Innovative Fiscal Policy and Economic Development in Transition Economies
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Innovative Fiscal Policy and Economic Development in Transition Economies
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88 Innovative Fiscal Policy and Economic Development in Transition Economies Aleksandr V. Gevorkyan
Innovative Fiscal Policy and Economic Development in Transition Economies
Aleksandr V. Gevorkyan
First published 2011 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Avenue, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business This edition published in the Taylor & Francis e-Library, 2011. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. © 2011 Aleksandr V. Gevorkyan The right of Aleksandr V. Gevorkyan to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patent Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Gevorkyan, Aleksandr V. Innovative fiscal policy and economic development in transition economies / by Aleksandr V. Gevorkyan. p. cm. Includes bibliographical references and index. 1. Fiscal policy—Former Soviet Republics. 2. Mixed economy—Former Soviet Republics. 3. Former Soviet Republics—Economic policy. 4. Economic development—Former Soviet Republics. I. Title. HJ1205.G47 2010 339.5ʹ20947—dc22 2010031310 ISBN 0-203-83203-5 Master e-book ISBN
ISBN: 978-0-415-59807-1 (hbk) ISBN: 978-0-203-83203-5 (ebk)
Contents
/LVWRI¿JXUHV List of tables Foreword Preface 1
Economics of transition in the new century: lessons learned and a future outlook
xii [Y [YLL xix
1.1 Introduction 1 1.2 Before the shock: notes on the political economy from 1960 to 1990 2 1.3 What happened in the 1990s: more on political economy 6 1.4 Macroeconomic overview of the 2000s 10 1.5 Conclusion 23 1.6 Appendix 25 2
Fiscal policy in the newly opened economies: are there WZLQGH¿FLWV" 2.1 Introduction 29 )LVFDOEDODQFHDQGFXUUHQWDFFRXQWLQWKH¿UVWGHFDGHV of transition 30 7KHRU\DQGVRPHHPSLULFVRIWZLQGH¿FLWVUHH[DPLQHG 2.4 Main theoretical model and data discussion 38 2.5 Empirical results analysis 40 2.6 Some extensions to the main model 43 2.7 Conclusion 56 2.8 Appendix 58
x
Contents
3
Fiscal policy sustainability in transition: is it there?
3.1 Introduction 69 7UDQVLWLRQSHULRG¿VFDOSROLF\WUHQGV 6RPHWKHRUHWLFDODVSHFWVRI¿VFDOSROLF\LQWUDQVLWLRQ 3.4 Theoretical model and data discussion 82 3.5 Empirical results discussion 85 3.6 Policy conclusions 90 ,QQRYDWLYH¿VFDOSROLF\ WKHKRZZKHQDQGZK\RI borrowing from the diaspora
4.1 Introduction 94 4.2 Fiscal policy for growth and development: transition peculiarities 95 4.3 Diaspora and transition economies 98 )URP³¿VFDOGLDPRQG´WR³¿VFDOQHW´ 4.5 The Diaspora bond in transition economies 105 4.6 Conclusion 111 4.7 Appendix 112 ,QQRYDWLYH¿VFDOSROLF\ WDFNOLQJODERUPLJUDWLRQ problems 5.1 5.2 5.3 5.4 5.5 5.6 5.7 6
Introduction 118 Labor migration trends in transition economies 120 Temporary labor migration triad 128 The Diaspora regulatory mechanism 130 The Migration Development Bank 133 Conclusion 137 Appendix 138
J-curve: facing exchange rate and current account ÀXFWXDWLRQULVNVLQWKHRSHQHFRQRPLHVRIWKHCIS 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9
Introduction 140 What is the J-curve? Exposition and literature review 142 Theoretical model 153 Data description 154 Review of the empirical results 155 Testing for main results robustness 161 Conclusions and policy implications 164 Appendix A 166 Appendix B 176
Contents $PRGHORI¿VFDOSROLF\FXUUHQF\FULVLVDQGIRUHLJQ exchange reserves dynamics
xi
7.1 Introduction 181 7.2 Some theory, empirics, and stylized facts of international experience 182 7.3 Stylized facts from the CIS 187 7.4 A two country-group theoretical model with foreign reserves 192 7.5 Numerical analysis and possible scenarios 196 7.6 Conclusion and possible policy implications 206 7.7 Appendix 209 8
Fiscal policy lessons for the CIS beyond the economic crisis of 2008–2009 8.1 8.2 8.3 8.4 8.5
Introduction 212 The crisis in the CIS: the case of Russia 213 The crisis in the CIS: the case of the net exporters 222 The crisis in the CIS: the case of the net importers 226 Policy implications for two country groups 230
Final remarks
End notes Bibliography Index
Figures
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1
Economics of transition in the new century Lessons learned and a future outlook
1.1 Introduction As the theoretical debates go on temporary recess, there comes a time for sobering situation analysis. Almost two decades ago, a transformational process ensued in the socialist countries of Eastern and Central Europe and the former Soviet Union (FSU). Despite the length of time that has passed, the outcomes of these social, economic, political, and generational transformations are still high on today’s agenda. This project is focused on analysis of social and economic processes, and the UROHRI¿VFDOSROLF\LQWKHFRXQWULHVRIWKH)68([FOXGLQJWKHWKUHH%DOWLFVWDWHV WKRVHDUH$UPHQLD$]HUEDLMDQ%HODUXV*HRUJLD.D]DNKVWDQ.\UJ\]5HSXEOLF 0ROGRYD5XVVLD7DMLNLVWDQ7XUNPHQLVWDQ8NUDLQHDQG8]EHNLVWDQ$OOWZHOYH are members of the Commonwealth of Independent States (CIS) created immeGLDWHO\ IROORZLQJ WKH EUHDNXS RI WKH 8665 LQ Collectively, economic OLWHUDWXUHLGHQWL¿HVWKHVHDQGVHYHUDORWKHU(DVWHUQ(XURSHDQIRUPHUO\VRFLDOLVW countries, as transition economies. A discussion of the CIS transition economies is necessarily predicated by a FODUL¿FDWLRQRIWKHWHUPtransition%URDGO\WUDQVLWLRQLVGH¿QHGDVDPRYHIURP a centrally planned economy to a market-oriented one (e.g. Havrylyshyn and :ROI 7KHUHIHUHQFHLVWRWKHPDUNHWOLEHUDOL]DWLRQSURFHVVWKDWEHJDQLQ WKHIRUPHUVRFLDOLVWFRXQWULHVLQWKHODWH V±HDUO\ V It is reasonable to assume that the achievement of high living standards, increased productive capacities, sustainable economic growth, diminished LQFRPHLQHTXDOLW\DVZHOODVDVWULFWUXOHRIODZDQGGHPRFUDWLFSROLW\LVWKH¿QDO GHVWLQDWLRQRIWKHSURFHVV,WWKHQEHFRPHVFOHDUWKDWLQWKHFRQWH[WRIWKH)68 countries, the discussion revolves around a transformational change (as in, e.g., 1HOO DQG 1HOO et al. ,Q IDFW HFRQRPLFDOO\ QHFHVVLWDWHG FKDQJHV LQVSLUHFKDLQUHDFWLRQVDFURVVHYHU\¿EHURIWKHVRFLHW\)RUH[DPSOHWHFKQRORJ\ changes transpiring in an economy lead to the consequent social and institutional development. Hence transformation is captured as new social forms replace one another, encompassing and building upon the core elements of the prior, adding its own innovative breakthrough. The process is dialectical in nature. It is inherently dynamic and volatile, and requires comprehensive analysis.
Economics of transition in the new century 2QH GRHV QRW UHTXLUH DQ\ VSHFL¿F PDFURHFRQRPLF GDWD WR UHDOL]H WKH FRPSOH[LW\RIWKHVRFLHWDOFKDQJHLQYROYHG,QWKHFRQWH[WRIWUDQVLWLRQHFRQRPLHV WKHWUDQVIRUPDWLRQWKDWHQVXHGLQWKHHDUO\ VKDVEHHQKLJKO\FRQWURYHUVLDO to date, taking a heavy toll on social welfare and national economies’ well-being. Despite disastrous setbacks, discussed in this chapter, recent years have shown improvement in welfare across the locale. Surprisingly it has been the increased role of state in each country that has helped improve the situation. The challenge for transition economies of the CIS is now to take up proactive and innovative steps to ensure the sustainability of their improved economic performance of recent years, while managing a diverse set of social issues. This chapter serves a dual purpose, as an introductory narrative and that of a SUREOHPVHWWLQJFULWLFDODQDO\VLV6HFWLRQJHWVWRWKHKHDUWRIWKHVXEMHFWPDWWHU DQG EULHÀ\ RXWOLQHV FUXFLDO DVSHFWV RI SROLWLFDO HFRQRP\ LQ WKH IRUPHU 6RYLHW 8QLRQ SULRU WR WKH OLEHUDOL]DWLRQ UHIRUPV RI WKH ODWH V±HDUO\ V 7KHQ 6HFWLRQDQDO\VHVHFRQRPLFDQGVRFLDOUHIRUPVRIWKH VZLWKWKHEHQH¿WRI KLQGVLJKW 6HFWLRQ DOVR SURYLGHV D GHWDLOHG DVVHVVPHQW RI WKH UHJLRQ¶V SHUformance in more recent years. Structural economic issues are abound and require DWWHQWLRQ 7KH ¿QDO VHFWLRQ FDUULHV WKH ZHLJKW RI WKH DQDO\WLFDO DUJXPHQW GHYHORSHGWKURXJKRXWWKLVVWXG\7KHFKDSWHUHQGVZLWKD&RQFOXVLRQDQG$SSHQGL[
1.2 Before the shock: notes on the political economy from 1960 to 1990 Looking back two decades, one could pinpoint two distinct and interrelated events that gave the symbolic start to the unprecedented political, social, and HFRQRPLFWUDQVIRUPDWLRQLQ(DVWHUQ(XURSHDQGWKHIRUPHU86657KH¿UVWZDV the launch of the perestroika>UXVUHVWUXFWXULQJ@PRYHPHQWLQ LQWKHIRUPHU 8665E\WKHWKHQKHDGRIVWDWH0LNKDLO*RUEDFKHY7KHRWKHUZDVWKHEUHDNXS RIWKH%HUOLQ:DOOLQ*HUPDQ\LQODWH 2QHFDQVHHDGLDOHFWLFDOERQGRI ERWK VLJQL¿FDQW HYHQWV *RUEDFKHY¶V DEVWUDFW LGHDV RI perestroika and glasnost IRXQG WKHLU UHDOL]DWLRQ LQ WKH FRQFUHWH GLVPDQWOLQJ RI WKH %HUOLQ :DOO ZKLFK caused the collapse of the centrally planned and controlled economic, social, and political systems across the entire former socialist locale. Perhaps it would be surprising to learn that initial efforts bringing such a chain reaction had been in fact aimed at the upgrade of the old order and its preservation, rather than its destruction. Envisioned on the scale of the entire country— WKH 8665²WKH ¿UVW HIIRUWV DQG UHVHDUFK ZHUH DLPHG DW LQGXVWULDO UHRUJDQL]DWLRQ and increasing competitiveness of the national economy, with each republic proYLGLQJ DQ LQWHJUDO OLQN LQ WKH RYHUDOO V\VWHP 7KLV YLHZ LV FRQ¿UPHG E\ D FORVH reading of Shatalin et al. DOVRNQRZQDVWKH500 Days Program—a blueprint for transition to market economy that we discuss below. Therefore, it is instructive to understand the core issues of political economy that shaped the early transition in the countries of the former Soviet Union. The history of the region is marked with dramatic events in the twentieth FHQWXU\7KHFROODSVHRIWKH5XVVLDQ(PSLUHFRPSULVHGRI5XVVLD²DVWKHOHDGLQJ
Economics of transition in the new century VWDWH²DQG VPDOOHU SURYLQFHV WKDW ODWHU MRLQHG WKH 8665 DV UHSXEOLFV XQGHU WKH SUHVVXUHRI:RUOG:DU,DQGWKH%ROVKHYLNUHYROXWLRQRI EURXJKWWKH¿UVW social and political transformation. The new entity, the Union of Soviet Socialist 5HSXEOLFVZDVHVWDEOLVKHG)ROORZLQJGLVDVWURXVDJUDULDQDQGLQGXVWULDOUHIRUPV RIWKHODWH VWRWKH V FROOHFWLYL]DWLRQDQGLQGXVWULDOL]DWLRQ WKH8665 FDPHRXWDVDZLQQLQJSRZHULQWKHQROHVVGLVDVWURXV:RUOG:DU,,%RWKHYHQWV WRRNDQHQRUPRXVWROORQWKHOLYHVRIRUGLQDU\SHRSOH DGHDWKWROOWKDWZDVPHDVured in millions. Yet the country continued its advance to superpower status, EHLQJWKH¿UVWWRPDQDVSDFHVKLSLQ ,QIDFWDFURVVWKH8665DQGSULPDULO\LQ5XVVLDDQG8NUDLQHWKH VDQG HDUO\ VVDZDULVHLQXUEDQL]DWLRQRQHRIWKHSULPDU\LQGLFDWRUVRIDGYDQFLQJ development (see Nell et al.RQXUEDQL]DWLRQ %\ DOPRVWSHUFHQW of the entire country’s population lived in the cities. Meanwhile, with a compulVRU\ HGXFDWLRQ V\VWHP LQ SODFH WKH QXPEHU RI VWXGHQWV LQ 8665 XQLYHUVLWLHV VRDUHGSHUFHQWEHWZHHQ DQG 5HVHDUFKLQVWLWXWHVSUROLIHUDWHGDFURVV WKHFRXQWU\DQGVFLHQFHZDVKHDYLO\VXEVLGL]HGE\WKHJRYHUQPHQW HJ.DO¶\DQRY DQG 6LGRURY +HDOWKFDUH HGXFDWLRQ FKLOG VXSSRUW DQG RWKHU QRQZDJHG services were state sponsored and nominally accessible to everyone. In many FDVHVODUJHLQGXVWULDOIDFWRULHV E\GH¿QLWLRQVWDWHRZQHG SURYLGHGWKHLUHPSOR\ees with access to subsidized leisure facilities, hospitals, kindergartens, etc. ,QGXVWULDO FDSDFLW\ JURZWK ZDV DURXQG SHU FHQW RQ DYHUDJH ZLWK VOLJKWO\ H[FHHGLQJ*'3JURZWKDWSHUFHQW DVVKRZQLQ)LJXUH 2I¿FLDOVFODLPHG IXOOFRQWURORYHULQÀDWLRQDVWKHJRYHUQPHQWVXFFHHGHGLQLQVWLWXWLQJDVWULFWSULFH control, particularly on food and basic household items. There was virtually no incidence of involuntary unemployment, and salaries were guaranteed by the VWDWH 2YHUDOO GHVSLWH VRPH KLGGHQ KXUGOHV DORQJ WKH ZD\ HJ GLI¿FXOWLHV ZLWK FKDQJLQJ MREV IUHH PRYHPHQW ZLWKLQ DQG DFURVV UHSXEOLFV VHDOHG ERUGHUV WKH FRXQWULHVRIWKH8665ORRNHGRSWLPLVWLFDOO\LQWRWKHIXWXUH
