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Author:
Mr. Daniel Citrin
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Ashok Lahiri https://isni.org/isni/0000000404811396 International Monetary Fund

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Abstract

This papers reviews the common challenges and key issues in the transition process, including the decline in output and determinants of future growth; the behavior of inflation and velocity and implications for stabilization policy; interenterprise arrears; fixed versus flexible exchange rates in stabilization; external financial assistance; and the political economy of macro stabilization, Russia and the IMF.

© 1995 International Monetary Fund

Cataloging-in-Publication Data

Policy experiences and issues in the Baltics, Russia, and other countries of the former Soviet Union / edited by Daniel A. Citrin and Ashok K. Lahiri ; with Jonathan Anderson … [et al.].—Washington, D.C. : Internatioanl Monetary Fund, [1995]

p. cm. — (Occasional Paper, ISSN 0251-6365 ; no. 133)

ISBN 9781557755186

1. Former Soviet republics — Economic policy. 2. Economic stabilization — Former Soviet republics. 3. Former Soviet republics— Economic conditions. I. Citrin, Daniel. II. Lahiri, Ashok. III. Occasional paper (International Monetary Fund) ; no. 133. HG336.27.P65 1995

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Contents

  • Preface

  • I Overview

  • Daniel A. Citrin

    • Common Challenges at the Start of Transition

      • Special Factors

      • Response Thus Far

    • Key Common Issues in the Transition Process

      • Decline in Output

      • Inflation Developments and Velocity Behavior

      • Emergence of Interenterprise Arrears

      • Developments and Main Contributing Factors

      • Lessons

      • Role of the Exchange Rate

      • Role of External Financial Assistance, 1992–93

      • Has Financial Assistance Been Adequate?

    • Concluding Remarks

    • Appendix

      • Data Issues on Interenterprise Arrears

  • II The Decline in Output

  • Jonathan Anderson, Daniel A. Citrin, and Ashok K. Lahiri

    • Output Decline

      • Factors Related to Economic Transition

      • Factors Related to the Breakup of the Soviet Union

      • Other Factors

    • Determinants of Future Growth

    • Some Tentative Evidence from Central Europe and the Baltics

    • Conclusions and Policy Implications

    • References

  • III The Behavior of Inflation and Velocity

  • Jonathan Anderson and Daniel A. Citrin

    • Behavior of Money, Income, and Prices, 1992-94

    • Explaining Inflation and Velocity Movements

      • Inflation and Rale of Growth of Broad Money

      • Factors Affecting the Underlying Demand for Money

      • Influence of Exogenous Factors

      • Role of Interenterprise Credit

      • Measurement Errors

    • Differences in Velocity Performance

      • Recovery of Real Money Demand

      • Wage Developments

    • Conclusions and Implications for Stabilization Policy

  • VI Interenterprise Arrears

  • Ashok K. Lahiri and Daniel A. Citrin

    • Evolution of Interenterprise Credit and Arrears

      • Initial Transition Period, Early 1992 to Mid-1993

      • Mid-1993 to Late 1994

      • Factors Causing Arrears

      • Normal Factors Operating in a Market Economy

      • Additional Factors in the Transition Economies

    • Policy Options

      • The Stock Problem

      • Preventing New Arrears

      • Interstate Arrears

      • The Energy Sector

    • Conclusions

    • References

  • V The Revenue Decline

    Richard Hemming, Adrienne Cheasty, and Ashok K. Lahiri

    • Revenue Developments Since 1991

      • Movements in Total Revenue

      • Movements in Individual Taxes

      • Developments in 1994

    • Factors Explaining Revenue Developments

      • Changes in Level and Structure of Economic Activity

      • Design of the Tax System

      • Efficiency of Tax Administration

      • Crisis in Governance

    • Policy Implications and Responses

      • Immediate Challenges

      • Short- to Medium-Term Priorities

      • Establishing Good Governance

  • VI Stabilization: Fixed Versus Flexible Exchange Rates

  • Jeromin Zettermeyer and Daniel A. Citrin

    • General Considerations and Experience

      • Relative Costs

      • Effectiveness

      • Costs of Failure

      • Probability of Success

      • A Currency Board

    • Exchange Rate Policies in Stabilization Programs

      • Choice of Exchange Rate Regime in Fund-Supported Programs

      • Stabilization Performance Under Alternative Anchors: Estonia and Latvia

      • Experience with Money-Based Programs Outside the Baltics

      • Conclusions for Future Stabilization Policies

    • References

  • VII External Financial Assistance: The Record and Issues

  • Eduard Brau

    • The Record, 1992–93

    • Is Financial Assistance Conditioned and Timed Appropriately?

