The crisis in the banking sector was one of the major contributing factors that led Ecuador to abandon its own currency and introduce the U.S. dollar as legal tender. However, to illustrate the weak growth performance of the country, it is necessary to examine the structural weaknesses in the labor market, the tax system, and the trade system. These weaknesses resulted in the increase in poverty and inequality. This paper provides a brief summary of recent economic developments and statistical data on economic indices of Ecuador.
This Selected Issues paper assesses the economic recovery in Estonia that began in 1994 and accelerated in 1995, highlighting the extent to which the pattern of production has changed since the beginning of the transition in 1992, the factors that made the decline in output inevitable early on, and the sound policies that made an early recovery possible. The paper lists the policy requisites to maintain, and indeed strengthen, the growth momentum. The paper also analyzes Estonia’s experience with declining but persisting inflation since the introduction of the currency board in 1992.
Over the past few decades, a clear trend has emerged worldwide toward the devolution of spending and, to a lesser extent, revenue-raising responsibilities to state and local levels of government. One view is that the decentralization of spending responsibilities can entail substantial gains in terms of distributed equity and macroeconomic management. The papers in this volume, edited by Teresa Ter-Minassian, examine the validity of these views in light of theoretical considerations, as well as the experience of a number of countries.
At the breakup of the Soviet Union, the newly independent countries faced the daunting task of enacting their own tax laws and establishing separate tax and customs administrations. Initially, the new countries simply adopted the former Soviet tax system, which had been modified just days prior to the breakup of the Soviet Union to include a value-added tax (VAT). As the transition to a market economy proceeded, however, the new tax and customs administrations had to shift from handling the taxation transactions of a highly controlled state sector to dealing with the more challenging compliance activities of the emerging private sector and increasingly autonomous state-owned firms. This shift demanded a new approach to tax policy, and a totally different operational strategy for tax administration. Most of the countries of the Commonwealth of Independent States (CIS), which includes all countries of the former Soviet Union but the three Baltic countries, have struggled to adapt to the change and have experienced declining and inadequate revenue in varying degrees of severity.1
General government revenues, which include revenue from both central and local governments, collected within the Baltics, Russia, and other countries of the former Soviet Union had already fallen below Soviet-era levels by 1993. Revenue as a share of GDP declined on average by the equivalent of about 5 percentage points, from about 35 percent of GDP (weighted average) in 1993 to under 30 percent of GDP in 1995. This reflects a modest increase in the Baltics since 1993, more than offset by a decline in the revenue to GDP ratio of substantially more than 5 percentage points for most CIS countries (Table 1). Thus, for example, the revenue-to-GDP ratio fell by 23 percentage points in Azerbaijan, probably at least 15 percentage points in Tajikistan, and 11 percentage points in Armenia from 1993 to 1996.2 In Georgia, while no comparable data are available for earlier years, the 1993 revenue-to-GDP ratio of 3.4 percent, reflecting the civil strife at the time, clearly indicates that there must have been a precipitous drop from the preceding period; thus the rising trend after 1993 is not surprising. To summarize the situation for the CIS countries in the late 1990s, experience ranged from a sizable decline in the revenue-to-GDP ratios—for example, in strife-torn Georgia and Tajikistan, where revenue dropped to 10–12 percent of GDP—to little if any change in places such as Ukraine and Belarus, where economic and structural reforms were less advanced and revenue remained as high as 40-45 percent of GDP.