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Economics of transition in the new century +RZHYHU WKH ¿UVW VLJQV RI D VHULRXV FULVLV DSSHDUHG HDUO\ LQ WKH V %\ then, the country’s entire economy, knitted with large industrial factories often SURGXFLQJRXWSXWWKDWWKHVWDWHKDGWR EX\ EDFNGXH WRLQH[LVWHQWGHPDQGZDV UXQQLQJ RQ VXEVLGLHV VSRQVRUHG E\ LQFRPH IURP UDZ PDWHULDO H[SRUWV PDLQO\ energy resources such as oil, coal, and gas. Spread across a vast area were factories that produced parts for an intermediate product thousands of miles away, ZKLOHWKH¿QDOSURGXFWZRXOGEHSURGXFHGLQ\HWDQRWKHUUHSXEOLF Consumption goods rationing and cuts in household durables production EURXJKWFRQVXPHUGH¿FLWVLQWKHHDUO\ V,QRWKHUZRUGVLWZDVGLI¿FXOWWR obtain the basic necessities in stores. The situation deteriorated more quickly with distance from major industrial and administrative centers. Factories’ capital funds had not been upgraded for decades and the living standards of millions of people, especially in rural areas and in republics less advanced in industrial and technological terms (such as countries in Central Asia), plunged. While on paper high macroeconomic indicators seemed XQFKDQJHGWKHUHDOHFRQRP\FDPHWRDVWDOHPDWHZLWKWKHJURZWKUDWHRI DQG less) per cent. To sustain even such low levels of economic performance and avoid igniting DQ\VRFLDOXQUHVWDV*DLGDU QRWHVWKH6RYLHWVWDWHUHOLHGRQKLJKSULFHV IRU RLO DQG JDV LQ WKH LQWHUQDWLRQDO PDUNHWV (QHUJ\ UHVRXUFH H[SRUWV ZHUH WKH source of hard currency, given the Soviet ruble’s inconvertibility, and hence provided the means for the Soviet government to purchase necessary machinery and consumer goods from abroad—primarily from the socialist states of Eastern and Central Europe. 7KHVLWXDWLRQFUHDWHGDSDUDGR[ZKHQLQWKHODWH VRQHRIWKHULFKHVWDQG largest countries in the world in terms of natural resources and agricultural lands imported grain from its ideological opposites in the capitalist West. The Soviet 8QLRQSUHVVHGIRUZDUGZLWKRLOH[WUDFWLRQUHDFKLQJEDUUHOVSHUGD\LQWKH PLG V 86 'HSDUWPHQW RI (QHUJ\ +RZHYHU WKH OXFN DQG ZLWK LW VXI¿FLHQW LQÀRZV RI KDUG FXUUHQF\ UDQ RXW E\ ZKHQ RLO SULFHV GURSSHG IURPDSSUR[LPDWHO\86WR86SHUEDUUHO It was against the background of this environment that the Soviet government announced its course for economic restructuring and upgrade—the perestroika PRYHPHQW5HPLQLVFHQWRIWKHNew Economic Policy and designed and launched LQWKH8665E\/HQLQLQWKH VWKHUHIRUPVRIWKHPLG VHQFRXUDJHGWKH creation of small private cooperatives and promoted entrepreneurship. PractiFDOO\DOOIDFWRULHVZLWKWKHH[FHSWLRQRIDIHZVWUDWHJLFRQHVLQWKHQXFOHDUDQG military industries, were encouraged to seek their own sources for operating FDSLWDO\HWVWLOOIXO¿OOVWDWHRUGHUVZLWKDQRSWLRQRIVHOOLQJDQ\H[WUDRXWSXWLQ the market. In summary, it was the push for economic decentralization from above. Unfortunately, the announced perestroikaUHIRUPVGLGQRWEHDUWKHH[SHFWHG UHVXOWV *UDQWHG JUHDWHU DXWRQRP\ IURP WKH VWDWH WKH HQWHUSULVHV ZHUH EHLQJ taken off the state books and were to look for larger funding independently. That ZDVVXSSRVHGWRFRPHIURPVDOHVEH\RQGWKHVWDWHRUGHUWDUJHW%XWLQWKHFRQGL-
Economics of transition in the new century WLRQVRI¿[HGSULFHVDQGDUXGLPHQWDU\¿QDQFLDOV\VWHPWKLVOHGWRVXSSO\GLYHUVLRQDVPDQDJHUVZRUNHGWKLQJVRXWSULYDWHO\FRQWULEXWLQJWRWKHEDUWHUH[FKDQJH system on the scale of the entire economy. The nominally state enterprises were not designed to produce competitive output to offer in the international markets. At the same time, there was oversupply of redundant produce in the domestic economy. Facing declining global prices for oil, the Soviet government borrowed internally via debt and printed money, virtually bringing the country to “the edge of bankruptcy” (Shatalin et al. ,QIDFWLQWHUQDOGHEWEHWZHHQ DQG JUHZSHUFHQW IURP DSSUR[LPDWHO\ ELOOLRQ WR ELOOLRQ 6RYLHW UXEOHV DV GHSLFWHG LQ )LJXUH 8665¶V IRUHLJQ GHEW JUHZ WKUHH WLPHV IURP 86 ELOOLRQ WR 86ELOOLRQLQWKHVDPHSHULRG %RULVRY 5HOLDQFHRQ¿QDQFLDOOHJDF\ allowed some borrowing from abroad in the interim but not for long. Unconstrained money growth (reaching double digits according to estimates in Shatalin et al. ZDVQRWVXSSRUWHGE\WKHUHDOHFRQRP\¶VQHHGVZKLFK grew at a much slower pace. As a result, despite the best intentions, nominal ZDJH LQFUHDVHV ZHUH DOPRVW LPPHGLDWHO\ QHJDWHG E\ VXUSDVVLQJ LQÀDWLRQ Further, money emission was supposed to help jumpstart the stagnated economy via increased investments in the manufacturing sector. However, that mainly led to half measures and projects were eventually abandoned due to an inability to VXVWDLQ FRQVLVWHQW LQYHVWPHQW ÀRZV DQG WKH ODFN RI UHDOLVWLF LQFHQWLYHV IRU QRPLQDOLQYHVWPHQWSURMHFWPDQDJHUV%\WKHHDUO\ VFRQVXPHUJRRGVDQG GXUDEOH JRRGV GH¿FLWV EHFDPH UDPSDQW DQG VHHPHG LQFXUDEOH 7R WDFNOH WKH problem head on, the government conceded to pressures of the young liberal economists who advocated unambiguous market reforms, departing from the FRXQWU\¶V VRFLDOLVW IRXQGDWLRQV :KLOH H[SODQDWLRQV RI WKH ODWH V±HDUO\ V¶ VRFLDO DQG HFRQRPLF FULVLV LQ WKH 8665 DUH DEXQGDQW DQG SUROLIHUDWH there are several important aspects that are seldom mentioned. These problems DUHDGGUHVVHGLQWKHQH[WVHFWLRQRIWKLVFKDSWHU
Soviet roubles, billions
600 500 400 300 200 100 0 1975
1980
1984
1985
1986
1987
1988
1989
1990
Figure 1.28665 LQWHUQDO GHEW 6RYLHW URXEOHV ELOOLRQV ± VRXUFH DXWKRU¶V calculations based on data from Shatalin et al
Economics of transition in the new century
1.3 What happened in the 1990s: more on political economy The Soviet government sponsored a comprehensive analysis of the economy and development of pragmatic solutions that would help revert the country’s downZDUG SDWK 7KH RI¿FLDO WUDQVIRUPDWLRQDO EOXHSULQW EHFDPH NQRZQ DV WKH 500 Days Program. It offered forced but gradual transition away from the socialist PRGHRISURGXFWLRQFKDUDFWHULVWLFRIWKHODWH8665WRDPRUHPDUNHWHFRQRP\ driven one. It is important to reiterate that this program was adopted and was supposed to be applied on the scale of the entire Soviet economy. The core prinFLSOHVRIWKHSURSRVHGSURJUDPDUHVXPPDUL]HGLQ7DEOH7KHSUHPLVHZDVWR achieve individual economic freedom and, based on that, build an effective economic system (Shatalin et al On a more macro scale, the dialectical interrelation of economy with society realized itself in the radical political movements’ victory over popular support in the former socialist republics that were then falling into poverty. As a result, the 500 Days Program was abandoned, although the general idea of change and the LQVWLWXWLRQRIIUHHPDUNHWUHPDLQHG KRZHYHUWKHPHWKRGKDGFKDQJHG Table 1.1 Core principles of the 500 Days Program Principles
Description
0D[LPXPIUHHGRPRIWKH economic agent Full responsibility of the economic agent
)UHHGRPRIHFRQRPLFDFWLYLW\ HQFRXUDJHPHQWRI entrepreneurship. Private property is paramount to the market reform, determining the rights and obligations of economic agents. Free competition under free market pressures is WR\LHOGDPRUHGLYHUVHVXSSO\RI¿QDOJRRGV competitive prices, and better quality products. Market works only if prices are determined freely with little to no state intervention, which causes distortions to market operations. More effective than a state-controlled system, which would allow for higher mobility of labor DQG¿QDQFLDOUHVRXUFHVDFURVVLQGXVWULHV ZLWK WKHH[FHSWLRQRIGHIHQVHHGXFDWLRQDQGKHDOWKFDUH spheres that remain under state supervision). &RQVLVWHQWLQWHJUDWLRQZLWKWKHZRUOGHFRQRP\ DELOLW\ for any economic agent to enter the international market. Aside from non-waged sector, the state is to provide support for those unable to work and RWKHUH[WUHPHVLWXDWLRQV The state cannot interfere with the market, aside from serving a regulatory and administrative role, as well as providing for some non-waged goods.
Competition among producers Price liberalization
Proliferation of market relations 2SHQHFRQRP\ State’s social guarantees State withdrawal from economy
6RXUFH DGDSWHGIURP6KDWDOLQet al
Economics of transition in the new century )URP WR 5XVVLDZHQWLQWRshock therapy. The other countries (with WKH H[FHSWLRQV RI WKH %DOWLF VWDWHV DQG .D]DNKVWDQ WKH ODWWHU DGRSWLQJ D PRUH JUDGXDODSSURDFK IROORZHGVXLWLQVRPHZD\VUHSOLFDWLQJ5XVVLD¶VH[SHULHQFHVWHS by step, albeit at a lesser scale. These conclusions and policy recommendations sat RQ IRXQGDWLRQV RI WUDGH OLEHUDOL]DWLRQ DORQJ WKH +HFNVFKHU±2KOLQ WKHRU\ PDFUR HFRQRPLF SUXGHQFH RI WKH 3RODN PRGHO 3RODN DQG WKH WULXPSK RI IUHHPDUNHWjOD+D\HN +D\HN 6RLQWKHHDUO\ VWKHIRUPHUVRFLDOLVW economies plunged into the all-out market and price liberalization, likened to shock therapy for its drastic switch from one set of economic conditions to another DQGVLJQL¿FDQWGHWULPHQWDOLPSDFWVRQWKHHFRQRP\DQGVRFLHW\ Obviously, this happened without a proper closure to the preceding socialist formation that governed the socialist economies for the better half of the last century. 3ROLWLFVSOD\HGWKHGH¿QLWLYHUROHLQWKHFKRVHQUHIRUPFRXUVH7HDULQJDOOOLQNV with the Soviet past, leaders in each country were prompt to discard communist ideology in their orientation. To the reformers’ dismay, the political turn-around did not have the same immediate re-positioning effect on the production mode and social relations within the individual societies of the FSU. It seemed to the reformers that pushing through with massive privatization and price liberalization would have changed the established order overnight. In fact it did, but not with the theoUHWLFDOO\SUHGLFWHGDQGH[SHFWHGRXWFRPH5RRWHGLQWKHVRFLDOLVWKLHUDUFKLFDOVWUXFture of state ownership, archaic social relations persisted and, under the pressure of reforms, mutated into unmanageable distortions (e.g. Åslund et al. The faultiness of the early reformist approach was the presumption that socialism could be revolutionarily discarded overnight and the new formation would replace it. This belief was not, as some may argue, the inspiration of conspiracy-minded advocates. On the contrary, it was based on the, at the time GRPLQDQW PLV LQWHUSUHWDWLRQRI0DU[¶VCapital 0DU[ ²WKH RI¿FLDO JXLGH RI WKH 6RYLHW SROLWLFDO HFRQRP\²WKDW ³SUHGLFWHG´ D VXFFHVVLYH replacement of one social formation by the other. 7KXVWKHRI¿FLDOSUHUHIRUPVOLQHZDVWKDWVRFLDOLVPZDVWREHUHSODFHGE\ communism in one shot. Yet, it never came. Worse, there was considerable debate in the Soviet literature at the time over the whole transition process from socialism to communism. In fact, socialism, in contrast to careful reading of 0DU[ZDVVHHQDVWKH¿UVWSKDVHRIWKHFRPPXQLVWPRGHRISURGXFWLRQ. It must be stated with all urgency that the evolutionary aspect of the social WUDQVIRUPDWLRQ ZDV SUDFWLFDOO\ DEVHQW IURP WKH FRQWHPSRUDU\ GHEDWH 2I¿FLDO academia and research drew its inspiration from the notions of revolution and radical changes. Surprisingly, it happened in the country that prided itself on DEVROXWH FRJQLWLRQ RI WKH FODVVLFV RI 0DU[LVP LH 0DU[ (QJHOV DQG /HQLQ which spoke of the intricate relationship between the productive forces and social productive relations. ,QGHHG0DU[GHGLFDWHGPRVWRIKLVZRUNDQGCapital in particular, to the analysis of political economy of developed capitalism formations of the midnineteenth century. An argument can be made that, towards the end of the twentieth century, things changed and one had to seek a different approach. There
Economics of transition in the new century is hardly any objection to this. However, in haste to act creatively, it appears the radical reformers that took over in each republic left out the very dialectical method of cognition of the social production mode and the role of social relations in a given historical formation. The dynamism of social change was cut short. ,QVWHDGWKHVHFRUHQRWLRQVZHUHVLPSOL¿HGWRWKHLUVWDWLFH[DPSOHVUHPRYLQJ the dialectics, and hence the logic and history, from political economy 0LQDV\DQ :LWKRXWGHOYLQJLQWRIXUWKHUGHWDLOVLWLVVXI¿FHWRVD\WKDW ZKHUHDV 0DU[ VSRNH RI WKH JUDGXDO FRPSOH[ GLDOHFWLFDO WUDQVIRUPDWLRQ RI RQH social formation into another—a natural outgrowth of a consequent production mode from the prior and the rejection of the latter by the former, hence a truly dynamic social system—the opposite was assumed to be the case, i.e. rapid, abrupt, and hence revolutionary change that cuts all ties with the past. &URVVFRXQWU\FULVLVLQWHQVL¿HGDVRLOSURGXFWLRQGHFOLQHG VHH)LJXUH DQG additional loans from abroad were no longer easily accessible. Available tranches were provided on a more restricted basis of short- to medium-term loans, with VHYHUHUHSD\PHQWFODXVHV%\WKHODWH VDQGHDUO\ VLWZDVHDV\WR³VHOO´ a radical political and economic reform as the FSU societies were ready for an overhaul. As independence movements in Eastern Europe gained strength towards WKHHDUO\ VFDSLWDOLVPEHFDPHPRUHDSSHDOLQJWKDQLGHDOFRPPXQLVPDVWKH QH[WVRFLDOIRUPDWLRQIRUWKH&,6+HQFHWKHUHZDVDUDSLGDWWHPSWWRVKLIWDZD\ from the previously dominant ideology. In political terms, the accumulation of VXFKHYHQWVOHGWRWKHHYHQWXDOEUHDNXSRIWKH8665LQ The shock therapy reforms—inspired and promoted by the international ¿QDQFLDOLQVWLWXWLRQVDORQJWKHOLQHVRIWKH:DVKLQJWRQ&RQVHQVXV :LOOLDPVRQ ²FRQGXFWHG LQ E\ QRZ LQGHSHQGHQW 5XVVLD ZHUH DLPHG DW HFRQRPLF
70
12,000
60
10,000
50
8,000
40
6,000
30
4,000
20
2,000
10
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
14,000
’000 barrels per day (FSU)
’000 barrels per day (RUS)
0
FOB oil price (right axis)
)LJXUH2LOSURGXFWLRQLQ)68DQG5XVVLD¶EDUUHOVGD\DQGRLOSULFH86 VRXUFH author’s calculations based on US Department of Energy (various years)).
