Crisis, Stabilization and Growth

Frontmatter

I. The Transition Economies

Abstract

With the dissolution of the Soviet Union in 1991, fifteen nations emerged to join the international economy. The Soviet Union had been a military power and one of the major producers of the world economy, and the successor states were expected to follow in its geopolitical footsteps. Four of the new nations (Belarus, Kazakhstan, Russia, and Ukraine) were nuclear powers. Each nation inherited the trained labor and production facilities left on its territory by the Soviet Union’s demise. While a transition period was expected before the sum of the parts once again equaled -- and then surpassed -- the whole, this period was expected to be short

Patrick Conway

II. Saving: by Plan and in the Market

Abstract

To explain the poor macroeconomic performance of the transition economies, particularly in terms of economic growth and inflation, it is necessary first to understand the economic principles governing the individual’s choice to save. These economic principles will serve as a structure for the subsequent investigations of the volume

Patrick Conway

III. Considering the Competing Explanations of the Transition in Inflation and Economic Growth

Abstract

The preceding chapters provided an overview of economic growth and inflation experience in the transition economies in the years since independence and a detailed look at saving in those economies. In this chapter the linkages among growth, inflation and saving behavior are specified more precisely and are examined through statistical analysis

Patrick Conway

IV. The Inflationary Explosion Following Price Liberalization

Abstract

The ruble overhang was a striking inheritance of the newly independent states from the Soviet Union. This overhang represented the saving, or deferred consumption, of the citizens of the Soviet Union over its history: for many citizens, this overhang represented the sole store of wealth. Production of consumer goods in the period leading up to independence had been insufficient to meet existing demand, and the overhang of ruble-denominated wealth had grown accordingly

Patrick Conway

V. The Crisis Years

Abstract

In the transition economies the period from independence through 1994 was identified with crisis in earlier chapters, and those who lived through it will certainly agree. The crisis period was characterized by extreme economic collapse throughout the former Soviet Union. Table V.1) provides annual economic growth figures for the period 1991–1994, and highlights the message of chapter I: while there is variation across countries, every one of the transition economies experienced a significant fall in production that persisted and intensified through this period

Table V.1

GDP Growth Rates

	1991	1992	1993	1994
Armenia	-12.4	-52.6	-14.1	5.4
Azerbaijan	-0.7	-22.1	-23.1	-18.1
Belarus	-1.2	-9.7	-7.6	-12.6
Estonia	-7.9	-21.6	-8.2	-1.8
Georgia	-20.6	-44.8	-25.4	-11.4
Kazakhstan	-11.0	-5.3	-10.6	-12.6
Kyrgyz Republic	-7.9	-13.9	-15.5	-20.1
Latvia	-11.1	-35.2	-16.1	-2.1
Lithuania	-6.0	-19.6	-17.1	-11.2
Moldova	-17.5	-29.1	1.2	31.2
Russia	-5.0	-14.5	-8.7	-12.6
Tajjikistan	-7.1	-28.9	-11.1	-21.4
Turkmenistan	-4.7	-5.3	-10.0	-18.8
Ukraine	-10.6	-17.0	-14.2	-22.9
Uzbekistan	-0.5	-11.1	-2.3	-4.2

Source: International Monetary Fund (1998, Table A7).

Patrick Conway

VI. Directed Credits and Financial Repression in Belarus

Abstract

Belarus stands out among the former constituent nations of the Soviet Union in two dimensions. First, its economic collapse was less pronounced in the crisis period, while its economic recovery in the stabilization period has been below average for these states. Second, it has been a relatively high-inflation economy during both periods. The former suggests an economy relatively slow to introduce market reforms; the latter suggests an economy with larger-than-average excess demands for saving ex ante. Surprisingly, the government of Belarus ranks among the least deficitary when general government budget balances are measured as a percent of GDP, with only the Baltic states rivalling the near-balance reported by Belarus. This is documented in Tabele III.1 and Figuga V.2

Patrick Conway

VII. Stabilization in Transition Economies

Abstract

Policy-makers in most countries, if offered the opportunity to have zero economic growth and 100 percent annual inflation on average for the next three years, would quickly turn down the opportunity. For the transition economies, however, this record during the period 1995–1997 was cause for satisfaction. As documented in the earlier chapters, these countries were coming out of one of the most devastating periods in any country’s economic history. The results in the period 1995–1997 suggested hope for the future

Patrick Conway

VIII. Ukraine in the Stabilization Phase

Abstract

The Ukrainian economy survived a difficult crisis period with output reductions and hyperinflation that rivalled, and in most cases exceeded, those observed elsewhere. Its success in curbing inflation during the stabilization period is evident, but the output record remained mediocre. The model of chapter III provides a theoretical structure within which the determinants of this economic performance can be investigated. This chapter presents empirical evidence for Ukraine based upon the predictions of that model

Patrick Conway

IX. Georgia: from Crisis to Stabilization… and Then ?

Abstract

Georgia’s economic course since independence has been tumultuous. During an initial period, the government used the aforementioned directed-credits mechanism in an effort to sustain the pre-independence status quo in production and employment, but brought about hyperinflation and massive financial fragmentation. Once stabilization policies were introduced that reflected the post-independence economic realities of the country, these financial imbalances were gradually righted. With the introduction of a new currency in September 1995, the financial sector developed rapidly and in positive directions. The collapse of Russian financial markets in 1998 had a de-stabilizing effect, however, that the policy-makers faced in a return to crisis

Patrick Conway

X. Fallout of the Russian Financial Crisis for the Transition Economies

Abstract

This volume has put forward a simple hypothesis: that the availability of saving in financial instruments that can be issued by the government, enterprises and investors is a critical requirement for positive economic growth and the absence of inflation. In the stabilization period, as noted in earlier chapters, the availability of saving was assured through attraction of foreign saving in the stocks and bonds of the transition economies. This was a successful strategy so long as the supply of foreign saving was sufficient to meet the transition economies’ demands. However, the shortcomings of this approach were made evident in the period surrounding the Russian financial crisis of August 1998

Patrick Conway

XI. Conclusions — and Policy Advice

Abstract

While the preceding chapters have presented theoretical analysis and empirical evidence on the economic performance of the transition economies, the fundamental question of the volume remains unanswered. Does the experience of the 1990s provide a springboard to the return of sustained economic growth for these countries? It is easy to conclude that the 1990s were a decade to forget (from an economic standpoint) for the citizens of these countries. It is less easy to conclude that the next decade will be one to remember

Patrick Conway

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