pub- est) and fast growth (3 percent annual new system has induced growth, and lic pillar offers an average benefit rate wage growth, 5 percent real interest). how long the old system would have of 50 percent ofthegross economywide The first pension from the mandatory been sustainable. Workers who retire average wage. A 15 percent overhead savingpillaris receivedin 2010anditis after 2020 or 2030 (who are under 30 or chargefor administrative costs and eva- assumed to be wage-indexed. .The last 40 in 1995) are clear winners because sion is added to system costs both in the year shown is 2065, the year of retire- they pay lower taxes and receive higher initial situation and afterthe reform. The ment for children born inthefirst year of benefits than they would have under the initial break-even contribution rate is 30 the reform. old systemn. Workers and retirees who percent. are age 53 or olderin 1995 would seem Conclusions to be clear losers, since their retirement Reform of the public pillar begins in age is raised, their pension rate is cut, 1995. It has three components: -The current benefit rate is not sus- and they do not benefit from lowertaxes *The effective retirement age is raised tainable with a 30 percent contribu- or from a buildup of savings in the sec- one year per year until it reaches 60 in tion rate, as the population ages. By ondpillar. Workers ages 35to 52 in 1995 2015 the required rateis 40 percent, and are in an ambiguous category. If the 10 September 1994 Transition new system enables the economy to 2000 and 2020 would bring the waib growth or sloW growth to fast growth? move from a no-growthto a fast-growth replacement rate to more than 50 per- And how can'the current group of old scenario, these workers receive higher cent while keeping the total tax rate people, particularly its lowest-income monetary benefits and pay lower taxes. below 30 percent. Additionally, older members, be protected from a short- But offset against this is the loss of workers could be paid off by receiving term loss from which later retirees are leisure time as a result of their delayed a larger claim on the assets ofprivatized likely to benefit? retirement. The older members of this state enterprises. group are likely to feel they are losers, Based on a new World Bank Policy while the younger members may feel To sum up, after a relatively shortperiod Research Report, Averting the Old Age they have come out ahead. of loss, pensioners get more for less- Crisis: Policies to Protect the Old and *The implicit social security debt could and the higher the wage growth and Promote Growth, Oxford University be paid off by recapturing part of the investment retum, the more they re- Press, 1994, 402 p. (To meceive infor- tax cut and using it to finance higher ceive. Policymakers should focus on mation on ordering and prices for pensions temporarily. For example, a twocrucialquestions:Wdllthemultipiilar World Bank publications see page payroll tax of 2 to 4 percent between system help shift the economy from no 27. Simulated Pension Reform in Hungary (percent) Slw rewce- Depedency rar Crasret rb bs kerseda New Pay vi C.euributioe pub& mnadatery New Combined Psyswil tx fui r for new plur taviugs Combined now Old R sd s rol refrd maday pesil/ peio pei penieoil dependency dependency publiA public savings aveg ag- e average 1995 year rasw pilla pilr pillar sww wage wag pAens'" 1995 53 53 30 30 10 50 0 50 100 2000 55 38 31 is 10 40 0 40 86- 2010 68 28 38 12 10 37 8 45 tlo 2020 73 36 41 14 10 35 16 51 150 2030 78 38 44 14 to 34 23 57 172 2040 81 41 45 14 10 32 31 63 208 2050 83 44 46 14 10 30 35 65 238 2065 83 44 47 13 10 28 35 63 267 Rvapi "'0r ~earie- 1995 53 53 30 30 10 50 0 50 100 2000 55 38 31 17 10 40 0 40 95 2010 68 28 38 11 10 34 8 42 135 2020 73 36 41 12 10 29 16 45 198 2030 78 38 44 10 10 25 25 50 297 2040 81 41 45 10 10 22 35 57 452 2050 83 44 46 9 10 19 40 59 -i 631 2065 83 44 47 7 0o 15 40 55 923 N.r: Dependency rats based on demogaphic trends in Hungazy projected by the Wodd Bank populaion data bae. The old depen- dency rae is based on a redremen ag of 55. The new dependengy rar is baed on a rcetirement age of 60 in 2000 and 65 thereafter. Labor force parncipation is assumed to begin at age 20. Under the old system. the ratio of avag benefits to the average wage is 50 percent. As dicusd mn the tet, these benefits would not have been susainable. Under the refoimed public pillar, baenfits wil drop to 40 percent in 2000; after that tdy are indemed 50 percent to wages and 50 pecent to prices. a. The slow growth scenario asumes 1 pece real wage growth, a 1 percen ageexanting profile, and a 2 percent reca intrs tc rate. The rapid growth scenao asumes 3 percent real wage gowth, a I percent age-arnuiW profile, and a 5 percnt real interest rate. b. These simulations asnume no unemployment, evasion, or administrtive coses other than a 15 percent overhead added to the public piLlar. c. This is the flat benaefit received by everyone, relative to the economy-wide wage. in the given year. d. This is the average benefit rate from the mundatory saving pension. relative to the economy-wide wage received by the cohort retiring in a given year. Wage indeation is assumed, so this benefit ae rmauins constrnt for each cohort. e. This is the average benefit rae from both pillar received by the cohort retiring in a given year. relative to the aveage pension in 1995. Sour: World Bank projections. Volume 5, Number 7 11 The World BankIPRDTE World Bank Links to Postsocialist Economies Excerpts from the 1994 Annual Report n fiscal year 1994 (which ended private sector than in the public enter- bilitation loans were provided to help onJune30,1994), manytransition prisesectorintheCzechRepublic,Hun- redress strong output declines at the economies of Central and Eastem gary, and Poland. Substantial progress start of transition. During fiscal 1994 Europe were attempting to rebound in has been made in Albania, Romania, the such rehabilitation operations were ap- the face of continued economic slow- Baltic states, the Kyrgyz Republic, and proved for Belarus, Kazakhstan, and down by their major trading partners in Russia. Privatization is only beginning, Moldova; similarly, an economic recov- Westem Europe. Such slowdown con- however, in such countries as Belarus, ery loan was approved for Macedonia tributed inpartto a dampeningof export Ukraine, and Uzbekistan. and Slovakia. Theseloans werecomple- expansioninBulgaria, Hungary, Poland, mented bytechnical assistance for insti- and Romania. The successor states of The first wave of voucher privatization tution-buildingandsupportforinfrastruc- the former Soviet Union (FSU) contin- was completed in the Czech Republic ture-maintenance investments. In uedtofaceproblems,includingthebreak- and Slovakia during 1993, and a second Kazakhstan a project was approved to down ofthe former trade-and-payments was begun in the Czech Republic. Rus- restore public transport services, and in system. Trade within the republics of sia used a combination of voucher Latvia and Russia, highway rehabilita- the FSU contracted further during the privatizationandmanagement/employee tion programs are being supported. To year. Importers of energy from the FSU buyouts to privatize more than 8,000 mitigate the effects of natural disasters faced further terms-of-trade deteriora- medium-size and large enterprises dur- a drought-recovery loan for Moldova in tion as energy prices from Russia and ing the year-including about a third of fiscal 1993 and an earthquake-rehabili- elsewhere moved closer to world lev- all state-owned industrial enterprises- tation credit for Armenia in fiscal 1994 els. Terms of trade in Belarus, the andtwo-thirds ofall small service enter- were approved. Kyrgyz Republic, and Moldova, for ex- prises. Investmentfunds participatingin *Privatization, restructuring, and fi- ample, deteriorated by more than 20 the voucher auctions exceeded 400 in nancial sector reform. Technical as- percent in 1993. theCzechRepublicand Slovakia,600 in sistance is being provided to strengthen Russia, and 300 in Lithuania; and mass financial infrastructure in Belarus, Transformation Pains privatization programs were adopted in Kazakhstan, Uzbekistan, and elsewhere Kazakhstan, Moldova, and Slovenia. in the former Soviet Union for the mod- Most countries are experiencing rising ernization of the interbank payments unemployment associated with the Reform of banking systems has contin- system. Twinning arrangements are downsizing ofpublic sector enterprises. ued. In Russia the number of commer- being financed to strengthen commer- In Central and Eastern Europe, open cial bankshas expanded rapidly, tomore cial and savings banks. lnLatviaa credit unemployment continued to increase in than 2,000 by the end of 1993. line, in parallel with an equity line pro- 1993, while it has emerged more slowly Privatization of the banking sector was vided by Sweden, will expand commer- in the republics of the FSU. "Hidden initiated in Latvia, Lithuania, and Po- cial bankcapital andbankingskills. The unemployment" at the enterprise level, land. In the first wave of voucher RussiaEnterpriseRestructuringProject in the forn of short work hours or un- privatization inthe Czech Republic and supports initiation oftermlendingtopri- paid leave, is growing. Although regis- Slovakia, the biggest commercial banks vate enterprises from a core of com- teredunemnploymentremainsatlessthan were partially privatized. mercial banks. An on lending facility in 2 percent of the labor force in Russia, Romania will finance private sector the real level of unemnployment is sub- Lending Sample export and industrial investments. stantiallyhigher. In manycountries, em- *Environment. National envirownental ployment and wages in declining indus- During fiscal 1994 lending operations action plans were completed in fiscal tries are being maintained only through wereinitiatedforthefirsttimeinBelarus, 1994 forBelarus andlJkraine (addingto significant credits fromthebanking sys- Kazakhstan, Macedonia, Slovenia, and eight completed earlier) and work be- tem. UJzbekistan, as well as in the Czech gan on plans for the Kyrgyz Republic Republicand Slovakia. WorldBankloans and Moldova. Bank assistance provides Privatizationacceleratedduringthepast in the past financial year include: financingforconventionalpowerinvest- year. Today more people work in the *Balance of payments support. Reha- ments while supporting policy reforms 12 September 1994 Transition critical for energy conservation, protec- World Bank and IDA Lending to Transition Economies in tion ofthe environment, andpublic safety. Europe and Asia (in millions ofdollars) Russia's second oil rehabilitation project Tdal loans and credits includes a component to prevent nega- CountryAloans FY 1993 FY 1994 Prject categories in 1994 tive environmental effects from the CENTRAL ANDEASTERN EUROPE project and to begin remedial actions to Albania 44.4 (IDA) 47.1 (IDA) 9.6 (education) 10.9 (social sector) address past damage. 15.0 (urban development) *Social protection. To facilitate target- 11.6 (water supPly and sewerage) *ng of social benefits to the neediest and Bulgaria 178 (IBRD) 148 (IBRD) 50 (agriculture) ing of social betiefits to the neediest and 98 (water supply and sewerage) the development of policies aimed at Croatia 128 (IBRD) (urban development) poverty reduction, the Bank is support- Czed& Republic ------ 80 (IBRD) (telecommunications) ing collection and in-depth analysis of 29 (public sector managemont) household survey data. In fiscal 1994 Macedonia 40 (IDA) (multisector) povtwas carried out for Poland 900 (IBRD) 146 (IBRD) (agriculture) poverty assessment was carnen out tor Romania 120 (IBRD) 400.6 (IBRD) 50 (education) Poland, and identical workwas initiated 175 (industry) in Russia. A Women in Development 175.6 (oil and gas) Slovak Republic ------ 80 (EBRD) (multisector) Fund was established in the Bank's Slovenia - 80 (IBRD) (financial sector) Europe and Central Asia regional office to support new work on gender and Total 1,655.2 1,278.7 transition. Study of the health sector in cIS AND THE BALTIcS Russia was carried out duringthe year, Armenia --- 28 (IDA) (urban development) laying the groundwork for the develop Belarus - 170.2 (IBRD) 41.9 (agriculture) 128.3 (multisector) ment of lending operations. Education Estonia 30 (IBRD) 50.4 (IBRD) 38.4 (oil and gas) projects were approved for Bulgaria 12 (transportation) Kazakhstan ...... 