Economics of transition in the new century deregulation, massive privatization, demilitarization of economy, price liberalization, and provisions for market institutions. The switch, while painful in the VKRUW WHUP ZRXOG UHVXOW LQ JUHDWHU VRFLDO EHQH¿WV DQG WUXO\ HI¿FLHQW PDUNHW V\VWHPVLQWKHPHGLXPWHUP VHH5RODQGIRUDWKHRUHWLFDOEDFNJURXQGLQ the Western literature). $VLWWXUQHGRXWWKHUHIRUPVRIWKHHDUO\ VUHVXOWHGLQDEUXSW¿VFDOFXWVDQG the state’s withdrawal from the economy and other areas. That in turn led to a deterioration of previously government supported non-waged labor sectors, such DV SXEOLF HGXFDWLRQ DQG QDWLRQDO KHDOWKFDUH V\VWHPV ,Q DGGLWLRQ WKH ¿VFDO FXWV affected agriculture, infrastructure, and subsidized industrial production capacities. &RXSOHG ZLWK D GLYHUVH VHW RI VRFLDO FRQÀLFWV SHUPHDWLQJ WKH UHJLRQ LQ FHUWDLQ cases economies came to an absolute standstill (e.g. countries of Caucasus and &HQWUDO$VLD 'UDVWLFRXWSXWDQGZHOIDUHORVVHVK\SHULQÀDWLRQFDSLWDOÀLJKWDQG lacking macroeconomic stability were recorded across the palette (e.g. Tanzi, :RUOG %DQN -XXULNNDOD DQG /D]DUHYD *DLGDU cVOXQG et al. )LVFKHUDQG6DKD\ .DO¶\DQRYDQG6LGRURYDPRQJRWKHU commentators). $FFRUGLQJ WR WKH :RUOG %DQN GDWD WKH JURVV GRPHVWLF SURGXFW *'3 JURZWKVWHDGLO\GHFOLQHGWKURXJKWKHPLG V²SXWWLQJHVWLPDWHVRIWKH DQQXDOGHFOLQHVIRUWKHUHJLRQDURXQGSHUFHQWDOWKRXJKVRPHFRXQWULHVH[SHULHQFHGVKDUSHUGURSVRISHUFHQWRUPRUHDVVHHQLQ)LJXUH VHHSDJH &RPSDUHGZLWKSUHWUDQVLWLRQJURZWKRXWSXWGURSVLQWKHPLG VUDQJHGIURP DERXWWRSHUFHQWDFURVVWKHIRUPHUVRFLDOLVWUHSXEOLFV )XUWKHUWKHUHZDVDQDSSDUHQWDEVHQFHRIDFRRUGLQDWHGH[LWRIWKHVWDWHIURP WKHHFRQRP\DQGLQWHUPHGLDWHSURYLVLRQVWR¿OOWKHYDFXXP6PDOODQGPHGLXP HQWHUSULVHVSOD\HGQRVLJQL¿FDQWUROHDVPDUNHWHQWUDQFHEDUULHUV PDLQO\EXUHDXFUDWLFEXWDOVRGXHWRUHSHDWHGLQFLGHQWVRIH[WRUWLRQDQGFRUUXSWLRQ ZHUHLPSUHJQDEOH,IWKH1HZ(FRQRPLF3ROLF\RI/HQLQLQWKH VZDVWKHSURWRW\SHIRU WKHUHIRUPVVSXUUHGE\WKH Vperestroika movement, the end result by the mid VLQ5XVVLDDQGRWKHUUHSXEOLFVZDVTXLWHWKHRSSRVLWH7KHVPDOOHUFRXQWULHV of the Caucasus and Central Asia suffered the worst in economic and political WHUPV ,Q WKH V WKHUH ZDV D VWURQJ HPSKDVLV RQ WKH VXFFHVV RI WKH IHZ winners in the reforms that would lead the rest into a new economic environment DQGJXDUDQWHHVXVWDLQDELOLW\RIWKHWUDQVLWLRQSDWK HJ5RGULN Moreover, based on purely theoretical assumptions, contemporary researchers insisted on the short-term nature of the shock therapy (aka big bang) reforms and RXWSXW FROODSVHV EHLQJ RQO\ YLUWXDO DV RSSRVHG WR UHDO HJ %HUJ 5RGULN 7KHVH FRQFOXVLRQV ZHUH GHULYHG SULPDULO\ IURP HDUO\ DQDO\VHV RI WKH reforms in the countries of Central and Eastern Europe (and not FSU), primarily +XQJDU\3RODQGDQGWKH&]HFK5HSXEOLF8QIRUWXQDWHO\WKHVWXGLHVRPLWWHGWKH importance of the higher overall preparedness of the three Eastern European economies and societies to liberalization reforms as opposed to the predominant economic and social structure present at the time in the FSU. All three of the states KDGE\WKHODWH VH[SHULHQFHLQJUHDWHUSROLWLFDOIUHHGRPVDUHODWLYHO\UHOD[HG DQG LQGHSHQGHQWO\ IXQFWLRQLQJ ¿QDQFLDO V\VWHP DQG D OHVV FHQWUDOO\ FRQWUROOHG HFRQRP\7KHVHIDFWRUVZHUHDEVHQWLQWKHFDVHRIWKHIRUPHU8665H[DFHUEDWLQJ
Economics of transition in the new century the social and economic decline of the early reform years. While we cannot do full MXVWLFH WR WKH WUDQVIRUPDWLRQ H[SHULHQFHV LQ WKH (DVWHUQ (XURSHDQ HFRQRPLHV LW should be noted that even there the optimism of the early reform successes yielded WR WKH DFXWH SUREOHPV RI RSHQ HFRQRP\ LVVXHV DQG DQ XQGHUGHYHORSHG ¿QDQFLDO V\VWHP OHDGLQJ WR RXWSXW GH¿FLWV DQG K\SHULQÀDWLRQ SDUWLFXODU LQ WKH FDVH RI Poland). Among other similar studies at the time, Pereira et al. UHO\LQJRQ WKH3ROLVKH[SHULHQFHDUJXHGDJDLQVWWKHUHIRUPVIURPDERYHDQGDJDLQVWUHIRUPV being storm-like measures. In essence, despite their economic elegance, the “big bang” reforms lacked the social dimension, which in turn threatened sustainability of the short-lived economic miracle. Clearly this discussion is incomplete if limited to only an economic sector effects overview. The human component and humanitarian losses in each country were tremendous. Unfortunately, the nuances underlying the social and GLVWULEXWLRQDOSROLF\LQWKHGLVLQWHJUDWLQJ8665ZHUHQHJOHFWHG5XVKHGSULYDWL]DWLRQRIQDWLRQDODVVHWVDQGUHWUHDWLQJ¿VFDOVXSSRUWFDXVHGWKHVHYHUHEUHDNXS of established links across former republics, leaving thousands of employees and WKHLUIDPLOLHVFXWRIIIURPUHOLDEOHVRXUFHVRI¿QDQFHZLWKQRYLDEOHUHSODFHPHQW (nor opportunities to re-position and acquire new skills) in the interim. Quickly, economic problems set in motion episodes of social unrest across the region. Countries witnessed the appearance of sharp class disparities across population segments. Still drastic divisions between the few rich and many poor permeate WKHVRFLDOFRQWH[WRIWKHUHJLRQ HJ0LODQRYLF 1LFNHO $VDFRQsequence, social and political transformations following economic determinants assumed unyielding proportions. New and transformed societies have surfaced. Across the region, a transition has evolved into all-out transformation.
1.4 Macroeconomic overview of the 2000s Coming out of the post-reform crisis was not a simple task. As has been menWLRQHGPRVWFRQVHUYDWLYHHVWLPDWHVSXWHDUO\ VRXWSXWORVVHVDWDSSUR[LPDWHO\ SHUFHQW,QUHDOLW\WKHORVVWRHDFKHFRQRP\LQWHUPVRISK\VLFDODQGKXPDQ capital was much greater. $IWHU WKH 5XVVLDQ FULVLV RI ZKLFK DIIHFWHG FSU economies as well, the trend changed and the formerly socialist economies’ performance began to improve. On the macro scale, this can be clearly seen in )LJXUHDVWKH*'3JURZWKSRVWHGVROLGSRVLWLYHUHVXOWVDIWHU ,QWKHSHULRG EHWZHHQ DQG VHYHUDO HFRQRPLHV SRVWHG GRXEOH GLJLW JURZWK HJ RQ DYHUDJH $UPHQLD JUHZ DW SHU FHQW $]HUEDLMDQ² SHU FHQW .D]DNKVWDQ² SHU FHQW 7XUNPHQLVWDQ² SHU FHQW VHH 0LWUD et al RQ LPSUHVVLYHJURZWKLQWKH&DXFDVXV &XUUHQWHVWLPDWHVRI±JURZWKDQG the prognosis for the future are reviewed in the concluding chapter of this study. +RZHYHURYHUDOOWKHWUHQGKDVEHHQVKDUSGHFOLQHVLQ Much of the seismic change in the economy came with a preceding change in the political structures of the newly independent states that gave rise to the new elites. The new governments took a more pragmatic and proactive approach in dealing with the economic situation peculiar to each country, although
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Economics of transition in the new century post-transition commonalities described above outweighed the differences. While the CIS countries nominally continued participation in the IMF-inspired macroeconomic stabilization initiatives, they sought more independence, espeFLDOO\DIWHUWKH 5XVVLDQFULVLV ,QVHYHUDOFRXQWULHVSHUFDSLWDLQFRPHOHYHOVHLWKHUUHWXUQHGWRSUH VFULVHV OHYHOV DVLQ5XVVLD RUVXUSDVVHGWKRVHOHYHOVE\ DVLQ$UPHQLD$]HUEDLMDQ %HODUXV DQG .D]DNKVWDQ ZKLFK KDG SHU FHQW DYHUDJH JURZWK LQ *'3 SHU FDSLWDDFFRUGLQJWRWKH:RUOG%DQNGDWDDVVKRZQLQ)LJXUH 6WLOOWKHUHDUH VHYHUDOHFRQRPLHV\HWWRUHDFKSUHLQGHSHQGHQFHLQFRPHOHYHOVVXFKDV*HRUJLD Moldova, Ukraine, and the Central Asian economies of Tajikistan and TurkmeniVWDQ RQDYHUDJHIRUWKLVJURXSWKHOHYHOZDVSHUFHQWEHORZWKH level). However, it must be noted that in all economies, and in the latter group espeFLDOO\WKH*'3SHUFDSLWDJUHZGXULQJWKHVZKHQFRPSDUHGZLWK UHVXOWV 7KHSDVWIHZ\HDUVKDYHEHHQHTXDOO\HQFRXUDJLQJLQWHUPVRILQÀDWLRQPDQDJHPHQWLQWKH&,6FRXQWULHVFRPSDUHGZLWKWKHVLWXDWLRQWKURXJKRXWWKH V VHH)LJXUH 7KHGDWDFOHDUO\VKRZVSURORQJHGSHULRGVRIK\SHULQÀDWLRQLQ WKHHDUO\ VHVSHFLDOO\LQWKHVPDOOHUHFRQRPLHVRI$UPHQLD7DMLNLVWDQDQG Turkmenistan, and also in the larger Ukraine. More recent trends have been RQ WKH GHFOLQH FRQVWUDLQLQJ RI¿FLDOO\ UHSRUWHG LQÀDWLRQ WR VLQJOH GLJLWV LQ WKH
3,000 1990
1998
2006
2,500
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2,000 1,500 1,000
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Uzbekistan
Ukraine
Turkmenistan
Tajikistan
Russia
Moldova
Kyrgyz Republic
Kazakhstan
Georgia
Belarus
Azerbaijan
0
Armenia
500
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Economics of transition in the new century Average consumer prices, annual per cent change 15
515
1,015
1,515
2,015
2,515
3,015
3,515
4,015
4,515 Uzbekistan Ukraine Turkmenistan Tajikistan Russia Moldova Kyrgyz Republic Kazakhstan Georgia Belarus Azerbaijan Armenia
42
37
32
27
2010
2009
22
17
2000–2008
12 1995–1999
7
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(3)
1993
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&DXFDVXVHFRQRPLHVEXWDOVRLQ.D]DNKVWDQDQG.\UJ\]5HSXEOLF%XWZLWKWKH VSUHDGRIWKHJOREDOFULVLV&,6HFRQRPLHVKDGWRGHDOZLWKVKRUWDJHVDQGVLJQL¿cant price hikes in some key consumption categories. 7KH,QWHUQDWLRQDO0RQHWDU\)XQG¶V ,0) H[WHQGHGIRUHFDVWDGMXVWHGIRUWKH FXUUHQW JOREDO UHFHVVLRQ VLWXDWLRQ EDVHG RQ VWDII DQDO\VHV DQG RI¿FLDO GDWD VKRZVGLYHUVHUHVXOWVIRUGLIIHUHQWFRXQWULHV VHH)LJXUHIRUGDWDIRU DQG ,QPLGWKH,0)¶V:RUOG(FRQRPLF2XWORRN ,0) SURMHFWHG GHFOLQH LQ LQÀDWLRQ UDWHV DFURVV &,6 UHVWUDLQLQJ WKH DYHUDJH SULFH JURZWK WR ZLWKLQDQGSHUFHQWLQDQGDIXUWKHUGURSXQWLO7KHVHHVWLPDWHV are based on current factual data with actuals yet to come. $GGLQJ WR WKH GHEDWH LV D UHFHQW UHSRUW E\ WKH &,6 ([HFXWLYH &RPPLWWHH &,6(& WKDW OLQNV VKDUS DQG FRQVLVWHQW SULFHOHYHO LQFUHDVH LQ WKH &,6 economies to the global food prices crisis. Several countries (e.g. Azerbaijan, .D]DNKVWDQ.\UJ\]5HSXEOLF7DMLNLVWDQDQG8NUDLQH KDYHVHHQSULFHVULVHWRD seven-year high, as indicated in the report. Food items have seen the sharpest price ULVH DFURVV DOO RI WKH &,6 FRXQWULHV DQG VRPH JRYHUQPHQWV HJ 5XVVLD KDYH