    • Is Financial Assistance Adequate in Size?

    • Is Right Financial Assistance Being Provided?

    • Is Assistance Repayable?

    • What Is to Be Done About Financing Problems Between States in the Region?

    • Conclusion

    • Appendix

      • How External Financing Helps Economies in Transition

    • Bibliography

  • VIII Russia and the IMF: The Political Economy of Macrostabilization

  • Ernesto Hernández-Catá

    • Inflation: Fables, Tall Tales, and Old Truths

    • Revolt Against Macrostabilization: Centralized Credits. Interenterprise Arrears, Budget Subsidies, and Tax Exemptions

    • Changing the Structure of Deficit Financing as an Alternative to Fiscal Adjustment: A Fairy Tale

    • The May 1993 Program

    • The March 1994 Program

  • Box

    • 1. The IMF and the Ruble Area

  • Tables

    • 1.1. The Baltics, Russia, and Other Countries of the Former Soviet Union: Consumer Price Inflation

    • 1.2. Selected Indicators of Reform (as of the end of 1994)

    • 1.3. The Baltics, Russia, and Other Countries of the Former Soviet Union: Changes in Real Gross Domestic Product

    • 1.4. The Baltics, Russia, and Other Countries of the Former Soviet Union: Inflation and Money Growth, Program Performance

    • 1.5. The Baltics, Russia, and Other Countries of the Former Soviet Union: Interenterprise Arrears

    • 1.6. The Baltics, Russia, and Other Countries of the Former Soviet Union: Evolution of Revenue, Excluding Union Grants

    • 1.7. Countries in Transition: Stabilization Attempts and Inflation Performance

    • 1.8. The Baltics, Russia, and Other Countries of the Former Soviet Union: Global Gross Capital Flows, 1992–93, Cumulative

    • 2.1. Real Gross Domestic Product

    • 2.2. Gross Fixed Investment and Stockbuilding

    • 2.3. The Baltics, Russia, and Other Countries of the Former Soviet Union: Real Gross Capital Formation

    • 2.4. The Baltics, Russia, and Other Countries of the Former Soviet Union: Gross Capital Formation

    • 2.5. The Baltics, Russia, and Other Countries of the Former Soviet Union: Value of Total Exports to the Rest of the World

    • 2.6. The Baltics, Russia, and Other Countries of the Former Soviet Union: Output by Sector, 1993

    • 2.7. The Baltics, Russia, and Other Countries of the Former Soviet Union: Volume of Interstate Trade

    • 2.8. The Baltics, Russia, and Other Countries of the Former Soviet Union: Real Domestic Money Stock

    • 2.9. Real Money Stock and GDP at Constant Prices

    • 2.10. Money and Prices

    • 2.11. Eastern European Countries in Transition: Selected Indicators

    • 3.1. The Baltics, Russia, and Other Countries of the Former Soviet Union: Money and Prices, 1992-94

    • 3.2. The Baltics, Russia, and Other Countries of the Former Soviet Union: Quarterly Changes in Macroeconomic Variables

    • 3.3. Real Domestic Money Stocks, as of Third Quarter of 1994

    • 3.4. Energy Import Prices

    • 3.5. Quarterly Changes in Wages, Exchange Rates, and Real Interest Rates Under Fund-Supported Programs

    • 4.1. Belarus, Latvia, Russia, and Ukraine: Interenterprise Credit

    • 4.2. Russia: Interstate Interenterprise Arrears, as of October 1, 1994

    • 4.3. Russia: Sectoral Composition of Interenterprise Arrears

    • 5.1. The Baltics, Russia, and Other Countries of the Former Soviet Union: Revenue and Grants, 1991

    • 5.2. The Baltics, Russia, and Other Countries of the Former Soviet Union: Revenue Developments

    • 5.3. The Baltics, Russia, and Other Countries of the Former Soviet Union: Change in Real Revenue