273.7 (IBRD) 218 (multisector) and Romania. 15.7 (oil and gas) 40 (transportation) Field offices are playing an increasing Kyrgyz Republic 60 (IDA) 78 (IDA) 60 (public sector managemeat) Field offices are playing ati inereasmg ~~~~~1 8 (telecomnmunications) rolein effectiveprojectimplementation, Latvia 45 (IBRD) 25 (IBRD) (agriculture) In Belarus and Kazakhstan new resi- Lithuania 60 (IBRD) 26.4 (IBRD) (oil and gas) dent missions were established in the Moldova 26 (IBRD) 60 (IBRD) (multisector) Russia 1,370 (IBRD) 1,520 (IBRD) 320 (agriculture) past financial year, bringing the total in 200 (frmancial sector) the region to 14. The number of field 200 (industry) 300 (oil and gas) office staff has grown; and higher-level 300 (transportation) staff, including those locally recruited, Ukraine 27 (IBRD) are increasingly involved in implemen- Uzbekistan ------ 21 (IBRD) (public sector management) tation assistance to the borrower, in- Total 1,591 2,231.7 cludingprocurement administration. ASIA Cambodia ------ 62.7 (IDA) (multisector) Gross disbursements to all member China 2,155 (IBRD) 2,145 (IBRD) 250 (telecommunications) countries amounted to $10,447 nillion, 670 (transportation) down $2,495 millionfrom fiscal 1993. 460 (agriculture) down $2,495 million from fiscal 1993. 605 (oil, gas, and coal) Net disbursements were negative at 160 (environment) -$731 million,downfrom$2,331 million 1,017 (IDA) 925 (IDA) 815 (agriculture) in fiscal 1993. The decline in net dis- bursements is the result of the lower Laos 55 (IDA) 48.4 IDA) 9.7 (social sector) level of gross disbursements combined 30 (transportation) 8.7 (agriculture) withahighlevel ofprepayments at $970 Mongolia ------ 50 (IDA) 20 (multisector) millionin fiscal 1994. 30 (transportation) Vid Nam ------ 324.5 (IDA) 158.5 (transportation) 96 (agriculture) 70 (education) Total 3,227 3,555.6 Source: World Bank Annual Report, 1993 and 1994. Volume 5, Number 7 1 3 The World Bank/PRDTE Quotation of the Month: "Privatization Policy in Poland Will Remain a Political Battleground" Warnings of a Privatization Expert in the Financial Times F or the past two months Poland's The objections center on two funda- tural implements, shares of state enter- Prime Minister Waldemar- mental issues: prises, and a pension annuity. In F Pawlak has had on his desk, -The first objection is that the program Czechoslovakia's first wave of unsigned, the implementation order for is centralized and bureaucratic. Minis- privatizationtheassettransferwas about a mass privatization program, a process try officials are to organize 20 govern- $1,000 per voucher holder, and in the first introduced in Poland in July 1990. ment investment funds, choose foreign present second wave it is about $800. He has not signed the order because of managers, and divide between them 60 Czechs can bid for any of more than continuing controversy and opposition percent of the shares in 400 companies 2,000 enterprises, or they may deposit to the program from many Poles. (the remaining shares belong 25 percent their vouchers with investment funds. to the state and 15 percent to the em- The reasons for the controversy lie in ployees). Each manager is a strategic In contrast, Polish citizens may not mistakes made at the beginning of the investor in about 30 companies. Thus, choose how to use their vouchers or economic transformation program. thegovernmentis closelyidentifiedwith which investment fund-government or Polishprivatizationlawdefinedtwoprin- the whole scheme, which raises fears of private-to deposit them with. This is cipal strategies: sales to foreign inves- collusion (between bureaucrats and for- ironic considering that Poland was the tors and initial public offerings on the eign managers), fraud, and conflicts of cradle of ideas about popular participa- newly organized Warsaw stock ex- interest. tion in the transformation and change. However, by the end of July 'The second and more important objec- privatization of communist economies. 1994 there had been only 24 initial public tion is that the program is inadequate as The 1988 voucher coupon scheme even- offerings and about 60 sales to foreign a means of mass privatization. The plan tually successfully applied in Czecho- investors. Such a strategy is more suit- is to distribute to some 27 million adult slovakia was proposed by Polish econo- able for a Western country where only Poles a voucher that, after a year or so, mists. Thus, Poland's 1990 transfor- a few state enterprises are to be can be exchanged for one share in each mation program confounded popular privatized tian for the Polish economy, of 20 investment funds, minus 15 per- expectations by definingthe strategy of which was, dominated by more than cent of shares reserved for fund man- privatization in a centralized and exclu- 8,000 state enterprises. As an after- agers. The amount of the proposed as- sionary manner. thought, a provision was added for the set transfer, however, is minuscule, "liquidation" ofmedium-sizeenterprises considering that in addition to the ex- Unless future Polish governments stop through employeeownership andleases. pected 27 million voucher holders, the imposingarbitraryprograms from above Thisresitedinaboutl,O0Oprivatizations, compensation claims of retirees and and start meeting citizens' reasonable a great success. state employees, andpossiblytheclaims demands for equity and participation in of those holding restitution vouchers, reforms, privatization policy in Poland A question arose, however, about what must also be satisfied. And despite the will remainapolitical battlegroundwhere to do with large enterprises that did not largenumberofclaimants, the400 com- little gets accomplished. qualify to be floated on the tightly regu- panies to be privatized represent only a lated Warsaw stock exchange and relatively small segment of the Polish Based on a recent article by Lucja where there was no foreign investor economy. Swiatkowski Cannon in the Financial interest. The solution was to place them Times. in groups and find foreign "tumaround" Critics claim that such a program is managers who would restructure and among the least far-reaching in East The author, an Adjunct Fellow at the improve them so they could be floated European countries and does not satisfy Centerfor Strategic and International or so that foreign investors could be popular desires for participation and Studies (CSIS) in Washington, D. C, found for thern. But successive Polish equity. In Estonia's mass privatization has been involved since 1988 with governments and consultants developed the asset transfer per adult averages postsocialist privatization processes the idea in ways that made the program $1,000, and participants can use their in Poland, Estonia and, currently, politicallyunacceptable. vouchers to buy housing, land, agricul- Latvia. 14 September 1994 Transifion Letters to the Editor Major Problems with the Argument stitutionandadecliningrateoftechnical the efficiency norms and incentives of change? Inoptingforthelowelasticity the market system. In an applied neo- In their recent article ("Living on Bor- of substitutionWeitzmanformulation as classical exercise, Desai and Martin rowed Time: Lessons of the Soviet an explanation for Soviet growth slow- (1983) estimated the resource- Economy's Collapse, Transition, April down, Easterly and Fischer overlook allocationallossesinSovietindustryaris- 1994, pp. 1-3"), William Easterly and thefactthat,inalaterrevision [Weitzman ing from the command economy meth- Stanley Fischer analyze the roots of (1983)], Weitzman had come up with odsofallocatingexcessivecapitalacross Soviet economic collapse and draw les- estimates that favored the Cobb-Dou- industrial branches. sons from the Soviet record for other glas specification as against the CES of countries. his earlier choice. I had also reported in Professor Padma Desai 1987 a Cobb-Douglas, variable-rate-of- Columbia University Easterly and Fischer argue that the So- technical-changeproduction function for viet growth slowdown in the 1960s the Soviet economy for 1950-1980. Reply to Padma Desai throughthe 1980s resultedfromthefact that the Soviet planners failedto substi- Infact,thetaskofpickinganidealmodel Space constraints in the @Transition tute capital for labor as capital accumu- for explaining Soviet growth slowdown newsletter prevented us from giving a lated more rapidly than labor. If market is a tricky one. The result varies with comprehensive summary of the litera- incentives were present, a variety of the choice of the underlying data, the tureon decliningproductivitygrowth vs. capital goods would have sprung up to definition ofthe variables (for example, low substitutabilityofcapital forlaborto economize on labor requirements. "In should labor be defined in manhours or which Professor Desai refers. How- Westem economies, capital (for ex- number of workers; should capital data ever, we do discuss this literature, in- ample, machinery and equipment) can be adjusted for the overestimate in offi- cluding Professor Desai's own impor- substitute rather easily for labor and cial series; shoulditbeincludedinterms tant contributions, atlengthinourpaper thus sustain growth even whenthe labor ofthe services of capital stock?) andthe (The Soviet Economic Decline: His- force is not growing." "It was the time period under consideration. Cau- torical and Republican Data, World Soviet'sinabilitytoreplaceworkerswith tion has therefore been the hallmark of Bank Working Paper 1284, also issued machines per se, that was their undo- scholarlyworkonthis subjectby Soviet- as NBER Working Paper 4735), on ing." area specialists in the last two decades. wvhich the Transition article was based. There are two major problems with this Second, regardless of which of the two Weitzman did not reverse himself in the argument. alternative approaches to explaining 1983 article quoted by Professor Desai. Soviet growth retardation is accepted, Rather, he expressed the statistical cau- First, Easterly and Fischer implicitly Westem scholars have long considered tion recommended by Professor Desai comedownononesideofalongstanding lack of market incentives to be the chief while making it clear he found the low- and serious debateamongSovietologists: problem in the Soviet economy. The substitutabilityexplanationfordeclining Did the slowdown result because "capi- Easterly-Fischer suggestionthatoldtime Soviet growth more appealing than the tal was an extraordinarily poor substi- scholars in the field failed to emphasize declining productivity growth explana- tute for labor in the Soviet Union" a la the lack of market economy incentives tion. This literature used data through Weitzman (1970), or alternatively be- and treated the economy's decline as a the 1970s; the additional data from the cause the rate of growth of factor pro- purely extensive growth phenomenon 1980s that we used seems to help con- ductivity was declining from year to (marked by increasing applications of firmthelow-substitutabilityexplanation. year (although capital was being substi- factors of production without concern tuted with ease for labor)? In short, was for their productivity) is wrong, besides We certainly did not mean to give the the underlying production function of being unfair. Westem scholars, Abram impression that Westem Sovietologists, the CES form with a low elasticity of Bergson and Joseph Berliner among whose work we respect and admire, factor substitution (and a constant rate them, argued that the growth pattern played down the absence of market of technical change) or the Cobb-Dou- was extensive and that it was costly (in incentives inthe USSR. What we meant glas type with unitary elasticity of sub- terms of lost output) because it lacked to say was that the literature on Soviet Volume5, Number 7 15 The World Bank/PRDTE extensive growth did not sufficiently vouchers. The Treuhand, however, re- Meri and Boris Yeltsin on withdrawal of acknowledge that successful countries fused to reserve any shares in enter- Russian troops from Estonia. About like Japan and Korea also had extensive prises sold bytheEstonian Privatization 10,000 retired Russian officers living in growth. Thechallengeisto