Economics of transition in the new century attempted to institute price ceilings—to no avail—to mitigate drastic increases. 2WKHU JRYHUQPHQWV KDYH VWHSSHG LQ WR LPSRVH H[SRUW UHVWULFWLRQV RQ JUDLQ DQG RWKHUEDVLFFRPPRGLWLHV HJ.D]DNKVWDQ¶VUHFHQWEDQRQZKHDWH[SRUWV 8NUDLQH¶V SDUWLDOJUDLQFRUQDQGEDUOH\H[SRUWVUHVWULFWLRQVYLDH[SRUWTXRWDV 7KHVHSURWHFWLYHPHDVXUHVKHOSHGVPRRWKLQÀDWLRQDU\SUHVVXUHVLQWKHVHHFRQRPLHV,WLV\HWWR EH GHWHUPLQHG WKH H[DFW HIIHFWV WKHVH PHDVXUHV PD\ KDYH KDG RQ WKH ZRUOG PDUNHWV8QIRUWXQDWHO\WKHVPDOOHUHFRQRPLHV HVSHFLDOO\WKRVHRI.\UJ\]5HSXElic, Tajikistan, and Turkmenistan) may have to seek alternative sources to satisfy their populations’ demands for staple items, potentially leading to further deterioUDWLRQLQWKHHFRQRP\DQGVRFLDOGLVFRQWHQW /LOOLV Since their independence, the economies of FSU have been actively involved LQ WKH LQWHUQDWLRQDO WUDGH $FFRUGLQJ WR &,6(& DQG VXSSRUWHG E\ GDWD IURP 81&7$' WKH WZHOYH HFRQRPLHV KDYH DFWLYHO\ WUDGHG ZLWK HDFK RWKHUDQGRWKHUFRXQWULHVLQWKHSDVWVHYHUDO\HDUV 7DEOH )RUDOOHFRQRPLHV RQ DYHUDJH LQFOXGLQJ ODUJH UDZ PDWHULDO H[SRUWHUV LPSRUWV H[FHHGHG H[SRUWV JURZWKDQ\ZKHUHIURPWRSHUFHQW7KLVFDQEHSDUWLDOO\H[SODLQHGWKURXJK WKH&,6HFRQRPLHV¶UHOLDQFHRQLPSRUWHG¿QLVKHGSURGXFWVLQWKHKLJKWHFKDQG machinery sectors. For smaller countries with modest agricultural capabilities, there also appears to be a strong reliance on imported food items. Overall, CIS countries are net importers with a relatively high negative FXUUHQWDFFRXQWWR*'3UDWLRVDVVKRZQLQ)LJXUH2IWKHWZHOYHHFRQRPLHV RQO\$]HUEDLMDQ5XVVLD7XUNPHQLVWDQDQG8]EHNLVWDQKDYHUHSRUWHGFRQVLVWHQW FXUUHQWDFFRXQWLPSURYHPHQW$VZLOOEHDUJXHGODWHU%HODUXV.D]DNKVWDQDQG 8NUDLQHZLWKPRGHVWGH¿FLWUHYHUVDOVPD\DOVREHDGGHGLQWKDWJURXS&KDUDFteristic of these top performers is the tilt towards energy resources and raw mateULDOV FRPSRVLWLRQ RI WKHLU H[SRUWV 7KLV WKHQ LV XVHG DORQJVLGH RWKHU VWUXFWXUDO IDFWRUVFDWHJRUL]LQJWKHVHDVQHWH[SRUWHUV VHH7DEOHRQSDJH 7KHPHVVDJHRI)LJXUHLVFOHDU ZKLOHWKHHDUO\VSHULRGVDZH[SRUWV UHFRYHU\DQGJURZWKLQPDQ\&,6HFRQRPLHVVLQFHWKHVHWEDFNVRIWKH VWKH VLWXDWLRQLVOHVVRQHVLGHGLQWKHODWHV,QIDFWDYDLODEOHIRUHFDVWVLQGLFDWH GHWHULRUDWLRQ LQ FXUUHQW DFFRXQW LQ ± HTXDO RU FORVH WR WKH GH¿FLWV UHFRUGHG GXULQJ WKH ± SHULRG 2YHUDOO WKRXJK WKH DERYH GLVFXVVLRQ shows that the past ten years have seen improvement and encouraging growth, with several countries returning to and surpassing pre-transition levels. Despite these positive changes, CIS economies challenged by the current crisis are yet to establish a solid presence in the global marketplace. Problems of poverty and inequality in income distribution are still persistent. Despite authorities’ active measures to reduce poverty incidence, recent World %DQNGDWDUHYHDOVVWDJJHULQJUHVXOWVZLWKKLJKSRSXODWLRQSURSRUWLRQVOLYLQJDW or below poverty lines.2I¿FLDOO\UHSRUWHGGDWDVKRZWKDWDQDYHUDJHRISHU FHQW RI LQFRPH LV FRQFHQWUDWHG LQ WKH WRS SHUFHQWLOH RI WKH SRSXODWLRQ VHH 7DEOH &RXQWU\VSHFL¿FVPDWWHU ,QWKHLUUHYLHZRI/DWLQ$PHULFDQLQHTXDOLW\*RQLet al. GUDZDWWHQtion to the fact that high inequality levels may be indicative of the failure of ¿VFDO SROLF\ LQ WHUPV RI LWV UHGLVWULEXWLYH IXQFWLRQ²RQH RI 0XVJUDYH¶V
2005–2006
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2000–2005
1995–2000
1995–2005
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Country
Table 1.2&,6LPSRUWVH[SRUWVJURZWKUDWHV ±
1995–2005
2000–2005
±
2005–2006
Economics of transition in the new century 30 1994–1999
2000–2007
2008–2010
25
Percentage of GDP
20 15 10 5 0 5 10
Uzbekistan
Ukraine
Turkmenistan
Tajikistan
Russia
Moldova
Kyrgyz Republic
Kazakhstan
Georgia
Belarus
Azerbaijan
20
Armenia
15
Figure 1.7 &XUUHQW DFFRXQW EDODQFH DV SHU FHQW RI *'3 ± VRXUFH DXWKRU¶V FDOFXODWLRQVEDVHGRQ:(2 ,0) GDWD
classical three. This corresponds to a government’s ability to correct for VRFLDOO\DGYHUVHGLVWULEXWLYHUHVXOWVYLDQHWWUDQVIHUVDGMXVWPHQW7KHDXWKRUV¿QG ¿VFDO DXWKRULWLHV RI LQGXVWULDO HFRQRPLHV WR EH PRUH HIIHFWLYH DW WKLV IXQFWLRQ WKDQLQWKHGHYHORSLQJZRUOG&KDSWHURIWKLVVWXG\HVWDEOLVKHVVLPLODUSDUDOOHOV in the case of the CIS economies. :KLOH RI¿FLDOO\ UHJLVWHUHG XQHPSOR\PHQW KDV VXEGXHG WR VLQJOH GLJLWV LQ UHFHQW\HDUV DQGVOLJKWO\DERYHSHUFHQWHJ*HRUJLDDWDQHVWLPDWHGSHU cent), alternative estimates indicate higher and persistent employment problems. The main problem is the lack of employment opportunities for middleaged old-system-educated professionals unable to compete in the fast-paced market economy with the Western-type-educated younger generations (e.g. see UHSRUWVRQ$UPHQLDLQ*HYRUN\DQet al.RU0LWUDet al. :KLOHWKH causes for high unemployment vary across each country, transformations of the transition period and lack of developed industrial base to sustain full employPHQWKDYHWDNHQWKHLUWROO([DFHUEDWLQJWKHVLWXDWLRQDVDQHFGRWDOHYLGHQFHVXJgests, are the notorious incidents of corruption and protection, resulting in job appointments assigned based on personal contacts in the case of the middle-aged
$UPHQLD $]HUEDLMDQ %HODUXV *HRUJLD .D]DNKVWDQ .\UJ\] 5HSXEOLF 0ROGRYD 5XVVLD 7DMLNLVWDQ 7XUNPHQLVWDQ 8NUDLQH 8]EHNLVWDQ &,6DYHUDJH
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Percentage share of income or consumption
Country
Table 1.3 Inequality in CIS by country and percentiles
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Economics of transition in the new century professionals. Partially as a result of the lack of employment growth, outward labor migration has been gaining in force, especially in the smaller economies of WKH &,6 &KDSWHU UHYLHZV WKH LVVXHV RI ODERU PLJUDWLRQ +HUH LW LV VXI¿FH WR note the following. 5XVVLDLVWKHPDLQGHVWLQDWLRQFRXQWU\IRUWKHODERUPLJUDQWVIURP&,6FRXQWULHV *HYRUN\DQ 2XWRIDWRWDORIUHJLVWHUHGPLJUDQWVLQ5XVVLDLQ ZHUH IURP WKH &,6 FRXQWULHV *RVNRPVWDW 5) 0LJUDQWV IURP VPDOOHUHFRQRPLHVRI$UPHQLD*HRUJLD0ROGRYDDQG7DMLNLVWDQÀRFNWR5XVVLDLQ search of better income opportunities and to capitalize on the country’s booming HFRQRP\&RPSOLFDWLRQV VHH&KDSWHU DULVHIURPODJJLQJOHJLVODWLRQDQGLQDGHTXDWHPLJUDWLRQUHJXODWLRQPHFKDQLVPVDFURVVFRXQWULHVWKDWKLQGHUHI¿FLHQWXVHRI DYDLODEOHUHVRXUFHVZLWKQREHQH¿WJXDUDQWHHVIRUWKHPLJUDQWZRUNHUV Further, and perhaps most importantly, there is an urgent need to identify sustainable sources of long-term economic growth in each economy. This is coupled with considerations of aggressive infrastructure and educational reforms (implying research and development and innovation facilities promotion) linked with LQGXVWULDOVWUDWHJ\DQGDPRUHHI¿FLHQWXSJUDGHRIDEXQGDQWDJULFXOWXUDOIDFLOLWLHV in each country. In fact, much of the macroeconomic success of recent years has been dependent RQ UHYHQXHV UHFHLYHG IURP UDZ PDWHULDO H[SRUWV ODERU PLJUDQW UHPLWWDQFHV IURP DEURDGDQGODUJHVFDOH UHODWLYHWRFRXQWU\¶V*'3 FRQVWUXFWLRQSURMHFWV,QVRPH countries, funds received via foreign aid grants and loans have played an important role in temporarily raising the overall well-being as well. This study alludes to this economic set-up as an overall structural concern from the perspective of growth and welfare sustainability, even in the immediate prospect. Complicating things further is the apparent ongoing search for the right develRSPHQWPRGHOWKDWKDVGHVFHQGHGXSRQWKHWUDQVLWLRQVRFLHWLHVLQWKH¿UVWGHFDGH RI WKH WZHQW\¿UVW FHQWXU\ 0RUH VSHFL¿FDOO\ ZKLOH WKH QHJDWLYH HIIHFWV RI WKH all-out laissez-faire SROLFLHVRIWKHHDUO\ VQHFHVVLWDWHGSURDFWLYHJRYHUQPHQW LQWHUYHQWLRQLQWKHHFRQRPLHVWKHVWDWH¶VÀLUWLQJZLWKHFRQRP\KDVFRQWLQXHG 7KLV VWXG\ IRFXVHV RQ LQQRYDWLYH DSSURDFKHV WR ¿VFDO SROLF\ DQDO\VLV GHHSO\ interconnected with the socio-economic development. It has been recognized by a QXPEHURIFRPPHQWDWRUVLQWKH¿HOGDQGFDOOVKDYHJRQHRXWWR¿QGQHZDSSURDFKHV WR VXVWDLQDELOLW\ RI HFRQRPLHV LQ WKH QHZ FHQWXU\ HJ 0DX
Economics of transition in the new century notion of state-capitalismKDVHYROYHGWRGH¿QHWKHFXUUHQWHFRQRPLFVRFLDODQG SROLWLFDOPRGHORIWKHFRXQWULHVRIWKH&,67KLVLVDVLJQL¿FDQWDFKLHYHPHQWDQG one not to be taken lightly by any student of transition, or, as appropriately stated above, transformation. The new approach implies an active and strategic state participation in the economy. This creates a somewhat unique situation by which the economies of WKH&,6 RUDWOHDVWWKHPDLQUHJLRQDOOHDGHUVVXFKDV5XVVLD.D]DNKVWDQDQG 8NUDLQH DUH QHLWKHU DGKHULQJ WR WKH WH[WERRNGH¿QHG IUHH PDUNHW UXOHV WKDW descended on them with shock therapy reforms nor returning to the old mantra of centrally planned economies. The new set-up is not a market socialism of +XQJDU\ WKH &]HFK 5HSXEOLF RU 3RODQG RI WKH V± V HLWKHU 7KH QHZ concept does not require direct government involvement in the economy. In fact, DYHUDJHJRYHUQPHQWH[SHQGLWXUHVLQWRWDOKDYHJRQHGRZQLQDOOHFRQRPLHVIURP DSSUR[LPDWHO\SHUFHQWLQ WRSHUFHQWLQ Instead the state’s increased role in the transition economies of the FSU in the ODWH V DQG HDUO\ V LV PDQLIHVWHG LQ WKH HVWDEOLVKPHQW RI WKH VRFDOOHG state corporations and other newly created organizations encouraged or sancWLRQHG E\ WKH JRYHUQPHQW RI WKH VSHFL¿F FRXQWU\ VHH 7DEOH LQ WKH $SSHQGL[ 5XVVLD ODUJHO\ WKDQNV WR SURDFWLYH JRYHUQPHQW PHDVXUHV VXSSRUWHG E\ UHYHQXHV IURP HQHUJ\ H[SRUWV KROGV WKH OHDG LQ WKH PDMRU DGDSWDWLRQ RI WKHVH new organizations for a competitive market environment. There, a state corporation is set up by the government (with often guaranteed start-up funds) as a partnership, which makes it nominally independent of the government. Any investment in the corporation becomes the property of that partnership. The corporation is not obligated (yet) to provide any regular reporting to the street, as any other open joint stock company would have. However it GRHV KDYH WR SURYLGH FHUWDLQ RSHUDWLRQDO UHSRUWLQJ GLUHFWO\ WR WKH 5XVVLDQ JRYHUQPHQW 7KH ODWWHU SURYLGHV D JHQHUDO IUDPHZRUN DQG LGHQWL¿HV FRUH WDVNV IRU the corporations’ operations. What the government does not do is try to institute omni-present controls à la Soviet style. The declared purpose of state corporaWLRQVLVQRWWRGULYHSULYDWHEXVLQHVVRXWEXWWR¿OOLQWKHVWUDWHJLFQLFKHVZKHUH SULYDWHLQYHVWPHQWLVUXQQLQJWKLQVRWKHH[WUDERRVWLVDPXVW There is much freedom of action in each corporation’s activities as long as WKHXQGHUWDNHQSURMHFWVFRQIRUPWRWKHJHQHUDOPLVVLRQLQHDFKFDVH7KHH[SOLFLW and implied goal is to boost innovation and research and development sectors (e.g. Rostexnologii and Rosnanotex LQWHJUDWHG ZLWK LQGXVWULDO GHYHORSPHQW support for infrastructure projects (e.g. $YWRGRU DVZHOODVVWUDWHJLFDQGHIIHFtive development of energy and natural resources. The nature of the work of each corporation requires outsourcing certain activities to the private sector. 7KH RWKHU FRXQWU\ ZLWK D FOHDUO\ GH¿QHG VHW RI VWDWH FRUSRUDWLRQV LV .D] akhstan. There, one organization (Samruk)—set up as a holding corporation— controls assets and oversees operations of several other corporations, each RSHUDWLQJLQLWVGHGLFDWHGLQGXVWULDODQGGHYHORSPHQWVSKHUH.D]DNKVWDWHFRUSRUDWLRQV VKDUH VLPLODU DSSURDFKHV DV WKH 5XVVLDQ SURWRW\SHV DOWKRXJK ZLWK greater emphasis on energy resources management. In both countries, there is a
