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Economics of Systemic Transformation Transformation Strategies – between the Big Bang and Gradualism.

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Presentation on theme: "Economics of Systemic Transformation Transformation Strategies – between the Big Bang and Gradualism."— Presentation transcript:

1 Economics of Systemic Transformation Transformation Strategies – between the Big Bang and Gradualism

2 Economics of Systemic Transformation 1. Starting point – the role of initial conditions 2. The stabilization package 3. Sequencing of the reforms 4. Which way to go? Lessons for the latecomers

3 Economics of Systemic Transformation Four main dimensions of a market system: to put in place market structures, to develop market participants by freeing enterprises and households in their decisions to produce, invest, consume and price their resources, to establish a new payments system for the economy and develop a new financial system to muster savings and allocate financial capital, to reduce the size of the public sector in the production of goods and services, while developing indirect tools for economic management (as opposed to the old system of direct intervention).

4 Economics of Systemic Transformation The Stabilization Package Price liberalization, External liberalization, Liberalization of the capital account, Currency convertibility and the exchange rate regime Property rights and financial markets Macroeconomic stability and an efficient fiscal system

5 Economics of Systemic Transformation Sequencing of the reforms Two strategies were offered: The process of liberalization and privatization should be done as quickly as possible („big-bang”). More gradual process of reform. The sale of government assets needed to be done slower and the economy had to be liberalized more gradually. Political economy matters!

6 Economics of Systemic Transformation Would the overall transition strategy be the same if the command economy had happened to collapse 20 years earlier?


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