explainhow Agency for eventual sale for vouchers. Estoniawill begrantedEstonian citizen- the efficiency losses entailed by the So- In the Financial Times April supple- ship as well as privatization vouchers viet system led not only to a depressed ment on Estonia the Treuhand still for their years of service not only in level of output, andnot onlyto depressed claimed the Baltic state had no voucher Estonia (as for everybodyelse), but any- long-run average growth, but also to program. where in the former Soviet Union. falling Soviet growth over time. We think the key was the inability of admin- Thegovemmenthashaddifficultyimple- TheEstonianprivatization program has istratively directed investment in a nar- mentingitsprivatizationpolicy. Butina two serious defects. Privatization row range of capital goods to substitute pilot program this fall, four large enter- through tender offers was relatively for labor. prises with foreign majority are to sell successful, butimplemertationwasnar- about 30 percent of their shares for rowly conceived, excluding any combi- William Easterly (World Bank) and vouchersintheinitialpublicofferingson nation with othermethods. Furthermore, Stanley Fischer (1MF) the newly organized Tallinr stock ex- the sale of many enterprises without change. And the government is diversi- using vouchers, or the provision of Estonia Should Be Left Alone fyingprivatizationmethods,beyondthe vouchers to personnel beyond legitimate tender offers. This is opposed by the categories, has increased the number in Inhis essay "Successful Privatizationin Treuhand, and PrimeMinisterLaarwas circulation to the point where there are Estonia: Unusual Features," JohnNellis regarded as its defender. With tensions more vouchers than assets for sale. This describes the success of Estonian over the issue, and with other, unrelated places a heavy financial burden on fu- privatization efforts. Iwould liketo sug- charges Laar received a vote of no- ture Estonian governments. gest that the process might have been confidence on September 26 and had to even more successful if conducted with resign. Lucja Swiatkowski Cannon less outside interference. (Former adviser to Liia Hanni, The integrity of the voucher program Estonia k deputy prime minister and The voucher program was the back- wasalsoundemiinedbytherecentagree- the head of the Estonian Privatization bone of the economic transformation mentbetweenEstonianPresidentLenart Agency) program after Estonia regained inde- pendencefromthe Soviet Union in 1991. However, in 1992 the previous transi- Contemporary Fairy Tale tional government brought in the Ger- man Treuhandanstalt to organize the Estonian Privatization Agency, giving it wide-rangingpowers, not onlyto runthe agency but also to interfere in any as- pect ofprivatization policy and approve any foreign consultants. The Treuhand championed the use of tender offers and vehemently opposed the use of vouchers. Until recentdy, onlythose for- J1 eign consultants who agreed with this policy could function in Estonia. Mart Laar's coalition government- ( _ which came to power as a result of the 1992 free elections-subrnitted a privatizationlawthatwaspassedinJune "and then the youngest and brightest of the three brothers went on 1993, combining sales to strategic in- his way to claim his unemployment benefits." vestors with a minority stake sold for From Budapest magazine The Hungarian Economy 16 September 1994 Transition Milestones of Transition The government of China has un- forayear,hadsteadiedinrecentmonths, Western companies: U.S. West, veiled a six-point plan to overhaul its but output of steel had fallen by 22 per- Deutsche Telekom, and France ailing state-owned enterprises. The cent, of vehicles by 20 percent, and of Telekom. scheme aims at transforming govern- tractors by 78 percent. (The slump in ment businesses into shareholding com- industrial production, wichhas persisted Russia's foreign trade surplus widened panies with management independent for five years, with declines of 3 per- to $11.7 billion in January-August 1994 of official controls. As bloated state centin 1990, 11 percentin 1991, and 16 from $10.2 billion a year ago. Exports companies slashtheirworkforces, offi- percentin 1992and 1993,couldamnount were up 9.3 percent to $28.8 billion; cial unemployment in China couldjump to 25 percent in 1994. Overall produc- imports rose 5.5 percentto $17.1 billion. by 1 millionto a total of 5 million bythe tion dropped by 57 percent between The figures represent Russia's trade end of this year, the Labor Ministry January 1990 and June 1994.) The outside the CIS. For much of this year, predicts. The number of the "floating share of services in GDP increased dra- Russia has benefited from higher world population"-themigrantrural workers maticallyto top the 50 percent mark for prices for crude oil. who gravitate to the city for part-time the first time ever. employment and are partly unem- Russia will boost crude oil exports to ployed-could range from 50 million to The Russian government's Center of non-CIS countries to 95 million-97 mil- 60 million. Provincial leaders say the Economic Reforms believes that the lion tons a year, compared with 79.7 figure could be as high as 100 million. production slump isgraduallyacquiring milliontonsin 1993,theMinistryofEco- a structural character, while the struc- nomics reported. Officials forecast that China's economy expanded at an an- ture and volume of goods produced Russia's oil exports to non-CIS coun- nual rate of 11.6 percent in the twelve- have become increasingly dependent triesthisyearwill beabout85 million-87 month period ending in June, according on market demand. Noting that the millions tons. Deliveries to the CIS fell to the Ministry of Labor. Added-value monthlyinflation ratehas slowedto less by 33 percent to 18 million tons in the industrial output rose by 15.7 percent in than 5 percent a month, the Centernone- first seven months ofthis year. (Sales to the first seven months ofthis year, com- thelesswamsthatthispricetrendshould the CIS are being reduced to allow for pared with the same period 1993. The not be taken for granted as long as the the increased sales to non-CIS coun- central bank has called for tight money budget deficit remains at 10 percent of tries.) Russian producers are expected policies, continued fiscal restraint, and GDP. to sell more oil on Westem markets curbs on capital spending to control in- once oil export quotas and licenses are flation. Retail prices rose to 21.4 per- Russia's top economic priority must be scrapped on January 1, 1995. Russia's cent in July, from 20.0 percent in June. to resolvethe problem of corporate debt oil production in 1995 is projected to China's State Council is to start nation- because finding a solution is the key to slump to less than 300 million tons. wide price inspections; grain, cotton, future reform, Prime Minister Vlktor and chemical fertilizers are on top ofthe Chemomyrdin said in an interview with Russian officials have indicated that list. Capital spending is to be curbed Rossiskiye Vesti. (Mutual indebtedness Russia will seek to import 5 million-7 following release offigures that showed of enterprises amounted to 15 to 16 million tons of grain from America- a 73 percent rise in fixed assets invest- percent of the GDP by the middle of mostlycom, soybeans, and higher-qual- ment in July compared with the same 1994.) Many enterprises have stopped itywheat. Duringthe past seven months month in 1993. Credit ceilings will be paying suppliers and their employees in Russia has imported 1.8 million tons of tightened, and the govemment has an- the hope the govenmment will step in. grain, as compared with 11.1 million nounced that it will review all capital Chemomyrdin saidthere will beno uni- tons in 1993 and 25.5 million tons in spending projects under the state plan. versal debt settlementinvolvingthegov- 1992. Russia'sgrainharvestfor 1994 is emment, but that settlements between likely to be less than 90 million tons. Russian GDP slumped by 6.5 percent individual enterprises are welcome. The in the first eight months of the year, prime minister added that Russia will Russia has signed a breakthrough compared withthe sameperiodin 1993, launch the first phase of a $40 billion agreementwithabankingadvisorycom- theStateStatistical Committeereported. project to upgrade its antiquated phone mitteerepresenting600ofitsbankcredi- Industrialoutput,whichhadfallensharply systemninearlyl995,worldngwiththree tors, paving the way for a deal to re- Volume 5, Number 7 17 The World Bank/PRDTE schedule nearly $25 billion of debt and nomic^and financial ties. Of the 12 par- Poland's government approved a legis- ending fifteen months of deadlock. ticipating member countries, premiers lative tax package on September 20. Worked out onthe sidelines oftheWorld of 10 republics signed the agreement. Contrary to earlier pledges of tax cuts, Bank-IMF Annual Meetings in Madrid, (Turkmenia and Azerbaijan did not sign the tax rates of 21 percent, 33 percent, the agreement gives Russia a five-year the draft). The economic committee is and 45 percentwill not be loweredto the grace period during which it is not re- the first body within the CIS to have promised 20 percent, 30 percent, and 40 quired to pay back interest or debt prin- supranational powers. It is to coordinate percent, respectively. Thetax-free quota cipal. After that it will be given another energy, transport, and communications andtax brackets will, however, be raised ten years to pay off the debt in semian- links between the republics, analyze the by 36.6 percentto compensateforinfla- nual installments. Russia's chief debt economies and the course of their eco- tion andthere will be more scope fortax negotiator, Deputy Prime Minister nomnic reforms, and draw up joint eco- relief. Finance Minister Grzegorz Alexander Shokhin, said the agreement nomic programs. Committee decisions Kolodko claimed that the government's does not involve Russia's waving its require 80 percent of the membership's recent decision not to peg pensions to sovereign immunity. Instead, Russia will votes to be accepted. (Russia has 50 cost of living increases but to retain the issue a declaration confirming its com- percent of the votes.) current systemn of indexing pensions to mitment to meet its obligations. wage increases had added some 8 tril- Viet Nam has issued a decree allowing lion zloty ($360 million) to anticipated Negotiations will soon start on restruc- foreign residents and companies to buy budget expenditure in 1995. The only turing $6 billion in trade credits Russia bonds and shares issued by state-owned way to finance the increased outgo was inherited from the forrner Soviet Union. companies. A government economist by giving up the planned tax cuts. (Un- The amount represents less than 10 said the planned issue of shares in state der pressure, the government decided percent of Russia's total outstanding firms would amountto issuingnewcapi- to put off the proposed changes until at debt of$90 billion, accordingtoRussian tal that would be privatelyheld, diluting least 1996.) officials. Theprograminvolvestheissu- ownership by the state. In another de- anceofregisteredinterest-bearingprom- velopment, a surveybythe General Sta- In Poland domestic prices have risen issorynotesdenominatedinU.S. dollars tistics Department reports that city by 32.2 percent compared with August or other currencies in exchange for debt dwellers are doing a lot better than the 1993, the Statistical Office announced held by those trade creditors. country's 72 million rural population (80 on September 15. Unemployment fell percent ofthe total). Average income in by 0.6 percent over July; but the overall Russia's creditor banks have routinely the cities is $20.20 a month; inthe coun- unemployment total of almost 3 million rolled over every three months pay- tryside it is only $8.60 a month. is still a 9.1 percent increase over Au- ments the country owes-while waiting for a rescheduling deal. Of a total for- eign debt of about $90 billion, Russia owes about $45 billion to Paris Club I RI0tiE] governments and $35 billion to London Club banks (the remaining $10 billion areliabilitiesthatsprangfromtradecred- its.) Debts incurred by the former So- viet Union before 1991 are eligible for rescheduling. In 