Economics of transition in the new century 'HYHORSPHQW %DQN ZLWK D PDQGDWH RI HQVXULQJ VXVWDLQDEOH ORQJWHUP JURZWK and development. Other CIS countries (e.g. Ukraine, Turkmenistan) also have created various RUJDQL]DWLRQV WKDW VKDUH WKH WUDLWV RI WKH VWDWH FRUSRUDWLRQV RI 5XVVLD DQG .D]DNKVWDQ7KHGLIIHUHQFHLVSULPDULO\LQVFDOH WKH5XVVLDQDQG.D]DNKFRUSRUDWLRQVGXHWRJUHDWHUDYDLODEOH¿QDQFLDOUHVRXUFHVWRERWKJRYHUQPHQWVRSHUDWH on a much larger scale and have made more aggressive entrances in the marketSODFH DQGWKHPDQGDWH7KHSXUSRVHRIWKH5XVVLDQDQG.D]DNKFRUSRUDWLRQVLV rooted in promoting development in the competitive sectors with a broad outlook into the new century. Other countries are yet to catch up with this pace. Smaller FRXQWULHVPD\IROORZWKHH[DPSOHDQGFUHDWHVWDWHRZQHGKROGLQJFRUSRUDWLRQV DVWKH5XVVLDQVWDWHFRUSRUDWLRQVVHHNWREUDQFKRXWDQGHVWDEOLVKWKHLUSUHVHQFH LQWKHRWKHU&,6HFRQRPLHV EXWQRWWKHZHOONQRZQ5XVVLDQRosneft’, Gazprom or Energy Systems work in other CIS countries). )LQDOO\ LW VKRXOG EH QRWHG WKDW VWDWH FRUSRUDWLRQV DV LQ 5XVVLD DQG .D]DNKVWDQ DUH UHODWLYHO\ QHZ LQVWLWXWLRQV DQG LQ FHUWDLQ ZD\V FRPH DV WKH pragmatic governments’ alternatives to the notorious oligarchs. Those were the KROGLQJ RUJDQL]DWLRQV WKDW RQ WKH ZDYH RI LOOIDWHG SULYDWL]DWLRQ RI WKH V EURXJKW¿QDQFLDODQGLQGXVWULDOUHVRXUFHVLQGLIIHUHQWHFRQRPLFVHFWRUVXQGHUWKH control of a few people. State corporations with ambitious developmental causes are organized by and around the new elites that have come to the frontlines of economics and politics in each country. In this regard, it is important to note the evolvement of the institutional framework over the past two decades in the former socialist societies. Of interest are the newly established institutional players, such as diverse political and economic network alliances between local governments and large private business structures at general and individual levels alike. These networks are the logical by-products of the CIS nations’ history and contemporary development. The economic and social impact of the network operations is immense and longlasting. These strategic alliances, often forged along familial and commercial LQWHUHVWOLQHVDUHQRWKLQJQHZWRGHYHORSPHQWHFRQRPLFV7KHUHH[LVWVDEXQGDQW OLWHUDWXUH RQ WKH VXEMHFW FRYHULQJ UHFHQW H[SHULHQFHV LQ WKH 0LGGOH (DVW HJ +H\GHPDQQ +DJJDUGDQG.DXIPDQ DQG6RXWK(DVW$VLDDVZHOO DVGHYHORSHGFRXQWULHVFXOPLQDWLQJZLWKWKHVXFFHVVRI6RXWK.RUHDQchaebol DVGHVFULEHGLQ&KDQJ DQG$PVGHQ Furthermore, the pragmatic drive is manifested in authorities’ close attention WRWKHVWDWHFRUSRUDWLRQVDQGDGDSWDWLRQRIWKHH[LVWLQJVWDWHVWUXFWXUHVWRWKHUHDO HFRQRP\¶VGHPDQGV HJ5XVVLD¶VUHFHQWH[SHULHQFHSURPSWHGE\WKH¿QDQFLDO FULVLVDQGUHYLVHGGHYHORSPHQWWDUJHWV PRUHRQWKLVLQ&KDSWHUVDQGRIWKLV study). Whether a state-capitalism à la 5XVVLD DQG .D]DNKVWDQ RU DV LQ RWKHU countries with strong relationships between political and business elites (as in $UPHQLD*HRUJLDDQG8NUDLQHIRUH[DPSOH LVWRVXFFHHGDVDQHZDSSURDFKLQ development economics is yet to be seen. At this point, based on our analysis and available data, all twelve CIS economies may be grouped in two categories RIQHWH[SRUWHUVDQGQHWLPSRUWHUVDVFDQEHVHHQLQ7DEOH
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SULPDU\ IXHOV
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%HODUXV
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Main export FRPPRGLW\
1HWH[SRUWHUV $]HUEDLMDQ
Country
Group
Main export FRPPRGLW\ RIWRWDOH[SRUWV (avrg 1995–
PDQXIDFWXUHG (machinery) SULPDU\ IRRGIXHOV PDQXIDFWXUHG PDFKLQHU\ PDQXIDFWXUHG PLVF SULPDU\ IRRGIXHOV
PDQXIDFWXUHG (machinery) PDQXIDFWXUHG (machinery) PDQXIDFWXUHG (machinery) PDQXIDFWXUHG (machinery) PDQXIDFWXUHG (machinery) PDQXIDFWXUHG (machinery) SULPDU\ IXHOV
Main import FRPPRGLW\
Table 1.4 CIS country groups by main income sources from international transactions
Average share of UHPLWWDQFHVWR*'3 ±
Main import FRPPRGLW\ RIWRWDOLPSRUW (avrg 1995–
QD
Average share RIRI¿FLDODLG UHFHLYHGWR*'3 (1998–2006)
Economics of transition in the new century 7KHQHWH[SRUWHUVJURXSLQFOXGHV$]HUEDLMDQ.D]DNKVWDQ5XVVLD7XUNPHQLVWDQDQG8]EHNLVWDQ'HVSLWHHSLVRGHVRIFXUUHQWDFFRXQWGH¿FLWFKDUDFWHULVWLFWR DOOWUDQVLWLRQHFRQRPLHV VHH)LJXUH WKHSHFXOLDUDVSHFWDERXWWKHVHFRXQtries is the dominance of the primary (fuels and raw materials) commodities in WKHLU H[SRUWV FRPSRVLWLRQ RYHU WKH SDVW GHFDGH $W WKH VDPH WLPH WKHVH FRXQtries’ main import commodities are made of manufactured machinery items. Not VXUSULVLQJO\5XVVLDDQG.D]DNKVWDQWKHWZRSLRQHHUVRIZKDWWKLVVWXG\UHIHUV to as the state-capitalism model are in the vanguard of this group. Two other FRXQWULHV %HODUXVDQG8NUDLQH DUHDOVRDGGHGWRWKLVJURXS7KH\KROGVWURQJ SRVLWLRQV LQ PDQXIDFWXUHG JRRGV H[SRUWV LPSRUWLQJ SULPDULO\ IXHO RWKHU UDZ materials, and consumer goods. The net importers group is comprised of the rest of the CIS economies, which DUHVPDOOLQJHRJUDSKLFDQGHFRQRPLFWHUPV7KHVHDUHUHODWLYHO\ODUJHH[SRUWHUV RISULPDU\FRPPRGLWLHVHVSHFLDOO\IRRG ZLWKWKHH[FHSWLRQRI$UPHQLDZKLFK DVLGH IURP IRRG LWHPV H[SRUWV PDQXIDFWXUHG JRRGV LQ SDUWLFXODU MHZHOU\ ,Q WHUPVRILPSRUWVWKHUHVXOWVDUHPL[HGZLWKVRPHFRXQWULHVLPSRUWLQJDJULFXOtural items while others import machinery and raw materials. 7KHFRXQWULHVLQWKHVHFRQGVXEJURXS $UPHQLD*HRUJLD.\UJ\]5HSXEOLF 0ROGRYD DQG 7DMLNLVWDQ KDYH DQRWKHU VKDUHG FRPPRQDOLW\ KLJK UHPLWWDQFH ÀRZVDQGKLJKIRUHLJQDLGDPRXQWVUHODWLYHWR*'31HYHUWKHOHVVVRPHUHFHQWO\ managed to post a staggering double-digit growth, raising hopes for rapid continued development (e.g. Mitra et al. RQ $UPHQLD 6WLOO KLJK DYHUDJH VKDUHVRIUHPLWWDQFHVWR*'3 0ROGRYDSHUFHQWDQG$UPHQLDSHUFHQW IRUWKHSHULRG ±DQG7DMLNLVWDQZLWKDOPRVWSHUFHQWIRUWKHSHULRG RI ± DUH DQ LQGLFDWLRQ RI WKH LQFUHDVLQJ WUHQG DQG WKH UROH UHPLW tances—sent by labor migrants abroad to their families at home—play in the HFRQRPLF GHYHORSPHQW RI WKH VPDOOHU WUDQVLWLRQ HFRQRPLHV ,Q WKH VDPH LQGLFDWRUV ZHUH PXFK KLJKHU 0ROGRYD DQG 7DMLNLVWDQ HDFK DW SHU FHQW RI *'3 $UPHQLDDWSHUFHQW *HRUJLDDQG.\UJ\]5HSXEOLFZLWKFRPSDUDWLYHO\ ORZHUUHVXOWV
Economics of transition in the new century proactive governments’ roles in the economies of the FSU. Whether or not the region really evolves under state-capitalism remains to be seen. Two main country groups appear to be on the post-socialist transition PDS SULPDU\ HQHUJ\ DQG QDWXUDO UHVRXUFH H[SRUWHUV WKH ULFKHU HFRQRPLHV RI $]HUEDLMDQ .D]DNKVWDQ 5XVVLD 7XUNPHQLVWDQ DQG 8]EHNLVWDQ DQG %HODUXV and Ukraine to some degree) and a group of net importers and high remittance DQG IRUHLJQ DLG UHFLSLHQWV $UPHQLD *HRUJLD .\UJ\] 5HSXEOLF 0ROGRYD DQG Tajikistan). The future of the countries in both groups has in no way been decided. Despite any political alignments with various international organizations or country clubs, the simple economic reality of sustained economic growth and advanced economic development is yet to be discovered. It is then instructive for researchers and decision-makers to monitor the development processes LQWKHVHFRXQWULHVDVVXJJHVWHGE\WKHDSSURDFKRIIHUHGLQWKLVVHFWLRQVSHFL¿FDOO\WKHFDWHJRUL]DWLRQRIWKHHFRQRPLHVEDVHGRQWKHLUH[SRUWSHUIRUPDQFHDQG IXQGVUHFHLYHGIURPDEURDGWR*'3UDWLRV7KHUROHRI¿VFDODJHQWVLVYLWDOIRU each country group to grow stronger and introduce further improvements in infrastructure and social services.
1.5 Conclusion This chapter has attempted to provide a comprehensive overview of the CIS HFRQRPLHVDQGRIIHUDPHWKRGRORJLFDODSSURDFKWRWKHDQDO\VLVRI¿VFDOSROLF\ role in post-socialist transformation, as well as of the development efforts. The chapter introduces a two-group categorization of the CIS economies based on WKHH[WHUQDOSRVLWLRQV&OHDUO\GH¿QLWLRQDOLVVXHVFRPH¿UVWLQDQ\GLVFXVVLRQRI WUDQVLWLRQ HFRQRPLHV DQG FRXQWULHV RI WKH &,6 HVSHFLDOO\ 7KH LQWHQVL¿HG ¿VFDO participation in larger economies and authorities’ alliances with large business in the smaller countries has caused some pundits and politicians in the West and in the region to question the path for economic reforms that the twelve countries IROORZ([SHULHQFHVKRZVWKDWVWDWHFDSLWDOLVPLVQRWWKH&,6HFRQRPLHV¶LQYHQtion and variations of the idea have worked in the Middle East, Southeast Asia, DQGDGYDQFHGHFRQRPLHVVXFKDVLQWKH86$8.DQG*HUPDQ\ The structural issues facing the transition economies of the CIS are clear and are cause for concern for sustainable development. Whether the large energy UHVRXUFH H[SRUWHUV DQG QHW IRUHLJQ IXQGV UHFHLYHU QDWLRQV FDQ DFKLHYH UHDOLVWLF economic success in the long run depends on the will of local governments and their proactive steps in bold development policy implementation deemed strategic in the new century. The lessons of free-market reforms have been well learned and all tests passed. The time has come to continue critical assessment of FRXQWU\DQGJURXSVSHFL¿FHIIHFWVDQGEXLOGXSRQDFFXPXODWHGIRXQGDWLRQVWR stride forward in the economic and social development. 7KHQH[WFKDSWHURSHQVXSWKHGHEDWHRQSURDFWLYH¿VFDOSROLF\LQWKHWUDQVLtion economies by tackling one of the most important issues that CIS societies had to face as the trade barriers and price controls were brought down, governments ran out of money, and the borders opened up. In short, the previously
Economics of transition in the new century tightly closed economies opened overnight and faced a multitude of issues, GHDOLQJZLWKSHUVLVWHQWFULVHVDQGVKRFNVWRWKHLURSHUDWLRQV,QÀRZVRIIRUHLJQ imports and capital, including speculative—so-called hot money—capital, reached astounding proportions in the face of an almost total output collapse DFURVVWKHORFDOH7KHQH[WFKDSWHUWHVWVWKHWZLQGH¿FLWUHODWLRQVKLSVFUXWLQL]LQJ WKHFODLPWKDWFXUUHQWDFFRXQWGH¿FLWPLJKWEH¿QDQFHGE\JRYHUQPHQWDORYHU borrowing. As an innovative step in such analysis, the chapter pays close attention to the issues of investment and private consumption. Subsequent chapters ORRNLQWRDGGLWLRQDOVSHFL¿FVRI¿VFDOSROLF\DQGWKHUROHRIVWDWH *LYHQWKHLUKLVWRULFDOEDFNJURXQGDQGFDSLWDOLVWH[SHULHQFHDVVNHWFKHGDERYH WKHUH LV D QHHG IRU D VWUDWHJLF SURDFWLYH DQG LQQRYDWLYH ¿VFDO SROLF\ LQ WKH &,6 HFRQRPLHV 7KLV LQYROYHV QRW RQO\ PHUH PDQLSXODWLRQV ZLWK WKH WD[ FRGH EXW D VHHNLQJ RI QHZ RSSRUWXQLWLHV IRU JRYHUQPHQW ¿QDQFH DQG DOORFDWLQJ ¿VFDO UHVRXUFHVLQWHUPVRI¿QDQFHUHJXODWLRQPDQDJHULDOWDOHQWDQGRWKHUVWLPXODWLQJ measures, to the areas that matter most for the development within the general scope of the transition process, such as education, healthcare, infrastructure, and labor migration issues, along with a constructive industrial policy and support for private enterprise. At no time has this been more relevant than now, when the global economy struggles with the recession and the CIS economies absorb some of its worst impacts.
