Progress in transition
View Full Text (PDF)
Fields marked with an asterisk * are mandatory.
Reform momentum in most countries of central eastern Europe and the Baltic states (CEB), south-eastern Europe (SEE) and the Commonwealth of Independent States (CIS) was sustained in 2001. Several SEE countries benefited from favourable political and economic developments and achieved strong reform gains, particularly Bosnia and Herzegovina, FR Yugoslavia and Romania.
Many CEB and SEE countries that are EU accession candidates continued to make steady progress as measured by the EBRD transition indicators. The vigorous economic recovery in Russia and other CIS countries (see Chapter 3) also supported advances in reform. Russia saw a significant improvement in corporate governance and business practices which was supported by an upturn in corporate profits. In Belarus and Uzbekistan, where the political commitment to market-oriented reform has been weak, administrative controls on access to foreign exchange were eased. However, it remains to be seen whether these countries will build on these recent measures to sustain progress. Turkmenistan, another CIS country with little political commitment to reform, retreated further from the reform process by abandoning the institutional framework for large-scale privatisation that was established in 1997.
This chapter outlines recent progress in market-oriented reform, placing these changes in the context of the reform patterns that have emerged since the start of transition in late 1989 (see the 2000 Transition Report , Chapter 2). These patterns include the order in which reforms have been undertaken. For example, liberalisation of markets and trade and smallscale privatisation have usually been tackled ahead of large-scale privatisation and the development of institutions that support markets and private enterprise. Where liberalisation of markets and trade has been sustained, and where democratic political institutions have been allowed to function, there tends to be sustained progress in large-scale privatisation and institutional development. This reflects the ability of liberal and open markets to foster the development of a competitive private sector while a democratic political system can direct government activities towards the development of market-supporting institutions. Domestic economic and political factors therefore have a major influence on sustained progress in transition.
This process, however, is neither automatic nor assured. For example, economic liberalisation does not ensure that created markets are competitive or that enterprises are free to enter and exit the market. A formal constitutional and legal framework for democracy and civil liberties does not necessarily prevent powerful private interests from exercising undue influence over the state and from "capturing" it for their own benefit. Moreover, governments facing the pressure of an election can resort to populist policies that distribute short-term benefits to privileged groups at the expense of long-term growth. Such pressures were evident in the run-up to the Polish parliamentary elections in September 2001 when the grip on fiscal policy was loosened (see Chapter 3). They are also evident in Hungary, where the government has imposed punitive capital gains taxes and slowed private pension reforms, with detrimental effects on the local capital market.
It is therefore important to recognise that international integration can complement domestic factors in advancing reforms and in strengthening economic performance. The EU accession process has been a strong influence on the direction and pace of reform for the ten candidate countries of CEB and SEE, and this has helped to counter the influence of domestic vested interests. However, the influence of external factors is not welcomed in all quarters, as illustrated by the performance of nationalist political parties that are indifferent or opposed to EU accession in the recent parliamentary elections in Poland. While international integration can be a catalyst for reform and growth, it can also give rise to economic disruption and social costs that must be addressed. Moreover, not all countries in the region benefit from the process of EU accession. Russia and the other CIS countries are outside this process and remain relatively less open to the global economy. A key challenge for the large CIS economies and their Western partners is to develop a sustainable approach to outward-oriented development that combines accession to the World Trade Organization (WTO) with institutional developments that reflect the needs of domestic savers and investors.
The first section of this chapter introduces the EBRD transition indicators (see Tables 2.1 and 2.2). Section 2.2 examines the patterns of transition, focusing on the order of reforms and the domestic factors that sustain progress in reform or that contribute to reversals. This framework sets the context for the discussion on recent reform developments. Section 2.3 assesses progress in initial phase reforms (liberalisation of markets and trade and small-scale privatisation) in those countries that remain at the early stages of transition while Sections 2.4 to 2.6 discuss reform momentum and progress in large-scale privatisation and institutional development in countries at more advanced stages. Section 2.7 complements this analysis by examining the process of international integration of transition economies and the influence of this process on domestic reforms (and vice versa).
Email to a friend
Printer Friendly
Please Enter Your Comment: |
Rate the Article |
|---|---|
|
|
You need to login for rating the article.
|
Most Rated Articles |
Most Emailed Articles |
Most Viewed Articles |
|---|---|---|
| * Top 3 Articles | ||