1994 Russia expended - m $29 billion for debt servicing, of which more than a third was paid in arrears to banks and $10 billion was paid to the Paris Club. The Commonwealth of Independent States (CIS) Summit at its September meetinginMoscowsignedadraftagree- ment to formn a payments union and an Gable/Globe and Mailtroronto economic committee to strengthen eco- From the World Pess Review 18 September 1994 Transition gust 1993. Polish industry sales in 25,000 (less than 5 percent) of the un- stabilizing at the end of the twenty-first January-June were up by 11.2 percent employed have education. century. Ninety-five percent of this over the same period in 1993. GDP growth is in developing countnres. growth in 1994 is expected to be on the National Bank of Hungary Deputy orderof4.5 to 5.0percent. Bymid-1994 President Frigyes Harshegyi has an- Kyrgyzstan's President Askar Akaev the private sector accounted for 27 per- nounced that the budget deficit for 1995 signed a decree in early September al- cent of all industry sales. could be as low as 250 billion forints lowing foreign investors to take all their ($2.32 billion), or 5 percent of GDP. profits out of the country in hard cur- Poland has signed a deal with nearly all (The IMF had suggested a target of 3 rency orgoods theyhave manufactured. of its Westem commercial bank credi- percent of GDP.) Harshegyi said the The decree also cancels a 5 percent tax tors, known as the London Club. Under budget deficit in 1994 would be 260 on profits taken abroad. In a move to the agreement, signed September 13 billion forints, or 6.5 percent of GDP, halt the collapse of industry in and backed by 495 of the 500 commer- excluding70billionforintsindebtrepay- Kyrgyzstan, Akaev has deferred debt cial banks Poland owes money to, War- ments. It is possible that Hungary's repayment by state enterprises until saw will be allowed to buy back a quar- economy will not grow at all in 1995, October 1996. ter of its main debt at 41 cents to the after forecasted growth of only 1 to 2 dollar and may tum the remainder into percent in 1994, Harshegyi said. Elabo- During the past three years the number bonds. Poland's indebtedness to the rating further on Hungary's economic of Albanians receiving state pensions commercial banks includes more than status,thecentral bankreportedthatthe has sharplyincreased. Bymid-year 1994 $8billioninprincipal debt,about$4bil- current account deficit could fall from pensioners in Albania totaled 480,000 lion in unpaid interest, and morethan $1 $2.5 billionin 1994, to $1.5 million-$2.0 (of an estimated population of 3.3 mil- billionintradecredits. Thus,thevalueof billionin 1995. Foreigncurrencyreserves lion), compared with 282,000 in 1991. the debtreduction for Polandwill riseto currently stand at $6.4 billion (down So far the pension plan has been fi- more than 49 percent from the 42 to 46 from $6.7billion atthebeginning 1994). nanced by employer and employee con- percent originally mooted. The agree- Foreign debt repayments will total $2.6 tributions as well as bythe state budget. mentwill initiallycost Polandmorethan billion this year, risingto $3.0 billion in As of this year, the state's contribution $2 billion, to be financed from foreign both 1995 and 1996. Gross foreign debt will be significantly reduced. currency reserves and from IMF and attheendofJulywas $26.6 billion, or65 IBRD loans. percent of GDP. Czech Premier Vaclav Klaus considers 1996 as "optimal" for the Czech InBulgaria inflationislikelytofalltono Hungary is to privatize 25 percent of Republic's application to join the Euro- lower than 80 to 85 percent by the end each of its five gas distribution compa- pean Union. At a meeting of European of 1994, as against a target of 30 per- niesthisautumnandplanstooffershares politicians and economists in Cemobbio cent, the National Employment Service inthe country's electricitycompanynext (Italy), Klaus noted that the "psycho- (NES) reports. The broad money sup- year. logical attitudes" of EU members to- ply grew by 51 percent in the first eight wardintegratingCentralEuropeancoun- months of this year, and is expected to Soaring population levels and the ex- tries into the EU were changing. The increase by 105 to 110 percent by the tremepoverty of one-fifth ofthe world's membership of countries such as the end of 1994, well above the inhabitants was a major topic for ex- Czech Republic, "which seemed far off government's 45 percent target. The perts at the week-long U.N. world some time ago," was now a "foregone leva began falling sharply in August, population conference in Cairo, Sep- conclusion," Klaus said. causing the central bank to raise over- ternber 5-12. The world's population- draft rates from 80 percent to 220 per- currently5.6 billion-is increasingatan President Meles Zenawi said that cent and to raise the minimum deposit unprecedented rate (with more people Ethiopia's World Bank-recommended requirements for banks. By the end of of childbearing age than ever before). structural adjustment program was the July the number of registered jobless in The population has doubled since 1950 only viable way to revive an economy Bulgariawas 514,000, some 5,000 more and is increasing by 94 million each devastated by years of civil war and thanin June. TheNES notesthat 142,000 year. Long-term projections show the Marxist dictatorship. Meles also said (27.6 percent) of the unemployed are population rising to 8.5 billion in thirty thatthedevaluationoftheEthiopianbirr less than 24 years old, and only about years and to 10.0 billion by 2050, before had encouraged peasant farmers to pro- Volume 5, Number 7 19 The World Bank/PRDTE ducemore cash crops. Theannual infla- its loss for the three months to June30 Europe/Radio Liberty's government tion rate has been cut from 22 percent widened to 6 million ecu from 66,000 oversight and funding agency) and the to 10 percent during the past ecuinthefirstthreemonths ofthe year. Open Society Institute (a Soros Foun- government's tenure. Total losses for the first six months of dation). Itwillpublishaweeklyanalytic 1994 were 6.12 million ecu compared joumal anda dailydigestofeventsinthe Multinational corporations' invest- with a profit of 557,000 ecu in the same former Soviet Union, Eastem Europe, ments in developing countries in 1993 period of 1993. The losses were due to and selected other countries; provide reached a record $80 billion, out of a significantlyloweroperatingprofitsplus current analyses and information to global investment of$195 billion-itself theeffectofprovisionsagainstbaddebts RFE/RL broadcasters and others; and a record high-the UN World Devel- and shareinvestment. Operatingincome undertake, as custodian, the preserva- opment Report 1994, released in Sep- declined from 77.53 million ecu in the tion and automation of the RFE/RL ar- tember, reports. The bulk of this $80 first half of 1993 to 73.50 million ecu. chives to make them more accessible to billion was concentrated in 15 develop- the scholarly community. Thenewinsti- ingcountriesinAsiaandLatinAmerica. The Radio Free Europe/Radio Lib- tute will engage in training and other China led all developing countries with erty Research Institute will close at activities in support of democracy and $26 billion in multinational investment. the end of 1994. A new research insti- independent media throughout Eastem The former Soviet Union, Eastern Eu- tute, to be based in Prague in the Czech Europe and the territory of the former rope, Africa, and the world's "least de- Republic, will begin operations in Octo- Soviet Union. veloped" countries, however, are find- ber 1994. This new research organiza- ing few takers. tion, the Open Media Research Institute We appreciate the contributions from (OMRJ), is the product of an initiative the RFE/RL Research Institute. The European Bank for Reconstruc- involving the United States Board for tion and Development reported that Intemational Broadcasting (Radio Free Back to Europe X~~~ From the Groat cartoonist Srecko Punntaric (Felix) 20 September 1994 Transifion World Bank/IMF Agenda SDR Allocation: Special Meeting of IFC Doubles Financing by Decade's Poland to Get GEF Loan the Interim Committee? End The Global EnvironmentFacility(GEF) The failure to strike an accord on spe- The International Finance Corporation will support Poland with a $26 million cial drawing rights (SDRs) is not irre- (IFC), the World Bank's private sector loan for a program to cut ozone-de- versible and officials are still hoping for aim, expects to double its financing in stroying air pollution. Poland will pro- an agreement, IMF First Deputy Man- the next five or six years to $5 billion, to vide roughly matching funding for the aging Director Stanley Fischer said in keep pace with the rapid growth in program, under which hundreds of the Madrid at the 1994 World Bank-IMF emerging markets and the shift toward country's coal-fed central heating sys- Annual Meetings. The G-7 called for a private sector development. In its re- tems are to be turned into cleaner gas- one-shot special allocation of SDR 16 cently released Annual Report, the IFC fueled facilities. billion (about $23.3 billion)to replenish said it approved a record $2.5 billion in the reserves of 37 new members includ- financinginfiscal 1994andincreasedits TheportfolioofGEFactivitieshasgrown ingthe ex-Soviet republics andthepoor- net income 82 percent to a record $258 to 53 projects costing more than $450 est countries. mi11ion. million, includingbiodiversityprojects in Ukraine and Laos, phasing out ozone- Fischersaidthemanagingdirector'spro- The Corporation is focusing on infra- depleting substances in China, and ac- posal for an SDR 36 billion ($52.6 bil- structure (for which developing coun- celerating cleanup operations in the lion) general issue-supported by the tries are spending about $200 billion BlackSea, Baltic Sea, andDanubeRiver developingcountries-includedacatch- annually); andoncapitalmarketsthrough basin. Rehabilitation of the Aral Sea up component for the recent entrants supportforthe establishment offinance basin received pledges of $31.4 million and would provide substantially more and leasing companies, commercial from international donors at a Paris for the FSU countries. banks, pension funds, and lifeinsurance meeting in June. An additional $220 companies. million in World Bank loans is being Discussion will continue inthe next few discussed. But as the Washington Post weeksinWashington, D.C., andifnec- World Bank Lends $2.4 Billion for reported,WestemanalystsinUzbekistan essary, a special meeting of the Interim Environment doubt that the region's cash-strapped Committee could be called to solve the govenmments will accept loans unless issue. By the end of 1994, the Systemic The World Bank extended a record $2.4 they will help increase production. At- Transformation Facility [STF] expires, billion in fiscal 1994 in support of envi- tention is tumingnowto cleaning up the and renewal of the STF, which helps ronmental projects. In its report "Mak- Amu River, which once fed the Aral transition economies get their reforms ingDevelopment Sustainable: the World Sea and is the main source of local off the ground, depends on the agree- Bank and the Environment," the Bank drinking water. ment of the SDR issue.) saiditis currentlyimplementing 118 en- vironmental projects, representing World Bank Budget Cuts Peldng Invites Twins to Hong Kong around $9 billion in loans and credits, compared with only 15 similar projects The World Bank plans to slash its oper- The Board of Govemors of the World in 1989. Poverty, populationgrowth, and atingbudget by about $165 million over Bank Group andthe IMF have accepted rising demands on agriculture and natu- thenexttwo years to respondto calls for China's invitation toholdthe 1997 Joint ral resources have had a critical impact aleanerorganization. WorldBankPresi- Annual Meetings in Hong Kong, Sep- on the environment. World Bank Envi- dentLewis Prestonhas asked vicepresi- tember 23-25. (According to an agree- ronment Department Director Aadrew dents with responsibilityfor operational ment between China and Britain, Hong Steer is quoted as saying: "One key areastocuttheiradministrativebudgets Kong, a British colony since 1887, will challenge will be to ensure that the rap- by 5 percent in the fiscal year starting