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Table 1.5 Some key state corporations in the CIS
1.6 Appendix
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Table 1.5 Continued
Promoting long-term sustainable economic growth by providing FRPSHWLWLYH¿QDQFLQJUHVRXUFHVWR second-tier investment projects in non-raw materials sectors. Funded SURMHFWVVWUHVVLQQRYDWLRQHI¿FLHQW HQJDJHPHQWZLWKLQH[LVWLQJQLFKHV and generation of new approaches to economic growth and development.
3URYLGLQJHI¿FLHQWPDQDJHPHQWWR DQGPD[LPL]LQJORQJWHUPYDOXHRI JURXSRI.D]DNKVWDQ¶VVWDWH companies. Actively improving corporate governance. Sectors UHSUHVHQWHG HOHFWULFSRZHU RLODQG JDV WHOHFRPPXQLFDWLRQV LQGXVWU\ defense projects.
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www.kdb.kz
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Table 1.5 Continued
Overseeing transportation development.
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2
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Fiscal policy, Diaspora, and labor migration This chapter is structured around three main parts in addition to this brief LQWURGXFWLRQ6HFWLRQRXWOLQHVWKHPDMRUWUHQGVLQODERUPLJUDWLRQÀRZVLQWKH FRXQWULHVRIWKH&,6&RUHWKHRUHWLFDOSRLQWVRQODERUPLJUDWLRQDUHFRYHUHGLQ 6HFWLRQ 7KHVH DUH IROORZHG E\ SUHVHQWDWLRQV RI WKH SURSRVHG 'LDVSRUD GULYHQ PHFKDQLVP LQ 6HFWLRQ DQG 0LJUDWLRQ 'HYHORSPHQW %DQN LQ 6HFWLRQ 7KHFKDSWHUHQGVZLWKFRQFOXGLQJUHPDUNVDQGDQ$SSHQGL[
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²5XVVLD *HYRUN\DQ +HOHQLDN -RQHVet al.DQGRWKHUV 7UDQVLWLRQHFRQRPLHVRIWKH&,6KDYHORQJVLQFHHVWDEOLVKHGPLJUDWLRQSDWWHUQV WKDWOHGWRWKHVSUHDGRI'LDVSRUDJURXSV QHWZRUNV LQYDULRXVH[WHQWVDFURVVDOO RIWKHWZHOYHFRXQWULHV)XUWKHULWKDVDOVREHHQVWUHVVHGWKDWSUDFWLFDOO\DOOFRXQ WULHVRIWKH)68KDYHUHFRUGHGKLJKQHJDWLYHQHWPLJUDWLRQUDWHVLQUHFHQW\HDUV UHVXOWLQJLQODUJHSRSXODWLRQORVVHV There is a wide range of historical and political reasons that have shaped PLJUDWLRQSDWWHUQVLQWKHWLPHVRIWKH5XVVLDQ(PSLUHDQGODWHUGXULQJWKH6RYLHW 8QLRQ IURPÀHHLQJSHUVHFXWLRQDQGZDUWRUQDUHDVRIWKHQLQHWHHQWKDQGHDUO\ WZHQWLHWK FHQWXULHV WR IRUFHG UHVHWWOHPHQW SURJUDPV RI WKH 6WDOLQ HUD DQG WR PDVVLYHGHYHORSPHQWDOXQGHUWDNLQJVLQWKH5XVVLDQ)DU(DVWDQG&HQWUDO$VLDRI WKHODWHU6RYLHW\HDUV1DWXUDOO\PLJUDWLRQLQWKH&,6GLGQRWRFFXURQO\RQDQ LQWUDUHJLRQDOOHYHO6LJQL¿FDQWSRSXODWLRQORVVHVKDYHRFFXUUHGKLVWRULFDOO\GXH WR PDVV H[RGXVHV WR FRXQWULHV LQ :HVWHUQ (XURSH 1RUWK $PHULFD DQG RWKHUV
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1995–2000
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2000–2005
2005–2010
2010–2020
2020–2040
2040–2050
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Ukraine, 2,500
Moldova, 500 Kyrgyz Republic, 450 Kazakhstan, 1,000
Georgia, 300
Uzbekistan, 700 Armenia, 900 Azerbaijan, 700 Belarus, 300
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Construction, 39.9%
Agriculture and forestry, 11.4%
Trade and food industry, 12.2%
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Azerbaijan
Belarus
Kazakhstan
Turkmenistan
Ukraine
Uzbekistan
Percentage of total
25 20 15 10
2009–Q3
2009–Q4
2010–Q1
2009–Q4
2010–Q1
2009–Q2
2009–Q3
2009–Q1
2008–Q4
2008–Q3
2008–Q2
2008–Q1
2007–Q4
2007–Q3
2007–Q2
2007–Q1
2006–Q4
2006–Q3
2006–Q2
0
2006–Q1
5
D 1HWH[SRUWHUV 25
Armenia
Georgia
Kyrgyz Republic
Moldova
Tajikistan
Percentage of total
20 15 10
2009–Q2
2009–Q1
2008–Q4
2008–Q3
2008–Q2
2008–Q1
2007–Q4
2007–Q3
2007–Q2
2007–Q1
2006–Q4
2006–Q3
2006–Q2
0
2006–Q1
5
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The J-curve, current account, and currency policy
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$CAi,t = c + A $REERi,t± + et
$CAi,t = c + A $REERi,t± + et
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%*6, 7% %*6, 7% %*6, 7% %*6, 7% %*6, 7% %*6,
7%
%*6, 7% %*6, 7% %*6, 7% %*6, 7%
4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4
4± 4
4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4
± ± ± ±
± ± ± ± ± ± ±
±
± ± ± ± ± ± ± ± ±
± ± ±
± ± ± ± ± ± ± ±
Two lags FRHI¿FLHQW
$UPHQLD $UPHQLD $]HUEDLMDQ $]HUEDLMDQ %HODUXV %HODUXV *HRUJLD *HRUJLD .D]DNKVWDQ .D]DNKVWDQ .\UJ\] 5HSXEOLF .\UJ\] 5HSXEOLF 0ROGRYD 0ROGRYD 5XVVLD 5XVVLD 7DMLNLVWDQ 7DMLNLVWDQ 8NUDLQH 8NUDLQH
One lag FRHI¿FLHQW
Constant
Sample period
Country
Endogenous YDULDEOH
$CAi,t = c + A * $REERi,t + B* $REERi,t-1 + et
LEVELS
Table 6.4([WHQGHGPRGHOHVWLPDWLRQUHVXOWV *00
12 ODJ ODJ ODJ ODJ ODJ ODJ ODJ
ODJ
ODJ ODJ ±ODJV ODJ ±ODJV ±ODJV 12 ODJ ODJ ODJ ODJ
J-curve REVHUYHG
± ± ± ± ±
±
± ± ± ± ± ± ± ± ±
Constant
± ± ± ± ± ±
±
One lag FRHI¿FLHQW
$CAi,t = c + A * $REERi,t + et
1R 1R 1R 1R
J-curve REVHUYHG
Sample period
8NUDLQH 8NUDLQH
± ± ± ±
%*6, 7% %*6, 7% %*6, 7%
±
±
7%
1R 1R
1R 1R 1R
± ± ± ± ±
± ±
± ± ± ±
±
J-curve REVHUYHG
± 1R ± ± 1R
± ± ± ±
±
± 1R ± ± 1R ± 1R ± 1R ± 1R ± ± 1R ±
Seven lags FRHI¿FLHQW
$CAi,t = c + A * $REERi,t– + et J-curve Constant REVHUYHG
± ± 1R ± ± 1R
Six lags FRHI¿FLHQW
$CAi,t = c + A * $REERi,t– + et J-curve Constant REVHUYHG
± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ±
%*6, 7% %*6, 7% %*6, 7% %*6, 7% %*6, 7% %*6,
Two lags FRHI¿FLHQW
$CAi,t = c + A * $REERi,t–1 + et
Endogenous Constant YDULDEOH
4± 4 %*6, 4± 4 7%
$UPHQLD 4± 4 $UPHQLD 4± 4 $]HUEDLMDQ 4± 4 $]HUEDLMDQ 4± 4 %HODUXV 4± 4 %HODUXV 4± 4 *HRUJLD 4± 4 *HRUJLD 4± 4 .D]DNKVWDQ 4± 4 .D]DNKVWDQ 4± 4 .\UJ\] 4± 4 5HSXEOLF .\UJ\] 4± 4 5HSXEOLF 0ROGRYD 4± 4 0ROGRYD 4± 4 5XVVLD 4± 4 5XVVLD 4± 4 7DMLNLVWDQ 4± 4 7DMLNLVWDQ 4± 4
Country
LEVELS
Table 6.4 continued
7%
%*6, 7% %*6, 7% %*6, 7% %*6, 7%
4± 4
4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4
± ± ±
± ± ± ±
%*6, 7% %*6, 7% %*6, 7% %*6, 7% %*6, 7% %*6,
4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4 4± 4
± ± ± ± ±
± ± ± ± ± ±
± ±
±
± ± ± ± ± ±
Two lags FRHI¿FLHQW
$UPHQLD $UPHQLD $]HUEDLMDQ $]HUEDLMDQ %HODUXV %HODUXV *HRUJLD *HRUJLD .D]DNKVWDQ .D]DNKVWDQ .\UJ\] 5HSXEOLF .\UJ\] 5HSXEOLF 0ROGRYD 0ROGRYD 5XVVLD 5XVVLD 7DMLNLVWDQ 7DMLNLVWDQ 8NUDLQH 8NUDLQH
One lag FRHI¿FLHQW
Constant
Sample period
Country
Endogenous YDULDEOH
$CAi,t = c + A * $REERi,t + B* $REERi,t–1 + et
GROWTH RATES: (X-XT-1)/(XT-1)
Table 6.4 continued
ODJ ODJV 1R ODJV ODJV ODJV ±ODJV ±ODJV
ODJ
ODJV ODJV 1R ODJ ±ODJV 1R ±ODJV ODJV ODJ ODJ 1R
J-curve REVHUYHG
± ± ±
± ± ± ±
Constant
± ± ± ± ±
± ± ± ± ± ± ± ±
One lag FRHI¿FLHQW
$CAi,t = c + A * $REERi,t + et
1R 1R 1R
J-curve REVHUYHG
Sample period
± ± ± ±
± ± ±
%*6, 7% %*6, 7% %*6, 7%
%*6, 7% %*6, 7% %*6,
7%
%*6, 7% %*6, 7% %*6, 7% %*6, 7%
Endogenous Constant YDULDEOH
1RWH $EVROXWHYDOXHVRIWKHtVWDWLVWLFDUHLQSDUHQWKHVHV 2QHODJFRUUHVSRQGVWRRQHTXDUWHUODJ
± ±
± 1R
J-curve REVHUYHG
± 1R
± 1R ± 1R
± ±
Seven lags FRHI¿FLHQW
$CAi,t = c + A * $REERi,t– + et J-curve Constant REVHUYHG
±
± ±
Six lags FRHI¿FLHQW
$CAi,t = c + A * $REERi,t– + et J-curve Constant REVHUYHG
± 1R
± ± ±
± ± ±
Two lags FRHI¿FLHQW
$CAi,t = c + A * $REERi,t–1 + et
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$UPHQLD 4± 4 $UPHQLD 4± 4 $]HUEDLMDQ 4± 4 $]HUEDLMDQ 4± 4 %HODUXV 4± 4 %HODUXV 4± 4
Country
GROWTH RATES: (X-XT-1)/(XT-1)
Table 6.4 continued
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Fiscal policy lessons for the CIS beyond the economic crisis of 2008–2009
8.1 Introduction As the work on this study neared its end, the global economic environment sigQL¿FDQWO\GHWHULRUDWHG6WDUWLQJLQWKHODWHUSDUWRIDQGFRQWLQXLQJRQZDUGV WKHZRUOGKDVEHHQHQJXOIHGLQD¿QDQFLDOFULVLVWKDWKDVE\QRZWUDQVIRUPHG LQWRDJOREDOHFRQRPLFUHFHVVLRQ'HVSLWHWKHODWH DQGHDUO\VSDUNVRI SRVLWLYH WUHQGV LQ WKH GHYHORSHG ZRUOG DQG VRPH HPHUJLQJ PDUNHWV WKLQJV UHPDLQ WR EH XQFHUWDLQ WKURXJKRXW WKH SDOHWWH 7KH LPSDFWV RQ WKH UHDO VHFWRU KDYH EHHQ UXLQRXV WR ERWK DGYDQFHG DQG GHYHORSLQJ HFRQRPLHV ,Q RQH RI LWV QXPHURXV XSGDWHV DW WKH WLPH WKH ,QWHUQDWLRQDO 0RQHWDU\ )XQG SUHGLFWHG D JOREDOHFRQRPLFKDOWZLWKWKHZRUOGHFRQRP\JURZLQJLQ DWSHUFHQW 7KHZRUVWHFRQRPLFGRZQWXUQLQVL[W\\HDUVZDVVHWWRFRVW¿IW\PLOOLRQJOREDO MREVLQ *XKDet al. (DUO\UHSRUWVSXWWKH86HFRQRP\FRQWUDFWLRQRQDQDQQXDOL]HGSHUFHQW DQG-DSDQ¶VSURGXFWLRQGURSSHG SHUFHQW %DULEHDX 1DNDPRWR $QHFGRWDOO\ LQ VRPH FRXQWULHV HJ /DWYLD WKH SRSXODWLRQ KDV EHHQ GULYHQ WR WKH HGJH E\ LQLWLDWLQJ D FDPSDLJQ IRU WKHLU QDWLYH FRXQWU\¶V SXUFKDVH E\ D ZHDOWK\LQYHVWRUJLYHQWKHLUJRYHUQPHQW¶VSURORQJHGQHJRWLDWLRQVZLWKWKH,0) 7XEDONDLQ7UHOO &RXQWULHVVXFKDV,FHODQG8NUDLQH%HODUXV+XQJDU\ DQGRWKHUVWXUQHGWRSURFXULQJ,0)¶VFUHGLW$QGWKH,0)H[SHFWHGPRUHJRYHUQPHQWVWRUHTXHVWXUJHQW¿QDQFLDODVVLVWDQFHZKLFKLQIDFWKDSSHQHG
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Innovative policy and lessons beyond the crisis 50 2008A
2008B
2009
Percentage of GDP
40 30 20 10 0
10
Uzbekistan
Ukraine
Turkmenistan
Tajikistan
Russia
Moldova
Kyrgyz Republic
Kazakhstan
Georgia
Belarus
Azerbaijan
30
Armenia
20
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Notes
1 Economics of transition in the new century: lessons learned and a future outlook 1 Recently, the republic of Georgia has opted out of the CIS but it is retained in this study as part of the group for consistent analysis and to account for the shared history and long time since early-1990s independence as part of the CIS. 2 For approximate estimates and detailed discussion, see Shatalin et al. (1990) and Gaidar (2007). 3 According to the data reported by the US Department of Energy (2008) and in Schiller (2008). 4 Hernandez-Cata (1997) offers an empirical test of price stabilization (restricted monetary policy and prudence implied by Polak’s model), trade liberalization, and growth UHFRYHU\7KLVKLQJHVRQWKHDVVXPSWLRQRI³TXLFN´PDUNHWHQWUDQFHRIQHZHI¿FLHQW enterprises. This observation is closely connected with the revolutionary bias of the 1990s reforms mentioned here. 5 The origins of the term “shock therapy” are in the post-war reconstruction of West Germany, when over a short period of time the government was able to create the necessary preconditions for economic take-off. An excellent background of events is available via interviews with primary key-players at PBS (2003). 6 On the revolutionary bias of the transition reforms and immediate institutional vacuum, see Gaidar (2007). 7 Various observers commented on this issue. In particular, the disconnect is explicitly articulated in Minasyan (1989) as applied to the Soviet economy and in Foley (1986 and 2006) as applied to Marx’s political economy and its “predictions” in general. 8 For an excellent discussion of misinterpretation and lack of accurate comprehension of Marxian political economy and Marx’s method, see Minasyan (1989). 9 In fact, Hernandez-Cata (1997) discusses the perils of rapid liberalization and drastic output losses in the short-run. However, one must be reminded of Keynes’s preoccupation with getting the short-run policies right, as such have strong impact on consequent economic activity (Keynes 1936). &KDSWHUUHYLHZVLQGHWDLOLVVXHVRIODERUPLJUDWLRQ+HUHVXI¿FHLWWRVD\WKDWHDFK CIS economy experienced a massive loss of productive population, reincarnating the term “brain drain” with an utmost severity. 11 Transition economies have participated or continue to participate in various poverty reduction programs through the World Bank and the International Monetary Fund projects, as well as in cooperation with other multilateral development institutions. 3HUFHQWRISRSXODWLRQOLYLQJDWWKHRI¿FLDOSRYHUW\OLQHVUDQJHGIURPSHUFHQWLQ Kazakhstan to approximately 60 per cent in Azerbaijan and 75 per cent in Tajikistan, according to WDI in 2008.
