Abstract
This compilation of summaries of Working Papers released during July-December 1993 is being issued as a part of the Working Paper series. It is designed to provide the reader with an overview of the research work performed by the staff during the period. Authors of Working Papers are normally staff members of the Fund or consultants, although on occasion outside authors may collaborate with a staff member in writing a paper. The views expressed in the Working Papers or their summaries are, however, those of the authors and should not necessarily be interpreted as representing the views of the Fund. Copies of individual Working Papers and information on subscriptions to the annual series of Working Papers may be obtained from IMF Publication Services, International Monetary Fund, 700 19th Street N.W., Washington, D.C. 20431. Telephone: (202) 623-7430 Telefax: (202) 623-7201
A rapid buildup of interenterprise arrears took place in Russia in the first half of 1992 and continued unabated through the second half of the year. Together with an accumulation of tax arrears and mounting enterprise debt to commercial banks, this buildup exerted severe pressure on the payments system and vastly complicated both the management of the economy and privatization efforts. This paper not only analyzes the causes of these developments and evaluates alternative policy options to deal with them but also briefly reviews the experience of East European countries that faced similar problems, drawing lessons where relevant.
Measures designed to settle the existing debts of state enterprises to other enterprises, the Treasury, and banks are distinguished from those aimed at preventing the accumulation of new payment arrears. In the absence of proper preventive measures, the complex operation of netting out and settling the outstanding arrears undertaken in Russia in the second half of 1992 was rapidly frustrated by an accumulation of new arrears due in part to the moral hazard created by the original operation. The analysis emphasizes that neither technical measures to streamline the clearing process nor credit operations to eliminate arrears can, by themselves, succeed in solving the problem unless accompanied by measures aimed at instilling financial discipline in the system and accelerating needed structural changes in state enterprises.
The paper’s perspective is that measures to instill financial discipline in the payments system and prevent the accumulation of new arrears must take precedence over measures to settle existing debts. In particular, the practice of repeatedly extending credit to bail out indebted enterprises and clear up arrears should be avoided. Although some credit extension may be necessary to prevent massive unemployment due to a widespread collapse of state enterprises, new credit should be made conditional on the ability of individual enterprises to create detailed plans for restructuring their operations, as well as on their performance in carrying out these plans and meeting their payment obligations. The success of such measures will depend on well-conceived preparatory work that includes a clear and binding timetable for their implementation, a comprehensive legal framework, and the establishment of the institutions necessary to supervise the process. Otherwise, efforts to solve the problem through credit expansion will only exacerbate inflationary pressures and allow enterprises to delay indefinitely the necessary adjustments in production and employment.