return to China in July 1997.) In 1995 idlygrowingportfolio of environmental next July, and byas much again in 1996. and 1996 theAnnual Meetings will con- projects continues to perform well." Support divisions, such as the research vene in Washington, D.C. Volume 5, Number 7 21 The Woild Bank/PRDTE arm ofthe Bank, have been asked for an global economytogrow 3.0 percentthis Machine Tool Co., the city's largest em- ever-sharper 6.5 percent cut in admin- year and 3.5 percent in 1995. World ployer, andthe construction ofa hazard- istrative expenses. The Bank's admin- trade is expected to expand strongly, ous waste treatment plant. The loan, istrative budget has climbed by 32 per- growing by more than 7 percent this which includes the Bank's first credit cent over the past three years to about year, and by 6 percent in 1995. The linetoaChineseenterprise,isfortwenty $1.4billionforthefiscalyearthatbegan recovery of world activity and trade years and carries a variable interest in July. The proposed cuts would roll became more firmly established during rate, currently 7.1 percent. (For more back spending to just above the fiscal the first half of 1994, the report added, details on this path-breaking loan, see 1993 level. though it warned recovery might be dif- the next issue of Transition, October.) ficult to sustain if industrialized coun- Independent Inspectors Ready tries do not act to reduce public sector ... and another $150 Million for High- deficits and are negligent about infla- ways The World Bank's new, independent tion. Public debt in the industrialized Inspection Panel has set up its office in countries has risen to 70 percent of A World Bank loan of $150 million will Washington, D.C, to investigate com- GDP from only 40 percent in 1978. help finance a $317 million plan to ex- plaints from parties directly and ad- Growth alone will not be sufficient to pand and improve the highway system versely affected by Bank-financed resolve the problern of high unemploy- in Xinjiang, China's largest province in projects and to request the Bank to act ment, the report said. Labor market re- thenorthwest. Theproject includes con- in accordance with its own policies and forms, including lowering benefits and struction of a new 300 kilometer high- procedures. Members of the Panel, ap- liberalizingemploymentregulationsand way, along with improvements to the pointed by the Executive Board, are wage-setting practices, are needed. region's road maintenance and man- ChairmanErnstGuntherBroder, Inspec- agement operations. tor Alvaro Umana Quessadaa, and In- China: $100 Million for Schools... spector Richard Etter Bissell. Eduardo Russian Mercedes with IFC Stake G. Abbott, a lawyer, serves as the Anl]DAcreditof$100millionwillpartly Panel's executive secretary. Requests fund a $177 million government project The Ulyanovsk Automobile Plant should be sent by registered or certified to expand education for about 5 million (UAZ), together with Mercedes-Benz, mail or delivered by hand to the Office children in China's poor and minority is planning to manufacture Mercedes ofthelnspectionPanel,MC 11101,1818 areas. The creditwill fund rehabilitation cars at Russian production facilities. H St., N.W, Washington, D.C. 20433, and new construction of about 40,000 Thirty percent of the authorized capital tel.(202)428-2617, ormaybedelivered schools, management training, and de- inthisjoint ventureis to belongto UAZ; to the Bank's resident representative in velopment ofimnproved curricula, includ- 30 percent, to Mercedes-Benz; 25 per- the countrywherethe project is located. ingbilingualprogramsforedhnicminori- cent, to the International Finance Cor- ties. China has set the goal of providing poration and the European Bank for IMF Outlook: World Economy Is nine years of education for all school- Reconstruction and Development; and Back age children as soon as practical. At 15 percent, to Russian investors. The present more than 95 percent of chil- project, estimated to cost DM 720 tril- The Baltic countries are heading for dren ages 6 to 11 years are enrolled in lion (about $470 mnillion) provides for economic growth this year, along with primary schools, and more than 60 per- manufacturing25,000 jeeps and 20,000 many other states of Central and East- cent of 12- to 15-year-olds are in sec- minibuses a year. The first Mercedes emEurope,includingAlbania,theCzech ondary classes. cars made in Russia could be on sale by and Slovakrepublics, Hungary, Poland, the end of 1996. and Slovenia, according to the latest ...$175 Million for Shenyang's In- IM "WorldEconornicOutlook"ereport. dustry... Belarms To Get $600 Million Loan Output is still collapsing in much of the former Soviet Union, however. Asia's A World Bank loan of $175 million will The World Bank is readyto extend up to economic growth is expected to slow support a $363 million project aimed at $600 million in loans to Belarus overthe this year as China moderates its hectic restructuringtheengineeringindustryin next two years. The announcement pace of industrial expansion to a more Shenyang, China's fourth-largest city. came during talks between Belarus sustainable path. The IMF expects the Funds willhelptheoverhaul of Shenyang PrimeMinisterMlkhail ChigirandWorld 22 September 1994 Transition Bank Country Department Director siaobtaineditsfirstoil rehabilitationloan, private banking system, continued Basil Kavalsky. Kavalsky commended worth$610million, fromtheWorldBank privatizationinindustry, anddownsizing the government's economic measures, in 1993. or elimination of poorly run state enter- in particular "the introduction ofmarket prises. Thecountryhas received 11 IDA prices on manygoods, andthe decisions Standby, World Bank Loan for But- credits since joining the World Bank notto subsidize loss-making enterprises garia... Group in 1991. and to protect low-income citizens." The IMF doubled a standby credit to World Bank Loans to Latvia's Russia, IMF Discuss Standby Bulgaria to support a commercial bank Banks... debt agreement signed in July 1994 with The IMF and Russia will hold talks by intemational creditor banks. The IMF A World Bank loan of $35 million will the end of October to pave the way for issued a statement saying it had ap- help Latvia's commercial banks to make a $4 billion standby loan, Russia's Eco- proved$102millioninnewstandbycredit medium-andlong-tenminvestmentloans nomics Minister Alexander Shokhin an- on top of a standby for the same amount to private enterprises. Part ofthe money nounced at the Madrid Annual Meet- itgrantedBulgariain April. FortheApril will be spent to strengthen the Latvian ings. Shokhin also indicatedthatoncean standby the IMF granted a waiver ofthe Privatization Agency. The banking sec- agreement is reached with the IMvF, end-June performance criterion on net tor payment system will be shored up Russia will proceed to negotiate a long- domestic assets. with computer technology. term rescheduling of its debts to Paris . , Club creditors. Central Bank Deputy Govemor ... and Turkmenistan's Government LyubornirFilipovadmittedthatBulgaria's Reuters reportedthattheIMF is consid- netdomesticassets-netdomesticcredit A broadly based technical assistance ering mobilizing a $6 billion currency provided by the banking system to the project, backed by a $25 million World stabilization fund for Russia to protect government, public enterprises, and the Bankloan-thefirsttoTurkmenistan- the ruble against speculative attacks, as private sector-is expected to exceed will helptheCentral Asiancountryimple- part of what could be a $ 10 billion pack- IMF targets for 1994. Due to diminish- ment its privatization program and the age to help Moscow steady its economy ing agricultural production and the de- restructuring of its public enterprises; (including the $4 billion standby loan). preciation of the leva, the broad money modernize parts ofthefinancial system; The United States, Germany, Japan, and supply grew by 51 percent in the first conduct social surveys and develop a other industrial countries would provide eight months of this year, and is ex- new pension system; and improve ad- thefinancingforthecurrencyfund,lend- pectedtoincreaseby 105to 110percent ministration ofjoint energy ventures. ing the IMF the money through the by year's end, well above the General Arrangements to Borrow government's 45 percent target. A $125 IFC Approves Investment in (GEB). Under the scheme, Moscow million World Bank loan will also help Madagascar would pegthe value ofthe ruble against Bulgaria replenish its foreign exchange other currencies as part of an overall reserves, following its recent debt re- The IFC, the private sector arm of the anti-inflationprogramthatwouldinclude duction agreement with commercial World Bank has approved an equity big cuts in the budget deficit. creditors. investment of about $1.1 million in the foreign fund for investment in Mada- $700 Million in World Bank Loans ...and Combined Support to Albania gascar. The investment in the Mada- to Russia gascar Capital Development Fund The lMF approved a $21 million ESAF (MCDF), thve first foreign fund in the Russian Deputy Prime Minister Oleg (enhanced structural adjustment facil- Indian Ocean island state, would have a Soskovets has signed two agreements ity) loan to help Albania's market re- life of ten years. The fund would take with the World Bank in Washington. A formns. A new IDA credit of $4 million minoritypositionsinexport-orietedfirms $200 million loan is to help support the will assist Albania's government to intheMalagasy exportprocessingzone. emerging private sector, while a $500 modernize tax administration with the million loan is to boost oil production in scheduled introduction of a value-added western Siberia, rebuild pipelines, and tax in 1995. Another $15 mnillion IDA promote environmental protection. Rus- credit will support development of a Volume 5, Number 7 23 The Wodd Bank/PRDTE Conference Diary 1546, tel. (612) 379-5980, fax (612) learned by other countfies in the region 379-5982. thatareplanningptivatization. Thecon- ference provided a comprehensive pic- Public Utilities in the Process of Doing Business with,Southeast Asia ture ofthe financial, technical, andtrad- Systemic Transformation October 17-18, 1994, New York ing opportunities in the October 3-4, 1994, Warsaw telecommunications industry in Central This conference, hosted by the Institute and Eastern Europe and the FSU, en- Sponsored by the Institute of Econom- for International Law and Business, abling conferees to make the right deci- ics ofthe Polish Academny of Science in focused on the following topics: the sions about the nature, scale, and area Warsaw, the Regulatory Policy Re- changing investment climate (a coun- of their commitments. search Centre (Hertford College, Ox- try-by-country briefing); new foreign Information: Business Seminars In- ford University), and the University of investment regulations; choosing the ternational, Ltd., The Old Court Muenster (Gernmany). appropriatestructurefordoingbusiness; House, Hurst Green, East Sussex, Information: Dr Andrzej Szablewski, infrastructure projects; establishing TN19 7QP, tel. (4471) 490-3774, fax INE PAN, Warsaw, fax (48 22) 29 58 manufacturing operations; resort and (4471) 490-8932. 