Notes 239 12 For an excellent overview of inequality issues in the transition economies, see Milanovic (1998). 13 The other two of “Musgrave’s trilogy,” as mentioned by Tanzi (2006), being stabili]DWLRQDQGHI¿FLHQF\ 14 For example, see Gevorkyan et al. (2008) for an alternative estimate of Armenia’s unemployment under ILO standards. This approach suggests an average of 31.4 per FHQWIRUWKH±SHULRGFRQWUDVWHGWRDQRI¿FLDOO\UHSRUWHG SHUFHQWIRUWKH VDPHWLPHIUDPH7KHFRUHGLIIHUHQFHLVLQWKHIDFWWKDWWKHRI¿FLDOHVWLPDWHUHOLHVRQ QXPEHUVRIRI¿FLDOO\UHJLVWHUHGXQHPSOR\HGZKLFKLQWKHFDVHRIWUDQVLWLRQHFRQRPLHV with still rudimentary labor market regulatory means is only a small portion of the total unemployed. See discussion in Chapter 5 on additional labor market considerations. 15 For example, see recent state of the union addresses by President V.V. Putin on Russia’s development until 2020 (Putin in 2008: www.kremlin.ru) and similarly President N. Nazarbaev on Kazakhstan (Nazarbaev in 2007: www.ntu.kz). For more on “National Projects” in Russia, see a series of publications by Rossijskaya Gazeta (www. rg.ru). For The Moscow School of Management SKOLKOVO, see www.skolkovo.ru. 16 Chapter 4 reviews some of these considerations in further detail. )LVFDOSROLF\LQWKHQHZO\RSHQHGHFRQRPLHV DUHWKHUHWZLQGH¿FLWV" 1 To clarify, the negative net export position was the starting point in the free-market transition process for the CIS economies. Prior to that much trade occurred within the closed socialist market, with national income accounting at a greater, USSR, scale. 2 This, however, did not fully alleviate persistent social problems in the smaller CIS economies, like unemployment, poverty, and inequality. Some of these issues are addressed in Chapter 3. 3 For an example of a recent empirical study on a group of advanced economies, see &RUVHWWL DQG 0OOHU 7KH DXWKRUV ¿QG HYLGHQFH IRU F\FOLFDO PRYHPHQW RI WKH FXUUHQWDFFRXQWDQG¿VFDOEDODQFHEXWLQWHUSUHWWKHLUUHVXOWVZLWKFDXWLRQ7KHLUHPSKDVLVLVRQWKHFURZGLQJRXWHIIHFWVWKDW¿VFDOH[SDQVLRQPD\KDYH7KHUHVXOWVKRZHYHU are peculiar to the advanced economies development. 2QHRIWKHVL[SX]]OHVRIPRGHUQPDFURHFRQRPLFVDVLGHQWL¿HGLQ2EVWIHOGDQG5RJRII (2000). For alternative empirical treatment of the FH puzzle in the OECD case, see Coakley et al. (1996). 7KLVFHUWDLQO\EHDUVQRTXDOLWDWLYHRUTXDQWLWDWLYHVLJQL¿FDQFHLQWHUPVRIWKHVFDOHRI internally procured investment funding. Also, see Chapter 8 on a more detailed discussion of CIS exposure to international capital markets and implications of that for the HFRQRPLHVLQWKHRQJRLQJ¿QDQFLDOFULVLVDQGJOREDOUHFHVVLRQFRQGLWLRQV 6 Questions of sovereign debt are reviewed in greater detail in Chapters 3 and 4. 5HFDOO WKDW WKH ¿QDO GHEW VHUYLFH EDODQFH LV D FRPSRVLWH RI WKH LQWHUHVW UDWH DQG WRWDO GHEWRXWVWDQGLQJ5HGXFWLRQRIWKLV¿JXUHLQUHODWLRQWRWRWDOH[SRUWVFRUUHVSRQGVWRD ORZHU GHEW EXUGHQ RQ WKH HFRQRP\ 7KLV IUHHV XS ¿QDQFLDO DQG HQWUHSUHQHXULDO resources that may be applied elsewhere in the national economy (e.g. infrastructure improvements, as in Russia). 8 Standard national income decomposition can be found in any macroeconomics textbook, e.g. Blanchard (2006). )LVFDOSROLF\VXVWDLQDELOLW\LQWUDQVLWLRQ LVLWWKHUH" 5HFDOODVLPLODU¿QGLQJLQ&KDSWHULQUHIHUHQFHWRWKH/DWLQ$PHULFDQH[SHULHQFHE\ Goni et al. (2008). 2 Throughout the analysis, this study reviews an increasing tendency of state participation in the economy, in particular in non-waged goods sectors in the face of an absent
240
Notes
HI¿FLHQWPDUNHWPHFKDQLVPWKDWZRXOGSURYLGHIRUVXFKVRFLDOJRRGVLQDGHYHORSHG capitalist economy. 7RFODULI\WKLVLVDVOLJKWGLYHUVLRQIURPWKHWUDGLWLRQDOH[SRVLWLRQ7KHRULJLQDO³¿VFDO GLDPRQG´VKRZV³LPSURYHG¿VFDOH[SHQGLWXUHHI¿FLHQF\´LQVWHDGRI³¿VFDOH[SHQGLWXUH´VKRZQKHUH7KHUHDVRQIRUWKLVGHYLDWLRQLVGXDO D ¿VFDOSUHVHQFHDQGLWVPDJQLWXGHLQWUDQVLWLRQDUHEHVWPHDVXUHGE\ORRNLQJDWVKDUHVRIDFWXDO¿VFDOH[SHQGLWXUH b) aside from lack of reliable data on the subject, it is premature to use any other SUR[\ RI ¿VFDO LPSURYHPHQW JLYHQ WKH VKRUW KLVWRU\ RI LQGHSHQGHQW JRYHUQDQFH DQG WKH VWURQJ LQÀXHQFH RI SROLWLFDO HQYLURQPHQW RQ GHFLVLRQ PDNLQJ LQ WKH WUDQVLWLRQ economies. 6HHIRUH[DPSOH%HUWRODDQG'UD]HQ DVFLWHGLQ3XU¿HOG 5 An apparent complication to conducting such a test is the obvious non-conventionality of the transition economies’ structure and operations compared with the more stable industrialized world, where such tests may be more valid. 6 Certainly much public–private cooperation is stigmatized through the oligarch alliDQFHV ZLWK ¿VFDO DJHQWV DQG ODUJH VWDWH FRUSRUDWLRQV SHQHWUDWLQJ FHUWDLQ DUHDV RI WKH economy. However, if the South Korean chaebols are praised as the effective policy tools in national development (e.g. Amsden, 2001), how would the job-creating state corporations and large industrial conglomerates differ from that in, for example, 5XVVLD .D]DNKVWDQ RU 8NUDLQH" 7KHUH LV QR EHQH¿W RI KLQGVLJKW \HW WR DQVZHU WKLV question, but all indicators suggest that state-capitalism may have its positive moments, as well, in terms of growth and development. The problem is more precarious in the smaller—net importer—economies of course, and without reliable historical trend data, it is not possible to analyze these at this time. 7 Bohn (1998) acknowledges his results to be somewhat contradictory to mainstream ¿QGLQJVHJ7UHKDQDQG:DOVK 8 In fact, this policy has characterized Russia’s economy of late 2007 through now, with active government involvement to avert regressive market trends and to sustain a certain level of state funding. The use of the reserve funds has proven necessary in light of recent declines in the price of oil—the major export revenue generating commodity—and the spread of the global crisis. More closely related aspects are discussed in Chapter 7 of this book. 7KH SRVWVRFLDOLVW VRFLHWLHV ZHQW WKURXJK WKH 3RQ]LOLNH ¿QDQFLQJ H[SHULHQFH RQ D large scale with the launch of the MMM fund in 1992. The company offered immediDWHDQGPXOWLSOHUHWXUQVRQQRPLQDOLQYHVWPHQWVWRWKH¿UVWLQOLQHLQYHVWRUVE\ERUrowing from those investing in the fund at a later date. Eventually, the scheme collapsed with its founder arrested in Russia after creating another similar pyramid, this time web-based (see Kovalev, 2003 for additional overview). /DFNRIUHOLDEOH¿VFDOGDWDRQWUDQVLWLRQHFRQRPLHVRIWKHIRUPHU8665LVDFKDUDFteristic feature of statistical analysis and policy focus of the early research on postsocialist transition. In fact, the missing data has played a role in shaping the main research themes in this context. This chapter has been prefaced with the statement that most of that research has been primarily focused on growth and open economy parameters of transition, rather than more intricate policy measures. Appearance of new GDWDRQYDULRXVPHDVXUHVRI¿VFDOSROLF\LQVSLUHVKRSHWKDWWKHEXONRIWKHWUDQVLWLRQ HFRQRPLHV¶UHVHDUFKZLOO¿QDOO\VWDUWIROORZLQJWKHSROLF\SULRULWLHV¿UVWUDWKHUWKDQ following the data. 11 It may be argued that one should also account for the revenue side as the government SRWHQWLDOO\ HDUQV SUR¿WV IURP LWV VHPLRZQHUVKLS SDUWLFLSDWLRQ LQ WKH ODUJH FRUSRUDtions. While that is true, the reality of the current stage of transition is that the economies of the CIS have managed to establish strict rules and tax codes, which allow JRYHUQPHQWVWRGHULYHWKHLUVKDUHRIUHYHQXHVGLUHFWO\IURPSUR¿WDQGRWKHUHQWHUSULVH taxes, shifting the burden of competitive management of a corporation to the private sector.
