Until the late 1980s, the financial sector of the transition countries was characterized by a banking system in which the central bank dominated the financial sector. The savings bank collected savings deposits from households at low interest rates, which were then placed at the Gosbank. According to the credit plan approved by the Planning Authorities, the Gosbank set policy guidelines determining the volume and allocation of credit to different sectors (the credit plan), and the volume and allocation of cash issuance (the cash plan). Funds were then passed to the specialized banks (such as the agricultural and industrial banks), which represented different sectors for on-lending to individual enterprises. Interest rates had no role in the allocation of credit.
Over the last four years, the transition countries have, on the whole, moved substantially toward more market-based exchange rate arrangements, with a view to promoting both greater economic efficiency and more effective macroeconomic stabilization.
V. Sundararajan,, Arne B. Petersen,, and Mr. Gabriel Sensenbrenner
Since 1992, the central banks of the Baltic states and the Commonwealth of Independent States (CIS) have undertaken to various degrees comprehensive reform of their monetary and exchange arrangements in support of their stabilization efforts.5 The objective has been to achieve market-based determination of interest rates and exchange rates, control of banking system liquidity through indirect instruments, and, pari passu, to enhance the use of markets for transmitting monetary policy signals.
The key to the broad-based macroeconomic stabilization that has taken hold since early 1995 has been a deeper understanding among the authorities of the role of strict financial policies as a precondition for price stability and economic recovery. This progress has taken place in the context of the implementation of comprehensive reform programs, frequently with Fund support (13 of the 15 transition economies). Increasingly, support from the Fund is being provided through multiyear arrangements, whether through the Extended Fund Facility (for Azerbaijan, Kazakstan, Lithuania, Moldova, and Russia) or the Enhanced Structural Adjustment Facility (for Armenia, the Kyrgyz Republic, and Georgia).6
Transition economies have on the whole made good progress in introducing indirect monetary policy instruments, but much still remains to be done to bring monetary operations to modern market standards.
Most transition countries are undertaking far-reaching reforms of their payments systems both to resolve urgent problems and to underpin development of efficient and stable systems for the medium term. Measures were initially adopted to minimize fraud and operational risks and to streamline processing and delivery of payments documents, relying on readily available automation and communications technology. These reforms improved the speed, predictability, and security of payments, helped to reduce the size and variability of float in the central bank balance sheet, and thereby facilitated management and interpretation of monetary aggregates.
The broad focus of reforms in central bank accounting and internal audit has been on the implementation of accounting systems that are both relevant and practical for supporting the policy actions of central banks in transition economies. The prime objective has been to present financial information in a manner consistent with internationally accepted accounting principles and standards.
Since 1992, the central banks of the Baltic states and the Commonwealth of Independent States have undertaken comprehensive reform of their monetary and exchange arrangements in support of their stabilization efforts. Their efforts have been supported by extensive technical assistance provided by the IMF and 23 central banks. This book edited by V. Sundararajan, Arne B. Peterson, and Gabriel Sensenbrenner, contains the background papers prepared for the second joint coordinating meeting of participants. That meeting focused on the progress of structural reforms in central banking and bank restructuring and identified priorities for the deepening of reforms. The book documents the remarkable progress achieved by the Baltic and CIS central banks and the catalytic role they have played in financial market development.
This Selected Issues paper and Statistical Appendix for Azerbaijan aims to provide a guide to the management of Azerbaijan’s expected natural resource-generated windfall. The paper provides information on Azerbaijan’s endowment of oil and gas deposits and the projected revenue stream, and highlights the common characteristics of policies leading to the mismanagement of natural resource wealth in natural resource-abundant countries. It also outlines a medium- and long-term policy strategy for oil wealth management in Azerbaijan.
Significant capital inflows were observed during the first half of 1995 in a number of FSU countries. This paper reviews the recent experience of those countries with significant inflows, examines policy responses in view of the current macroeconomic and institutional environment, discusses the use of monetary and prudential instruments to sterilize or discourage inflows, and reviews operational considerations for conducting sterilization operations.