97. real estate development; environmental considerations; selling and marketing Bretton Woods Revisited U.S. products in Southeast Asia; s;Inte October 15-17, 1994, Bretton Woods, lectual property and transfers of tech- Workshop on Enterprise Culture New Hampshire (Mount Washington nology; financing investments and ex- October 24-26, 1994, Warsaw Hotel) ports; available U.S. government support; creativetax structures; dispute Organized by the Warsaw School of Sponsored by the Institute for Agricul- resolution and litigation; privatization; Economics and the UNDP, the work- ture and Trade Policy, the conference and the role of U.S. capital markets. shop will examine the key elements of was held to create an intergenerational Information: American Conference enterprisebehaviorinamarketeconomy, dialogue on the ability of the Bretton Institute, 175 Fifth Avenue, Suite with special reference to an economy in Woods institutions (the International 2182, New York, New York 10010, transition in Poland. Monetary Fund and the World Bank) tel. (416) 926-8200, fax (416) 927- Information: Professor Ryszard and the General Agreement on Tariffs 1563. Rapacki, Warsaw School of Econom- and Trade (GATT) to respond to con- ics, 02-554 Warsaw, Al. temporary and future challenges. Key- Telecommunications Development Niepodleglosci 162 or Professor V V note speakers include Edward M. and Liberalization in Central and Ramanadham, Coordinator, Interre- Bernstein, Guest Scholar at the Eastern Europe and the Former gional Network, on Privatization, Brookings Institution; Harlan Cleveland, Soviet Union UNDP, New York, fax (980) 246- Professor Emeritus of Public Affairs October 18-20, 1994, Prague 2799. and PlanningattheHubertH. Humphrey InstituteofPublic Affairs; Paul H. Nitze, The conference, sponsored by KPMG, Diplomat-in-Residence at the Paul H. PT Telecom, JPMorgan, andtheAdam Emerging Capital Markets and Pri- Nitze School of Advanced International Smith Institute and administered by vate Equity Investment in Russia: Studies,The Johns Hopkins University; Business Seminars International, Ltd, Year-End Update and Tran Van-Thinh, the European analyzed the role of privatization in November 17-18, 1994, New York Union's Ambassador and Permanent modernizing and speeding telecommu- Representative to the GATT in charge nications development in Central and Sponsored by the Geonomics Institute of trade negotiations during the Uru- Eastern Europe and the former Soviet and the U.S.-Russia Business Council, guay Round. Union; the main features of past and the conference prepares Westem com- Information: Institute for Agriculture impending privatizations and whether panies and individuals for investing in and Trade Policy, 1313 Fifth St. SE, they conformto one model or vary from Russia's emerging capital markets and Suite 303, Minneapolis, MN 55414- countrytocountry;andthelessonstobe postvoucher privatization. It examines 24 September 1994 Transition Russia's progress in bringing order and management education issues will be Hakim, SCOPE, Lodi Road, New predictability to its securities markets; addressed. A central question raised Delhi; Professor V V Ramanadham, familiarizes forum participants with will be whether, and how, marketing Coordinator, Interregional Network, emerging portfolio investment opportu- concepts can be adapted to foster de- on Privatization, UNDP, New York, nities in Russia's regional exchanges; velopment of markets in economies fax (980) 246-2799. introduces investors to the emerging undergoingtransition. brokerage services industry in Russia; Corporate Governance in Central updates companies on the progress in- The following topics will be addressed: Europe and Russia vestment funds have made to date in promotion/advertising; marketing strat- December 15-16, Washington, D.C. identifying and financing projects; gen- egies to reach Eastern European con- erates financing of good projects and sumers; comparative analysis of condi- The conference organized by the World new business opportunities byintroduc- tions of market entry in Eastern Bank and the Central European Univer- ing companies and private equity inves- European countries; market entry sityPrivatization Project, itwill present tors to one another. through exports versus market entry via the results of in-depth research on the Information: Geonomics Institute, 14 capital investment; acquisitions as op- effects of different modes of Hillcrest Avenue, Middlebury, Ver- posed to joint ventures in Eastern Eu- privatization, ownership structures, and mont 05753, tel. (802) 388-9619, fax rope; cultural conflicts or harmnony in corporate governance arrangements in (802) 388-9627. joint ventures; consumer behavior; dis- Central Europe and Russia. Experts on tribution and logistical strategies; finan- corporate governance and on transi- Workshop of the OECD Expert cial strategies for opening Eastern Eu- tional economies will explore in an inter- Group on Entrepreneurial Devel- ropean markets; legal and tax issues; disciplinaryfashion such topics as own- opment in Economies in Transition Eastem Europe's role and its future in ership and governance by banks, November 3-4, 1994, Bratislava the EU; and case studies of Western investment funds, employees, manag- firms in Eastern Europe. ers, other enterprises, foreign firms, and The conference, hosted by the Slovak Information: University Professor governments (as residual owners). National Agency for the Development Dr. Reiner Springer, Wirtschafts- Information: Cheryl Gray or Sabine of Small and Medium Enterprises, will universitat, Vienna, Austria, tel. (431) Schlorke, the World Bank, PRDTE, discuss the role of intermediary organi- 313-36/4371, fax (431) 313-36/751 tel. (202) 473-9188 or 458-5480, fax zations in entrepreneurship promotion. or Petr Chadraba, Ph.D., De Paul (202) 522-1152. The meeting will bring together repre- University, Chicago, Illinois, tel. (312) sentatives from both countries in eco- 362-6200, fax (312) 362-5647. The Future of Central Europe nomic transition and OECD member June 9-10, 1995, Vienna countries. Safety Nets and Social Implications Information: OECD, 2 rue Andre of Public Sector Restructuring This conference, organized by the In- Pascal, 75775 Paris cedex 16, tel. 45 December 13-15, 1994, New Delhi dustrial Section ofthe Vienna Chamber 24 82 00, fax (33-1) 45 24 90 98. of Commerce, the European League This international round table is orga- for Economic Cooperation, the Federa- Marketing Strategies for Central nized by the Center for Industrial and tion of Austrian Industrialists, and the and Eastern Europe Economic Research and Standing Con- International Vienna Council, will focus December 1-2, 1994, Vienna ferenceon PublicEnterprises, withtech- on economic interdependencies; finan- nical assistance from Interregional Net- cial markets and banking; infrastruc- A primary goal of the conference is to work on Privatization, UNDP. The ture; and environment and energy. promote an international dialogue be- conferencewill discuss aspects ofsafety Information: Industrial Section, tween decisionmakers and business and nets related to the restructuring of the Vienna Chamber of Commerce, government leaders from Eastern Eu- public sector. Participants includehigh - Stubenring 8-10, 1010 Vienna, Aus- rope and Westem industrial countries. level enterprise executives and civil ser- tria, tel. (43 1) 514 50/204, fax (43 1) The conference will present informa- vants, and representatives of the World 514 50/455. tion abouttheprocess ofeconomictrans- Bank and UNCTAD. formation in Eastern Europe, the stimu- Information: Dr. S. R Mohnot, CER, lation ofentrepreneurial activity, andthe 7 Community Centre, East of Kailash, theory of global marketing. In addition, New Delhi 110065, India; Mr M A. Volume 5, Number 7 2 5 The World Bank/PRDTE New Books and Working Papers The PRDTE unit of the World Bank regrets that it is unable to supply the publications listed. World Bank Publications Gerhard Pohl, and Stijn Claessens, Winers and losers in Slovenia's eco- To receive ordering and pricing in- Banks Capital Markets and CorS nomictransition areidentifiedbytracing formation for publications of the porate Governance Lessons from changes in retums to education, experi- World Bank write: World Bank Pub- Russia for Eastern Europe, WPs ro ence, and gender, and changes in wage lications, PO. Box 7247-8619, tel 1326, July1 994, 16p inequality from 1987 to 1991. Some of (202) 473-1155, fax (202) 676-0581; theirfindings: or visit the World Bank bookstores, in The bank and capital market reform in *Relative wages and employment rose the United States, 701-18th St., N. W., transitional economies should not be for the most educated and fell for the Washington, D.C. 20433, or in modeledtoocloselyonpattemsinWest- least educated, in all industries. France, 66 avenue d'Iena, 75116, em economies, with their large institu- -Relative wages and employment rose Paris. tions, complex financial instruments, and with years of work experience until extensive regulation. A simpler process pensionable age. Policy Research Working Papers is required, compressing in a short pe- -Using pension policies to encourage (WPS) riod the historical development of finan- early retirement drastically reduced the cial systems, starting with small banks supply of very experienced workers. At BrianPinto, and Swedervan Wijnbergen, and accepting imperfect regulation and pensionable age, relative wages in- Ownership and Corporate Control supervision as a fact of life, creased very rapidly and relative em- in Poland: Why State Firms Defied ployment was greatly reduced. the Odds, WPS no. 1308, June 1994, Systemic risks remain manageable if -Women gained relative to men in both 36 p. To order:Marylou Kam Cheong, financial institutions are small and nu- wages and employment primarily be- room K6-115, tel. (202) 473-9618. merous enough A system with many cause their training and jobs are more (See Brian Pinto's article in Transition private banks is more likely to produce transition-proof. vol. 4, no. 7, September 1993, p. 4.) a financial sector that plays an active 'Setting minimum wages, fixing ranges role in enterprise restructuring, chan- of pay, and indexing wages to inflation Justin Yifu Lin, Fang Cai, and Zhou Li, nels resources to the private sector, and did not prevent increases in wage dif- China's Economic Reforms: Point- thus accelerates restructuring and eco- ferentials. ers for Other Economies in Transi- nomic growth. Historical comparisons To order: Jennifer Walker, room Nil- Ton? WPS no. 1310,SJunel 994,41. confirmthebenefits ofaliberal, weakly 023, tel. (202) 473-7466. To order: Cicely Spooner, room N8- regulated banking system. To order: 037, tel. (202) 473-0464. Luz Hovsepian, room H8-093, tel. Wafik Grais, and Kangbin Zheng, Stra- (202) 473-7297. tegic Independence in the East- Bartlomiej Kaminski, The Significance West Gas Trade, WPS no. 1343, Au- of the "European Agreements" for Annette N. Brown, Barry W Ickes, and gust 1994, 18 p. To order: Kangbin Central European Industrial Ex- Randi Ryterman, The Myth of Mo- Zheng, room H2-092, tel. (202) 473- ports, WPS no. 1314, June 1994, 41 P. nopoly: A New View of Industrial 6974. To order: Minerva R Patena, room Structure in Russia, WPS no. 1331, R2-040, tel. (202) 473-7947. (See August 1994, 68 p. To order: Maxine Bernard M. Hoekman, and Petros C. BartloniejKaminski'sarticleinTransi- Berg room NIJ-017, tel (202) 473 Mavroidis, Linking Competition and tion, vol. 4, no. 7, 1993, p. 6). 6969. Trade Policies in Central and East- ern European Countries, WPS no. Robert E. Anderson, Voucher Funds Peter Orazem, and Milan Vodopivec, 1346, August 1994, 43 p. To order: in Transitional Economies: The Winners and Losers in Transition: Faten Hatab, room H8-087, tel. (202) Czech and Slovak Experience, WPS Returns to Education, Experience, 473-5835. no. 1324, July 1994, 47 p. To order: and Gender in Slovenia, WPS no. Faten Hatab, room H8-087, teL (202) 1342 Aug istlo994, 50 p. 473-5835. ' ' 26 September 1994 Transition Ishrat Husain, Why Do Some Econo- Economic Adjustment, 1994, 536 p. monetarypolicyinstrunents, basedon a mies Adjust More Successfuily Than [Drawing on case studies from Chile, narrow banking structure, direct mon- Others? Lessons from Seven Afri- Mexico, Nigeria, Poland, Senegal, Spain, etary policy instruments, or specially can Countries; and The Turkey, and Thailand, the volume as- structured auction, will be needed to Macroeconomics of Adjustment in sesses the interaction between global deal with the problems created byinsol- Sub-Saharan African Countries: trendsofpoliticalliberalizationandmar- vent institutions. None of these ap- Results and Lessons, WPS nos. 1364 ket-oriented reform.] proaches is a panacea, and all three and 1365, October 1994,44 and22p. To have drawbacks. The narrow banking order: Joy Schwartz, room J5-255, Slovakia: Restructuring for Recov- option would lead to credit being cre- tel. (202) 473-2250. ery, World Bank Country Study, Sep- ated outside of the banking system and tember 1994, 279 p. could impede the development of the Other World bank Publications financial system. Directinstrumentswill Turkmenistan, World Bank Country necessarily involve the bureaucracy in MIGA: The First Five Years and Study(Russianedition), September 1994, the credit allocation process and are Future Chalenges, 1994, 24 p. [The 