In the decade following the fall of the Berlin Wall, Baltic and central European countries made huge strides toward meeting one of history’s most daunting challenges: the rapid transition from central planning to a market-based economy. But what now? In separate studies, two IMF teams examined the strategies these countries are adopting, particularly relating to macroeconomic and financial sector policies, in the run-up to European Union (EU) accession and, later, monetary union. Jeremy Clift of the IMF’s External Relations Department spoke to four of the authors—Robert A. Feldman and C. Maxwell Watson, who looked at five central European states, and Johannes Mueller and Christian Beddies, whose new publication covers the Baltic economies—on the groundwork needed for EU accession.
Anumber of countries making the transition from centrally planned to market economies have experienced strong real exchange rate appreciations. What is causing these movements, and what steps should policymakers take in response? And with these appreciations typically entailing higher inflation, will the countries seeking to join the European Economic and Monetary Union (EMU) be able to meet the Maastricht inflation criterion? A recent paper by Mark De Broeck of the IMFs European I Department and Torsten Sløk of the Research Department finds that, in a number of countries, these appreciations are mostly driven by productivity gains. When real exchange rate appreciations are part of the process of income convergence toward the advanced economies, there is no need, they argue, for a policy response.
The IMF is a financial cooperative, in some ways like a credit union. On joining, each member country pays in a subscription, called its “quota.” A country’s quota is broadly determined by its economic position relative to other members and takes into account members’ GDP, current account transactions, and official reserves. Quotas (see box, below) define members’ financial and organizational relations in the IMF.
On January 22, the IMF announced that more than 85 percent of its members had consented to an increase in the IMF’s quotas. The text of Press Release No. 99/4, issued on January 22, follows.