Since the fall of the Berlin Wall nearly a decade ago, the former centrally planned economies of Central and Eastern Europe and the Baltics, Russia, and other former Soviet Union countries have made major strides in moving toward market-based economies. Initially, this historic transformation was accompanied by considerable price and output instability. In many countries, stabilization programs supported by the IMF and the World Bank helped contain this instability and bolstered the momentum for structural reforms. Yet by 1998, only countries in Central Europe had achieved sustained growth and recovery from the recession that followed the transition. And even in that region, Albania, Bulgaria, and Romania suffered setbacks during 1996–97. The crisis that beset Russia in 1998 not only exacerbated the recession in the region, it highlighted the key challenge of transition: achieving sustained economic growth.
What went wrong with transition in the former Soviet Union? Instead of following more or less the Eastern European path of sustained reform, we see countries such as Russia and Ukraine failing to make progress or even falling back. In both countries, as in most other former Soviet countries, there is continued macroeconomic instability, limited restructuring of privatized firms, and slow development of new firms.
Over the past decade, many socialist countries with centrally planned economies have embarked on a process of change aimed at transforming them into market economies. If this process proves successful, it will in time provide these countries with the institutions necessary for private markets to operate successfully and with a government whose role is complementary rather than hostile to a market economy.
The countries that we still, somewhat lazily, call the transition economies are becoming more diverse by the day. This increase in diversity is reflected in their incomes per capita: some countries have turned the corner on economic recession and are growing again, while others, most notably the two most populous transition countries, Russia and Ukraine, remain mired in depression.
On behalf of the Managing Director and the three departments that jointly organized this conference, I would like to thank you, the participants, for the valuable contributions you have made to a better understanding of the transition record and the challenges that lie ahead. Let me try to highlight some of the themes that emerged from the papers and discussions of the conference.
It is a great pleasure for me to welcome you to this conference, A Decade of Transition: Achievements and Challenges. This gathering brings together leading experts—policymakers, academics, and staff of international financial institutions—who have been working closely on transition issues. Their experiences bring a wide range of perspectives on the accomplishments to date, as well as on the challenges that lie ahead, and the policies needed to address them.
Almost all transition countries experienced an initial spike in inflation at the outset of the reform process as price controls were removed. The speed of the subsequent disinflations, however, varied markedly, partly reflecting the different times when countries gained monetary and political independence. Some Central and Eastern European (CEE) countries had managed to reduce inflation to the two-digit range already by the end of 1992, while inflation remained close to or above 1,000 percent in the Baltics, Russia, and other countries of the former Soviet Union (BRO). Subsequently, inflation continued to fall gradually in the Central and Eastern European countries, albeit with some notable exceptions. But it fell sharply in the Baltics, Russia, and other countries of the former Soviet Union, where, by the end of 1997, it exceeded 100 percent only in one country. As a result, median 12-month inflation in the whole transition group fell from 950 percent at the end of 1992 to 11 percent at the end of 1997.