279 p. unlikely to rapidly eliminate insolvent Multilateral Investment Guarantee banks from the system. An auction- Agency (MNGA), set up in 1988, deals Financial Flows and the Developing based system especially designed to mainly with investment risk insurance, Countries, World Bank Quarterly, mimic the important features of mar- but it also provides technical assistance August 1994, 35 p. kets in developed economies might re- to promote foreign direct investment sultin collusion andinsufficientcompe- through its Investment Marketing Ser- Global Outlook and the Developing tition. vices (IMS) Department.] Countries, World Bank Quarterly, July 1994,27 p. William R. M. Perraudin, A Frame- Andrew Keck, Narendra Sharma, and work for the Analysis of Pension Gershon Feder, Population Growth, Robin Bates, Janusz Cofala, and and Unemployment Benefit Reform Shifting Cultivation, and Michael Toman, Alternative Policies in Poland, IMP WP no. 94/40, 1994, Unsustainable Agricultural Devel- for the Control of Air Pollution in 41 p. opment: A Case Study in Madagas- Poland, World Bank Environment Pa- car, World Bank Discussion Paper no. per no. 7, 1994, 84 p. Three major findings of the study: 234,1994,78p. *Authorities should increase the aver- H. Quan Chu, and Wafik Grais, aging period used in the calculation of Trends in Developing Economies Macroeconomic Consequences of pension benefit entitlement. (This is ef- 1994, 1994, 576 p. [The volume high- Energy Supply Shocks in Ukraine, fectively a way of reducing the total lights the recent economic performance Studies of Economies in Transforma- benefit since averaging over a long pe- of 116 economies, including the transi- tion no. 12, 1994, 54 p. riod will provide a lower pension base tion economies. Indicators include data than simplyaveragingoverthe best years for 1991-93 andfor selectedyears inthe of a period relatively late in life.) 1980s. Some key topics: progress in *Further reductions in unemployment privatization and institution building in International Monetary Fund benefits do not seem advisable. Such Eastern Europe; economic stabilization benefits are already very low, especially efforts in the FSU. Regional extract Donald J. Mathieson, and Richard D. for the long-term unernployed. volume I covers 20 economies of Cen- Haas, Establishing Monetary Con- *Tf benefits have to be cut, curtailingthe tral and Eastern Europe and Central trol in Financial Systems with Insol- early retirement benefit has the advan- Asia. (For the first time, the book is ventlnstitutions,IMFno. 94/10, 1994, tage of generatingfairly substantial ex- available on diskette.)] 25 p. tra revenue while providing an induce- ment to saving. The welfare losses are Stephen Haggard, and Steven B. Webb During the period when market disci- not negligible but they are at least lower (eds.), Voting for Reform: Democ- plineandprudential supervisionareweak than those incurred if, say, a large pen- racy, Political Liberalization, and in the transition economies, indirect sion income taper is applied. Volume 5, Number 7 27 The World Bank/PRDTE Jacek Rostowski, Interenterprise tries, to help them recognize the prob- pectedto generate growing budget defi- Arrears in Post-Communist Econo- lems associated with FDI in the earlier cits. To finance those deficits, govern- nies, IMF WP no. 94/43, 1994, 38 p. stage. Thus, it is important to under- ments are constrained due to large ex- stand that the role of information is far temal debt inherited from previous In postsocialist economies healthy ex- more important than just reporting regimes, underdeveloped domestic bond pansion of interenterprise debts (LED) whether projects are successful or not. markets, and stabilization programs. should be distinguished from pathologi- Mostpostsocialisteconomieshavethere- cal (or excessive) growth. The former EhtishamAhmad, SergioLugaresi, Alex fore had to embark on the transition is mainly the result of previous repres- Mourmouras, and Jean-Luc Schneider, process with tight fiscal constraints. sion of trade credit by central planners Pensions, Price Shocks, and (an example is IED growth in Czecho- Macroeconomic Stability in Transi- So it is important to establish an effec- slovakia in 1990 and 1991). Inthe latter tion Economies: Mustrations from tive system of private sectortaxation at case, ]ED expands as enterprises doubt Belarus, IMF WP no. 94/52, 1994, an early stage in the transition process. the credibility of the government's sta- 23 p. An extemally financed "restructuring bilization program, and extend trade fund" or "social benefits fund," would credit to their customers. State-owned Daniel Daianu, Inter-Enterprise Ar- effectively remove unemnployment ex- firms of the FSU and Romania provide rears in a Post-Connmand Economy: penditures from the budget constraints, examples of such pathological LED ex- Thoughts from a Romanian Perspec- thus removing an important budgetary pansion. Thebestpolicyistodonothing tive, IMF WP no. 94/54, 1994, 24 p. incentive for the government to subsi- to solve the LED problem; multilateral dize and maintain the state sector. clearing in IED will result in moral haz- To order fVFpublications: HOF Pub- ard. A second-best solution is the forced lication Services, 700-19th Street, Damien Neven, Trade Liberalization securitization of IED, which allows the N. W, Washington, D.C 20431, tel with Eastern Nations: How Sensi- development of secondary LED mar- (202) 623-7430, fax (202) 623-7201. tive?, CEPRDPS no. 1000, 1994,53 p. kets, enabling creditors to improve their liquidity and debtors to improve their Alan Winters, The Liberalization of balance sheets. European Steel Trade, CEPR DPS CEPR Discussion Papers no. 1002, 1994,54p. Dongpei Huang, and Sayuri Shirai, In- formation Externalities Affecting the BanlkimChadha, andFabrizioCoricelli, A simple model of the steel sector in Dynamic Pattern of Foreign Direct Fiscal Constraints and the Speed of EuropedistinguisheseightWestandtwo Investment: The Case of China, IMF Transition, CEPR Discussion Paper East European regions. It models the WP no. 94/44, 1994, 23 p. Series no. 993, 1994,32 p. production of steel and alsothe various trade restrictions extant in 1992. It uses Uncertainty about China's overall in- Ifthetransition process is viewed as the this model, first, to calculate the output vestment environment declined over the release of factors of production from a and welfare effects of rationalizing the decade, as thenumber of investors grew declining state sector to an expanding sector to remove the excess capacity dramatically and a recent increase in private sector, there are several reasons experienced in 1992 and, second, to ex- publications about FDI in China pro- to expect that a successful process of plore the consequences of the mutual vided investors with general inforna- reallocationwouldbeaccompaniedbya tradeliberalizationbetweenEastem and tion. But more regional or industry-spe- deterioration of the budget balance: Westem Europe envisaged under the cific information about high technology Europe Agreements (EA). The latter and heavy manufacturing industries, or -The decline of the state sector repre- allow major increases in output in the about regions other than the special sents a decline of the established tradi- East (18 percent) and offer Westem economiczonesandcoastalareas,would tional tax base. steel users significant welfare benefits accelerate FDI. *Replacing tax revenues by the private (ECU 190 million). Eastem consuners sector takes time. and Westem producers suffer (smaller) The role of information is to provide *The reallocation process is likely to losses, buttotal outputintheEUfalls by signals not only to potential investors result in unemployment only about 1.5 percent. regardingtheprofitabilityofthemarket, Thus, the desired process of realloca- but also to governments in host coun- tion of resources can therefore be ex- 28 September 1994 Transition Any attempt to integrate the East and To order: OECD Publications and the Hungarian Economy, no 29, West European steel industries by plan- Information Center, 2001 L Street, 1994, 15p. ning is likely to fail, and it is even more N. W, Suite 700, Washington, D.C. The Public Perception of Priva- likelyto be at the expense ofthe Central 20036-4910, tel. (202) 785-6323, fax tization, no. 30, 1994, 13 p. and East European countries (CEECs). (202) 785-0350. The Regulatory Framework for The steel industry in the EU has to Consumer Protection in Hungary, undertakemajorrationalization;theEAs ***** no.31, 1994, 9 p. arenotthecauseofthis,andtheCEECs Exchange-rate Policy in Hungary, should not be askedto paythe pricefor WIIW Publications no. 32, 1994, 20 p. it bydistortingtheircomparativeadvan- tage in cheaper types of steel. Gabor Hunya, Hermine Vidovic, and To order: Institute for World Eco- others, Leichte Erholung Folgt Einer nomics, Hungarian Academy of Sci- Cristina Corado, Textiles and Cloth- Schweren Rezession: Die Wwrtschaft ences, 1124 Budapest, KYallo esperes ing Trade with Central and Eastern der Oststaaten 1993-94, WIIW no. u. 15, 1531 Budapest, PO. Box 36, Europe: lmpact on Members of the 152, Vienna Institute for Comparative Hungary. EC, CEPR DPS no. 1004, 1994, 35 p. Economic Studies, October 1993-94, p. 288-304. Carmela Martin, and Jordi Gual, Trade and Foreign Direct Investment with Constraints on Growth: Reports on Institute of National Economy (Ro- Central and Eastern Europe: Its Poland, the Czech Republic, and mania) impact on Spain, CEPRDPS no. 1006, Hungary (contributions from Friedrich 1994,55p. Levcik, Zdenek Lukas, Leon Constantin Grigorescu, Poverty Pat- Podkaminer, Josef Poschl, and Sandoe tern and Alternatives for the Pro- To order: Centerfor Economic Policy Richter), WIIW no. 205, Vienna Insti- tection of the Poor in Post-Commu- Research, 25-28 Old Burlington St., tute for Comparative Economic Stud- nist Romania, RRT no. 7, June 1994, London WIX ILB, teL (4471) 734- ies, April 1994,44 p. l9p. 9110, fax (4471) 734-8760. Josef Poschl (ed.), Czech Economists Constantin Grigorescu, Marla Peonaru, on Transformation, WIIW no. 206, and Maria Molnar, Social Security in Vienna Institute for Comparative Eco- Romania, RRT no. 7, May 1994,16 p. OECD Publications nomnic Studies, May 1994,63 p. To order: Institute of National Economy, Romanian Academy, Bulv. Investment Gude for Ukraine, 1993, To order: Vienna Institute for Com- General Magheru 28-30, Sector 1, 142 p. parative Economic Studies, PO. Box Bucharest, cod 70159 Romania, tel. Methods of Privatizing Large En- 87, A-1103 Vienna, tel. (431) 782- (401) 659-5680, fax (401) 650-6631. terprises, 1993, 208 p. 567, fax (431) 787-120. National Accounts for the Former *** ** Soviet Union, 1993, 152 p. Short-term Economic Statistics: Other New Publications CIS, 1980-1993, 1993, 176 p. Institute for World Economics Transformation of the Banking Sys- (ICEG) Pubfications (Budapest) Raita. Karnite, Development of tem: Portfolio Restructuring, Latvian Telecommunications, RRT Privatization, and the Payment Sys- Financing Hungarian Agriculture, no. 8, July 1994, 21 p. To order: Insti- tern, 1993, 219 p. no.26,1993,16 p. tute of Economics, Latvian Academy Valuation and Privatization, 1993, Privatization of the Hungarian Ser- of Sciences, Turgeneva 19, Riga LV- 120 p. vice Sector, no. 27, 1993. 1018, Latvia, tel. (371) 882-1289, Short-term Economic Indicators: Export Promotion in Hungary, no. fax (371) 882-1289. Central and Eastern Europe, 1994. 28, 1993, 16p. The Labor Market in Poland, 1994, Foreign Direct Investment and the Klaus E. Meyer, Direct Foreign In- 130p. Restructuring and Modernization of vestment in Central and Eastern Volume 5, Number 7 29 The World Bank/PRDTE Europe: Understanding the Statis- order: CARD, 578 Heady Hall, Ames, no. 17, Center for the Study of Democ- tical Evidence, CIS Discussion Paper Iowa 50011-1070, tel. (515) 294- racy, 1994, 16p. Series no. 12, London, 1994, 53 p. To 7519. order: London Business School, Sus- United Nations Catalogue, 1994-95, sex Place, Regents Park, London Partnership for Growth, a report of United Nations Publications, New York NW] 4SA, United Kingdom, tel. (+44) the February 1994 seminar: Reshaping and Geneva, 200 p. 071 262-5050, fax (+44) 071-402- Trade and Investmnent Patterns: New To order: United Nations Publica- 8979. Approaches to Assisting Central and tions, Sales Section, 2 United nations Eastern Europe, The European Insti- Plaza, room DC2-853, New York, N. Y Paul R. Gregory, An Economic HIis- tute, Washington, D.C., February 1994, 10017, tel. (212) 963-8302, fax (212) tory of Russia from Emancipation to 136 p. To order: 7The European Insti- 963-3489, or United Nations Publi- the First Five-Year Plan, Princeton tute, 4910 Massachusetts Avenue, cations, Sales Office and Bookshop, University Press, August 1994, 188 p. N.W, Suite 223, Washington, D.C. CH-1211 Geneva 10, Switzerland, tel. To order: Tel. (609) 258-5165, fax 20016, tel. (202) 895-1670, fax (202) (41 22) 917-2614, fax (41 22) 917- (609) 258-1335. 