On the economics of transition

Embarking on a market-oriented reform has, at least conceptually, two angles. One is the mutation process itself, during which the new environment crystallizes. This will usually require putting in place new policies, institutions, and policy instruments. An integral component thereof is the formulation of the transitional economic policy to ensure some measure of economic stability. How to avoid imbalances and the pressures they may bring to bear on prices and the incentive systems, or if they occur how best to come to grips with them, forms one important element of macroeconomic policy formulation and implementation. The other is how to operate optimally within the market-oriented economy once established. Here the scope of the discourse is no longer what can be accomplished in the form of transition policies. Rather, a new philosophy of macroeconomic policy and how to maintain steady economic growth at the desired rate primarily through fiscal and monetary management should form the core of what figures most prominently on the agenda of the PET’s policy makers. The emergence of imbalances and how best to cope with them depend very much on what precisely market orientation aims to achieve.