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Abstract
The countries in transition—the former centrally planned economies of central Europe, the former Soviet Union, and Mongolia—have adopted, or are in the process of adopting, economic reforms on an unprecedented scale. These countries are now in different stages of the transition to market economies, with central Europe broadly more advanced, having started earlier. Some of the countries in transition—notably the former Czech and Slovak Federal Republic, Estonia, Hungary, Latvia, and Poland—have made significant progress in macroeconomic stabilization. Most, however, still face difficult fiscal problems stemming from the web of soft budget constraints and state subsidies, increases in outlays for social benefits and structural reform, or reductions in revenues because of output declines and administrative difficulties. Containing inflationary pressures will require tight control of government budgets and of credit creation, while reductions in subsidies, hard budget constraints on enterprises, and further privatization will be required if firms are to respond fully to market forces. Both macroeconomic stability and structural change are crucial to ensuring sustainable increases in living standards in the years ahead.
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