362-1088. 0027. Economic Survey of Europe in 1993- Pocket Handbook of the Russian World Economic and Social Survey 1994, Econornic Commission for Eu- Far East: A Reference Guide, Rus- 1994, United Nations, New York, 1994, rope, New York and Geneva, 1994, sian Far East Update, 1994, 150 p. To 308 p. To order: United Nations Pub- 215 p. order: Russian Far East Update, PO. lications, room DC2-8053, New York, Box 22126, Seattle, Washington New York 10017. Per Ronnas, and Orjan Sjoberg (eds.), 98122, tel. (206) 447-2668, fax (206) Economic Transformation and Em- 628-0979. Theeuphoriathataccompaniedthestart ployment in Central Asia, Interna- of transition from command to market tional Labor Office, Ankara, 1994, 136 The Pofitics of Intolerance, RFE/RL economies in Europe and Central Asia p. To order: International Labor Of- Research Institute, Washington, D.C., has been followed by signs of disillu- fice, 4 route des Morillons, CH-1211, 1994. To order, U.S. Office, RFE/RL sionmentatthewidespreadimpoverish- Geneva 22, tel. (22) 799-6111. Research Institute, 1201 Connecticut ment and unemployment and concern Avenue, N.W., Suite 410, Washing- about the loss of personal security and Carolyn L. Gates, and David H. D. ton, D.C. 20036, teL (202) 457-6907, prospects for the future. Truong, Foreign Direct Investment fax (202) 457-6992. and Economic Change in Vietnam, A rapid differentiation of incomes and NIAS Report no. 20, 1994, 51 p. To Walt Patterson, Rebuilding Romania: wealthisbringinganewstratificationto order: Nordic Institute of Asian Stud- Energy, Efficiency and the Economic societies that were relatively egalitar- ies, Njalsgade 84, DK-2300, Transition, Earthscan, August 1994, ian. By early 1994 growth has returned Copenhagen S, Denmark. 144 p. To order: Earthscan Publica- only in Poland. In Russia the pace of tions, 120 Pentonville Road, London divestment of state-owned enterprises Bartlomiej Kaminski, TheInstitutional N1 9JN, tel. (071) 278-0433, fax has been rapid, but the state cannot Dimension of the Transition from (071) 278-1142. afford to abandon all inefficient enter- Communism, PPRG no. 26, Warsaw, prises it owns, and needs to continue 1994, 23 p. To order: PPRG Discus- Olivier Jean Blanchard, Kenneth A. temporary financial support. For one sion Papers, Department of Econom- Froot, and Jeffrey D. Sachs (eds.), The thing, the political and social cost of ics, Warsaw University ul. Dluga 44/ Transition in Eastern Europe, vol- mass bankruptcy would be unaccept- 5, PL-00241 Warsaw. ume 2, Restructuring: A National able: the country suddenly would be Bureau of Economic research deprived of essential production and Arturas Kazlauskas, and Helen Jensen, Project Report, University of Chicago services. Furthermore, it is hard to as- Lithuania's Household Expendi- Press, 1994, Chicago and London, sess the viability offirms in the absence tures and Income: March 374p. of operational market mechanisms. 1992-January 1883, Center for Agri- cultural and Rural Development Yordan Hristoskova, Unemployment (CARD), Iowa, July 1994, 47 p. To and Labor Market in Bulgaria, RRT 30 September 1994 Transilion Bibliography of Selected Articles Postsocialist Economies Central and Eastern Europe Ensor,T. Health System Reform inn Former Socialist Countries of Europe.International Amsden, A., J. Kochanowicz, andL. Taylor. Albania: Financial Times Survey. Finan- Journal of Health Planning & Manage- FromPseudo-SocialismtoPseudo-Capital- cial Times(U.K.), July21,1994, pp. 23-25. ment(U.K.) 8: 169-81,July-September 1993. ism: Eastern Europe's First Five Years. Politikund Gesellschaft(International) pp. BanlzakaR A RoleofLaborinPostsocialist Estrin, S.,andX. Richer. IndustrialRestruc- 107-16,1994. Hungary.Journal ofEconomiclssues(U.S.) turingand MicroeconomicAdjustmentin 28:519-32,June 1994. Poland: A Cross-sectoralApproach. Com- Balcerowicz, L. Economic Transition in parativeEconomic Studies (U.S.) 35:1-19, CentralandEasternEurope: Comparisons Bokros, L. Abandon Corporate Debt winter 1993. and Lessons.A ustralianEconomicReview Consolidation[in Hungary]. Hungarian (Australia) 105:47-59,Januari-March 1994. Economic Review (Hungary) 20-21:6-7, Funke, M., S. Hall, and M. Sola. Rational June-August 1994. Bubbles duringPoland's Hyperinflation: Brabant,J. M. Van. Lessonsfrom theWhole- Implications andEEmpiricalEvidence.Ewo- saleTransforinationsintheEast. Compara- Cornia, G. Poverty,Food Consumption,and pean Economic Review (Netherlands) tive Economic Studies (U.S.) 35:73-102, NutritionduringtheTransitiontotheMar- 38:1257-85,Junel994. winter 1993. ketEconomyinEastern Europe.American EconomicReview(U.S.) 84:297-302, May Mejstrik,M. The SecondWaveof Voucher Carrington,T. Effortsto Ease SocialPain of 1994. Privatization: Auction Results ofthe Sec- TransitiontoMarketEconomyOften Can ond Round. Privatization Newsletterofthe Backfire. WallStreetJournal (U. S.),May2, Csaba,L. IsthelHungarianEconomyTurn- CzechRepublicandSlovakia(U. S.)23:1-3, 1994,p. A13. ingLeft?TheFrenchWay. TheHungarian June1994. Economy(Hungary)22(2):3,1994. To order: CIPE, 1615HStreet, N. W, Wash- Changes, Additions, and Deletions in ington, D.C. 20062, fax (202) 887-3447. World Bank and EuropeanBankfor Czarnecki,E. G.,andM. Michalski. Telecom Reconstruction andDevelopmentProjects SectorIsRipeforlnvestmentDevelopment Minassian, G. BulgarianEconomyinTran- Pipelines. Eastern Europe Finance (U.S.) Business(U.S.)391,May3l,1994. sition: Is There Anything Wrong with 5(14):3-10,July3l,1994. MacroeconomicPolicy? Europe-AsiaStud- Deutsch, A. The NewPension and Health ies(U.K.)46(2):337-51,1994. Gerard, R, andT. Verdier. Privatizationin Insurance Legislation in Hungary. The Eastern Europe: Irreversibilityand Criti- Hungarian Economy (Hungary) 22(1):9, cal MassEffect.JowunalofPublicEconom- 1994. ics(Netherlands) 54: 161-83, June 1994. Gomulka, S. Economic and Political Con- straints during Transition. Europe-Asia Studies(Intemational)46(l):189-106,1994. Rider, C. Privatization in the Transition Economies: A Critique. Journal of Post- I Keynesian Economics (U.S.) 16:589-603, summer 1994. Sachs, J., and W T. Woo. Structural Fac- tors in the Economic Reforms of China, Eastern Europe, and the Former Soviet - *9, Union. Economic Policy: A European Fo- rum((U.K.) 9: 101-45,April 1994. Smirnov, A. D. Catastrophe Economy: A | F, NonlinearModeloftheTransitionEconomy. '; StudiesonRussianEconomicDevelopment (Russia) 5:200-14,May-June 1994. ', Sulc, Z. Some Theoretical Issueson Trans- _ - formation. Eastern European Economics: A Journal ofTranslations (U.S.) 32:23-38, _ - March-April 1994. ' From the Yugoslav daily Borba Volume 5, Number 7 31 The World Bank/PRDTE Bibliography of Selected Articles continued Old and Unaffordable. Economist (U.K.) Fedorov,B.Russia:TheGood,TheBakand Transition:A Journal ofTranslationsfrom April30,1994,p.55. The Ugly. International Economy (U.S.) Russian(U. S.) 37:25-37,May 1994. 8: 18-21,61,May-June 1994. Paarlberg, P. L. Sectoral Adjustments in The Emerging Russian Stock Markets: Eastern Germany Due to Market Forces. Holt, D. H., D. Ralston, and R. Terpstra. Bull Market on the Horizon. Geonomics ReviewofInternationalEconomics (U.K.) Constraints on Capitalism in Russia: The Bulletin (U. S.), summer 1994. 2:112-22, June 1994. Managerial Psyche, Social Infrastructure, and Ideology. CaliforniaManagementRe- Vishnevskii, A. G. Land and Money. Prob- Panayotou, T.,R.Bluffstone,andV Balaban. view(U.S.) 36:124-41, spring 1994. lems ofEconomic Transiton: A Journal of LemonsandLiabilities:Privatization,For- TranslafionsfromRussian (U.S.) 37: 72-92, eignlnvestment,andEnvironmentalLiabil- Intriligator, M. D. Reform of the Russian May 1994. ityin CentralandEastern Europe.Environ- Economy: TheRole oflnstitutions. Conten- mental Impact Assessment Review (U.S.) tion(U.S.) 3(2): 153-70,winter 1994. Volkonskii, V. A., and others. Approaches 14: 157-68,NMarch-May 1994. toward DesigningRussia's Long-term Jahjah, S. Opening-up of Russia: Beyond EconomicDevelopmentPrograms.Studies Perlez, J. Hungarians Cooling to Foreign Convertibility. Economic Systems (Ger- on Russian Economic Development (Rus- Investment.New York Times (U. S.) May 3, many) 18(1): 15-33,March 1994. sia) 5:187-99, May-June 1994. 1994,p. A12. Johnson,D. G. TradeEffectsofDismantling Wegren, S. Yeltsin'sDecreeonLandRela- Raiser, M. Searching for the Hole in the the Socialized Agriculture ofthe Former tions: ImplicationsforAgrarian Reform. PublicPocket:ThelnstitutionalLegacyof SovietUnion. ComparativeEconomicStud- Post-Soviet Geography (U.S.) 35:166-83, Soft Budget Constraints and the Polish ies(U.S.)35:21-31,winter 1993. March 1993. Transformation Process. Economic Sys- tems(Gern-any) 17(4):251-78,Decemberl993. Maevskii, V., andothers. Scenarios for the Asia To order: Economic Systems, Germany, tel. Reorganization oftheEconomic Structure (89-983) 821/987-341. of Russia. Problems of Economic Transi- Li,J.Value-addedTaxinthePeople'sRepub- tion: A Journal of Translations from Rus- lic of China. International VAT Monitor Slovenia-Country Update. EasternEuro- sian (U.S.) 37:6-24,May 1994. (Netherlands) 5:130-46, May-June 1994. pean SovietTelecomReport(U.S.) 5(8): 10- 11, August 1,1994. Markina,E.Russia:ResultsofInitiallmple- Overhold, W.H. RiseofChina'sEconomy. mentationofTaxReform.Bulletinforlnter- BusinessEconomics (U.S.)29:29-34, April Varga, G. TheHIMFIsNotDictating.Hungar- national Fiscal Documentation (Nether- 1994. ian Business Weekly (U.S. edition) I (2):3, lands)48:338-46,June-July 1994. August 1994. Sidler,P Power,Religion andthe Economy To order: 2 Wisconsin Cir, Suite 700, Chevy Martyanov, V DevelopingBondsMarketin in VietNam.SwissReviewofWorldAffairs Chase, MD 20815, tel. (301) 961-1525. Russia.DelovieLyudi (USSR) 6:20, Febru- (Switzerland)5:14-17,May 1994. ary 1994. Thang, T. P. Tendencies of Change in the CIS and the Baltics Paeglis, I. Latvian Fiscal Policyin theFirst Vietnamese Social and Class Structure in Quarterof 1994.RFE/RLResearchReport the Present Transitional Period. J4etnam Belkina,T. HousingStatisticsandtheCon- (U.S.)3(31):48-54,Augustl2,1994. SocialSciences(Vietnan)2(40):3-10,1994. dition of the Housing Sector. Problems of Economic Transition: A Journal of Trans- Russian Far East: Sources ofForeign Eq- Cuba lationsfrom Russian (U. S.) 37: 56-7 1, May uityCapital.Russian FarEast Update (U.S.) 1994. 4(8):6-7,August 1994. Ritter,A Exploring Cuba's Alternate Eco- nomic Futures. CenterforLatinAmerican Clarke, S., andothers. Privatization of In- Shmneleva,N. PropertyReform andthe Fi- Studies(U.S.)23:3-31,1994. dustrial Enterprisesin Russia: Four Case nancial System. Problems of Economic Studies. Europe-Asia Studies (U.K.) 46(2):179-214,1994. TRANSITIONis a regular publication ofthe WorldBank's Transition Economies Division, PolicyResearch Department. The findings, views, andinterpretations publishedinthearticles arethose ofthe authors andshouldnotbeattributedtothe WorldBankorits affiliated organizations. Nordo anyofthe interpretationsorconclusionsnecessarilyrepresent officialpolicy ofthe WorldBankor ofits Executive Directors or the countries theyrepresent. RichardHirschler isthe editorandproduction manager, tel. (202) 473-6982. Jennifer Prochnow- Walker is the research assistant and desktop publisher. Ifyou wish to receive Transition, send name and address to Jennifer Prochnow- Walker, room N-11023X, the WorldBank, 1818HStreetNW, Washington, D.C. 20433, orcall (202)473-7466, orfax (202) 522-1152. Information on upcoming conferences on transforming economies, indication of subjects of special interest to our readers, letters to the editor, and any other reader contributions are appreciated. 3 2 Septenber 1994