    • 5.4. The Baltics, Russia, and Other Countries of the Former Soviet Union: Decomposition of the Change in the Revenue-to-GDP Ratio, 1991-93

    • 5.5. The Baltics, Russia, and Other Countries of the Former Soviet Union: Change in Revenue-to-GDP Ratio

    • 5.6. The Baltics, Russia, and Other Countries of the Former Soviet Union: Change in Tax Bases and Real Revenues, 1991-93

    • 6.1. IMF-Supported Programs in the Baltics, Russia, and Other Countries of the Former Soviet Union: General Government Fiscal Balance, Actual and Program

    • 6.2. The Baltics, Russia, and Other Countries of the Former Soviet Union: Gross Reserve Holdings

    • 6.3. Estonia and Latvia: Disinflation and Output Loss, 1992-94

    • 6.4. Latvia and Estonia: Interest Rate Differentials

    • 7.1. The Baltics, Russia, and Other States of the Former Soviet Union: Financing Requirements, 1992-93, Cumulative

    • 7.2. The Baltics, Russia, and Other States of the Former Soviet Union: Ratios of Capital Inflows to GDP, Imports and Per Capita, 1992-93, Cumulative

    • 7.3. The Baltics, Russia, and Other States of the Former Soviet Union: Debt and Debt Service, 1992-94

    • 7.4. Commitments and Disbursement to the Baltics, Russia, and Other Countries of the Former Soviet Union: 1992-June 30, 1994, Cumulative

    • 7.5. Financial Assistance to Russia—Announcements and Outcomes

  • Charts

    • 1.1. The Baltics, Russia, and Other Countries of the Former Soviet Union: Inflation and Output Growth: 1992-94

    • 1.2. The Baltics, Russia, and Other Countries of the Former Soviet Union: Real Gross Domestic Product

    • 1.3. The Baltics, Russia, and Other Countries of the Former Soviet Union: Growth in Output and Broad Money, 1992-94

    • 1.4. Money Velocity and Inverse Real Money Balances

    • 1.5. Difference Between Inflation and Money Growth Rates in Selected Fund-Supported Programs, 1992-94

    • 1.6. Inflation and Lagged Money Growth

    • 2.1. Eastern Europe, the Baltics, and Other Countries of the Former Soviet Union: Real Gross Domestic Product

    • 2.2. The Baltics, Russia, and Other Countries of the Former Soviet Union, 1991: Decline in Rest-of-the-World Exports and Output

    • 2.3. The Baltics, Russia, and Other Countries of the Former Soviet Union: Real Interest Rates and Real GDP Growth, April 1992-July 1994

    • 3.1. Relative Interest Rates and Real Balances

    • 3.2. Real Balances, Real Wages, and the Real Exchange Rate

    • 3.3. Real Balances and Interenterprise Credit

    • 3.4. Broad Money Velocity, Including Foreign Currency

    • 4.1. Other Central and Eastern European Countries in Transition: Interenterprise Arrears

The following symbols have been used throughout this paper:

  • … to indicate that data are not available;

  • — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

  • – between years or months (e.g., 1991–92 or January–June) to indicate the years or months covered, including the beginning and ending years or months;

  • / between years (e.g., 1991/92) to indicate a crop or fiscal (financial) year.

“Billion” means a thousand million.

Minor discrepancies between constituent figures and totals are due to rounding.

The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice, the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.

Preface

This Occasional Paper is based on papers prepared during late 1994 and early 1995 and reflects developments until early 1995. Some of the papers were prepared for an IMF Executive Board discussion of policy experiences and issues in the Baltic countries. Russia, and other countries of the former Soviet Union. The authors would like to thank John Odling-Smee for his encouragement and support of this project, and Stanley Fischer, Susan Schadler, Teresa M. Ter-Minassian, and numerous other colleagues throughout the IMF for their valuable comments. Thanks are due to Lenna Garibian for research assistance, and Joan Campayne and Bonnie Coles for secretarial support. Juanita Roushdy of the External Relations Department gave the manuscript a final edit and coordinated production of the publication. The views expressed here, as well as any errors, are the sole responsibility of the authors and do not necessarily reflect the opinions of the Executive Directors of the IMF, or other members of the IMF staff.

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