Notes 241 12 As a reminder, all values, except the output growth y and reforms proxy P, are taken as shares of GDP. ,QQRYDWLYH¿VFDOSROLF\ WKHKRZZKHQDQGZK\RIERUURZLQJIURPWKH Diaspora 1 See detailed analysis of exports revenue by country in Chapter 1. ,QQRYDWLYH¿VFDOSROLF\ WDFNOLQJODERUPLJUDWLRQSUREOHPV 1 See discussion in Chapter 4 and Table 4.1 of the Appendix for the migration data by country. 2 It should be stressed that reliable migration data for the twelve former Soviet republics LV H[WUHPHO\ GLI¿FXOW WR FRPH E\ 2XU HVWLPDWHV LQ WKLV VWXG\ DUH EDVHG RQ H[WUD SRODWLRQV IURP WKH RI¿FLDO VWDWLVWLFV IRU HDFK FRXQWU\ HPSLULFDO UHVHDUFK PXOWLODWHUDO institution databases (such as the UN and World Bank), and own surveys. 3 It is sometimes convenient to differentiate between types of migration by reference to the number of years the migrant has spent outside the country. Here, we assume permanent migration to be a non-returning exit of migrants from a CIS country, except for occasional short-term visits to the homeland in rare cases. According to the studies of migration mentioned in this analysis, permanent migration is more likely to have a stronger effect on the host than on the home country. 4 For example, of Armenia, see Gevorkyan et al. (2008). 5 Depending on the perspective, temporary migration can be a type of permanent migration. This happens in cases when migrants leave their home countries to never come back but travel from one host country to another during their working career. In this case, the migrant is considered to have moved permanently outside the home country, but is still regarded temporary in relation to adopted host countries. In addition, a collective term of “returning migration” is sometimes used to combine pure temporary migrants and those who had moved from their home country intending to stay abroad but later decided to return. For the purposes of this study, temporary labor migration refers to a situation of a migrant worker exiting the home country temporarily and DOZD\VUHWXUQLQJDIWHUWKHLUDVVLJQPHQWRUFRQWUDFWDEURDGLVIXO¿OOHG 6 Also see Gevorkyan (2008) and Gevorkyan and Gevorkyan (2010). $ W\SLFDO PLJUDQW¶V SUR¿OH LV GHVFULEHG LQ JUHDWHU GHWDLO LQ WZR FRDXWKRUHG VWXGLHV Gevorkyan et al. (2006) and Gevorkyan et al. (2008). 8 The CBR estimates are based on transfers made via a range of money transfer systems DQGQDWLRQDOSRVWQHWZRUNVDVZHOODVEDQNWREDQNWUDQVIHUV7KHVHDUHLGHQWL¿HGKHUH DVRI¿FLDORUUHSRUWHGWUDQVIHUV -FXUYH IDFLQJH[FKDQJHUDWHDQGFXUUHQWDFFRXQWÀXFWXDWLRQULVNVLQ the open economies of the CIS 1
In September 1949, when the UK devalued the pound sterling by over 30.5 per cent, RWKHU :HVWHUQ FRXQWULHV GLG WKH VDPH DOEHLW DW UDQJLQJ PDJQLWXGH )RU VSHFL¿F percentage breakdown, see Flanders (1963). 2 Incidentally, the paper offers good background information on the popularization of the J-curve topic in the American scholarly and media debate. 3 Whereas “unit values” are the goods’ delivery prices in US$, which assume existence of lags and difference in foreign currency denominations, i.e. not the same as “contract prices” (Carter and Pick, 1989: 719). 4 Certainly, this holds true at least partially. An alternative examination of the nature of
242
Notes
the shock might prompt a different conclusion. In certain cases (and this is the call for a country case study), a shock to government consumption might in fact stimulate investment, if that consumption takes the form of investment in infrastructure. For more on growth models and public spending, see Greiner et al. (2005). 5 IMF has produced considerable research on the issue of exchange rate, domestic prices, and balance of payments. For additional empirical testing results related to the present discussion, see, for example, Belaisch (2003), Gueorguiev (2003), and Lee and Chinn (2002), among many others. 6 The countries that required this adjustment were: Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, and Tajikistan. In all of these economies, US$ plays the major role in international exchange transactions. 7 This is opposed to efforts detecting a reverse J-curve: currency appreciation and improvement in the current account. 'XHWRVHYHUHGDWDDQGVDPSOHVL]HOLPLWDWLRQIHZWHVWVUHWXUQHGYHU\KLJKFRHI¿FLHQW estimates, which in more complex models most likely will not return robust results to support the main hypothesis. $PRGHORI¿VFDOSROLF\FXUUHQF\FULVLVDQGIRUHLJQH[FKDQJHUHVHUYHV dynamics 1 For a general review of banking-to-currency crisis tendencies as well as an overall ¿QDQFLDO FULVLV GLVFXVVLRQ EDVHG RQ LQWHUQDWLRQDO H[SHULHQFH VHH .DPLQVN\ DQG Reinhart (1999). In addition, Corsetti et al. (1999) provide a critical review of events before and after the East Asian crisis. 2 For an excellent review of East Asia’s development and industrialization efforts, see Amsden (2001). 3 Some key features of sovereign borrowing, including the cost of international capital for the borrowers and role of macroeconomic indicators, have been discussed earlier in Chapter 4. 4 For example, see the recent review of similar circumstances in Russia (Belton and Wagstyl, 2009). 5 Working with ratios helps deal with the exchange rate conversion. On the level scale, because e LV GH¿QHG DV IRUHLJQ FXUUHQF\ H[SUHVVHG LQ GRPHVWLF FXUUHQF\ IRUHLJQ currency-denominated income, for example, would then be expressed as: 6 The negative exchange rate and negative output solutions are suppressed from these and consequent results’ summaries. Note, however, that a possible explanation for negative reserves, as Kato et al. (2008) suggest, is that there may be a need for an external credit line from the international lenders. 7 As shown in the next chapter, this is exactly the situation in the CIS economies at the time of writing. 8 Recall that many large corporate borrowers, especially in the larger CIS economies, are semi-private entities with implied state guarantees, hence with a risk of falling on the ¿VFDOEDODQFHVKHHWV 9 For another example of debt-to-income equation derivation, see Asada and Semmler (1995). 8 Fiscal policy lessons for the CIS beyond the economic crisis of 2008–2009 1 The latest estimate is a downward revision from an earlier estimate of 2.2 per cent global growth (IMF, 2009). 2 The most prominent case in the developed world is the still-looming danger of the
Notes 243
3 4 5 6
Greek government’s default, pulling countries like Ireland, Portugal, and even Spain with it in a chain reaction. After lengthy and obscure negotiations, the EU and IMF HYHQWXDOO\ZRUNHGRXWDWHPSRUDU\UHOLHISDFNDJH\HWWKH¿QDORXWFRPHLVVWLOOXQFOHDU To add to accumulated troubles, speculation rises around the possibility of numerous sovereign defaults in the near future. Data for Ukraine is derived from the analysis by Kornev (2009) and Winsent (2009). The reader is referred to the earlier analysis of debt to GDP ratios by country, e.g. Chapter 3. One of the recent manifestations of such inter-reliance is the proposed establishment of a US$10 billion mutual assistance fund among Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, and Ukraine. Azerbaijan is certainly an exception in this group, as its economy has been affected mainly by the decreasing price of oil.
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Index
Note: Page numbers in italics denote tables, those in boldGHQRWH¿JXUHV a/c = account; govt = government 500 Days Program 2, 6 aid: foreign aid transfers 22; OECD countries, World Bank and IMF 101–2 Armenia: change in TB and BGSI over change in REER 166; classical Diaspora 99, 100; debt stock/service, 2006 91; Diaspora projects 228; education expenditure as % GDP 114; extended model estimation results (GMM) 177–80 ¿QDQFLDOFULVLV± GMM regression analysis 163; govt and current a/c balances, % GDP 58; infrastructure indicators 113; J-curve HIIHFWREVHUYDWLRQV± migration as % of total labor force 123; migration rates (current/projected) 121; OLS regression analysis 158; population (2008) 112; potential Diaspora stock 112 Azerbaijan: change in TB and BGSI over change in REER 167; debt stock/sevice, 2006 91; education expenditure as % *'3 H[SRUWV*'3GH¿FLW extended model estimation results (GMM) 177–80 ¿QDQFLDOFULVLV 2008–2009 224–5; GMM regression analysis 163; GNP per capita (1993, 96; govt and current a/c balances, % GDP 58; healthcare H[SHQGLWXUH±77; infrastructure indicators 113; J-curve effect observations 156, 159; migration as % of total labor force 123; migration rates (current/projected) 121; OLS regression analysis 158; population (2008) 112; potential Diaspora stock 112
balance on goods and services trade and income (BSGI) transfers 154 banks: Central Bank of Russia (rate of UH¿QDQFLQJ190; ruble exchange rate 2008–2009 216); Migration Development Bank (MDB) 119, ± DQGWRWDOIRUHLJQ currency-denominated debt 214 Belarus: change in TB and BGSI over change in REER 168; debt stock/sevice, 2006 91; education expenditure as % GDP 114; extended model estimation results (GMM) 177–80 ¿QDQFLDOFULVLV 2008–2009 225–6; GMM regression analysis 163; GNP per capita (1993, 96; govt and current a/c balances, % GDP 58; infrastructure indicators 113; J-curve effect observations 156, 159; migration as % of total labor force 123; migration rates (current/projected) 121; OLS regression analysis 158; population (2008) 112; potential Diaspora stock 112 %RKQ¿VFDOSROLF\VXVWDLQDELOLW\± Bulgaria: education expenditure as % GDP *13SHUFDSLWD 2006) 96; infrastructure indicators 113; population (2008) 112; potential Diaspora stock 112 CIS transition economies 1–28; see also CIS-10 group; administrative center-toregional govt contradiction 30; all FRXQWULHVWZLQGH¿FLWV58–61; average FRQVXPHUSULFHVLQÀDWLRQ ± 13 DYHUDJH¿VFDODQGFXUUHQWDF
Index balances, share of GDP 1989–2009 31–2; central bank independence 189–90; corruption and protection 16; current a/c balances as % GDP 30, 58–61, 223 (1994–2010 16); energy and natural resource exporters 23; external debt ratios 188 ¿QDQFLDOFULVLV 2008–2009 230–2 (net exporters: vulnerability to foreign creditors 230; net importers: apparent protection from FULVLV± ¿VFDOEDODQFHDQGFXUUHQW a/c 30–3 (GDP 1999–2008 33; negative relationship 44–8; share of GDP 1989–2009 31–2 ¿VFDOFXWVHIIHFWV ± ¿VFDOSROLF\OHVVRQVEH\RQGFULVLV of 2008–2009 212–32; 500 Days Program 2, 6; foreign aid transfers 22; GDP annual growth 1991–2010 11; GDP per capita 1990–2006 12; general government balance, 2008 estimates and 2009 forecast 214; human and humanitarian losses 10; IMF extended forecast 13; inequality by country and percentiles 17; international trade 14; macroeconomic overview of 2000s 10–23; money transfer mechanism, host DQGKRPHHFRQRPLHV± QHW exporters 21, 222–6 (vulnerability to foreign creditors 230; see also Azerbaijan; Belarus; Kazakhstan; Russia; Turkmenistan; Ukraine; Uzbekistan); net exporters and net importers 21± 188–91 (commodities exports in net exporters’ group 52–6, 54; with explicit reserves targeting 200–4, 200–3; growth rates 1995–2006 14, 15 UH¿QDQFLQJLQWHUHVW rate 191; reserve stockpiles 189; total international reserves to GDP ratio 189; without explicit reserves targeting 196–200, 196–7); net importers 21, 226–30 (apparent protection from crisis 230–1; see also Armenia; Georgia; Kyrgyz Republic; Moldova; Tajikistan); oil production in FSU and Russia 4, 8; open economy problems 10; per capita income levels 12; perestroika reforms 2, 4–5; political economy 1960–1990s 2–10; poverty and inequality 14–18; UHPLWWDQFHÀRZVsee migration; VRFLDOLVPYVFRPPXQLVP VWDWH corporations 19–20, 25–8 WZLQGH¿FLWV all countries 58–61; unemployment 16–18
&,6JURXS GH¿QHG ¿VFDO sustainability model 85–93; regression results 87–9 commodities (COM): exports, net exporters 52–6, 54; OLS results 1995–2006 55 Commonwealth of Independent States see CIS transition economies FRQVXPHUSULFHVLQÀDWLRQ ±13 Croatia, J-curve effect 152 currency crisis scenario 204–6 currency depreciation 182; and foreign FDSLWDORXWÀRZ currency devaluation, effects on balance of SD\PHQWV ± current account: CAGH¿QHG FXUUHQF\ depreciation 182; deterioration 182; and exchange rate, J-curve effect 143; see alsoWZLQGH¿FLWVWKHRU\ Czech Republic: education expenditure as % GDP 114; infrastructure indicators 113 debt: external debt to GDP ratio (EXTB) 106; foreign currency-denominated debt 182, 190; internal debt, former USSR (FSU) 5; private debt change 209; VRYHUHLJQGHEWJURZWKGH¿QLWLRQV total debt stock and debt service 91; see also¿VFDOGLDPRQG debt–income ratio 82 devaluation, exchange rate control 145–6 Devaluation and the J-curve± Diaspora bond 100–1, 106–11, 234; risks of Diaspora bonds 108–10 Diaspora Regulatory Mechanism 93, 119, 235; migration from/within CIS 130–3, 139 'LDVSRUDUHVRXUFHV ± FROODSVHRI GNI per capita 95–6, 96 GH¿QLWLRQ ± HGXFDWLRQH[SHQGLWXUH ± 114; external debt to GDP ratio (EXTB) ¿VFDOGLDPRQGDQG¿VFDOQHW ± ¿VFDOSROLF\IRUJURZWKDQG development 95–8; governance and regulation 110–11; infrastructure GHYHORSPHQW ± LQGLFDWRUVE\ country 113); OLS and MLE regression results 114–15; patriotic discounts ± SRWHQWLDO'LDVSRUDVWRFN geographical spread, migration and population data 112; revenue received ± VRYHUHLJQERQGV± 6WDWH Diaspora Supervisory Board (SDSB)
258
Index
Diaspora resources – contd. WRWDOQHWRI¿FLDOGHYHORSPHQW assistance by country and year 102; total reserves (TR) and net foreign DVVHWV 1)$VVHWV UROHV± transition economies 98–101; see also India; Israel domestic currency, evolving into a selfIXO¿OOLQJFXUUHQF\FULVLV domestic savings: investment ratio, Feldstein–Horioka puzzle 39–41 East Asia, current a/c change and GDP growth 184–5 EBRD Transition Report 39, 85, 219 economic crises see¿QDQFLDOFULVHV HGXFDWLRQH[SHQGLWXUH± 78, 92–3, ±114; as % GDP 114; and DGYDQFHPHQW ± ± 'LDVSRUD UHVRXUFHV ± Estonia: education expenditure as % GDP 114; infrastructure indicators 113 exchange rate: achieving stability 165; control, devaluation 145–6; currency pressures and sharp depreciation 214; and current a/c, non-linear relationship 143; daily nominal exchange rate RUS/ USD, Russia 216 ÀXFWXDWLRQ ± and J-curve effect 165; real effective exchange rate (REER) 153, 155; regulation of capital transfers 143 exchange rate to trade balance ratio: FXUUHQF\FRQWUDFWSHULRG ¿YHODJV 144; pass-through period 145 extended model estimation results (GMM) 177–80 Feldstein–Horioka puzzle (main model) 39–41; core and extended models estimation results 62–5; empirical results analysis 40–3 (ordinary least squares–panel-corrected standard errors (OLS-PCSE) 40); estimated results 41; extended model results 45 (second reforms period 46–7); main theoretical model and data discussion 38–40 (extensions 43–56) ¿QDQFLDOFULVHV ± FULVLV bypassing CIS 204; 2010: four key propagation channels 213–14; credit; currency crises 183; crisis of 1998 31; ¿VFDOZLWKGUDZDOHIIHFWV IRUHLJQ FDSLWDORXWÀRZ JHQHUDO characteristics of typical 186; global
2008–2009, effects on Russia 215–22; global credit squeeze 182; intensity 182; model of policy, currency and reserves ± SRVVLEOHFXUUHQF\FULVLVVFHQDULR in CIS 204–6 ¿VFDOGLDPRQG74–5; becomes ¿VFDOQHW ± H[SODQDWLRQ± 103–4 ¿VFDOSROLF\VXVWDLQDELOLW\74–5; QHZVRXUFHVRI¿VFDOUHYHQXH see also Diaspora resources ¿VFDOQHW ± &,6DYHUDJH exporters/importers 103 ¿VFDOSROLF\ OHVVRQVIRU&,6EH\RQGFULVLV of 2008–2009 212–32; and migration ± DQGWZLQGH¿FLWV ± ¿VFDOVXVWDLQDELOLW\ ± DFWXDO composition of expenditure 80; HGXFDWLRQH[SHQGLWXUH± 78 ¿VFDO SROLF\WUHQGV± ¿VFDOVSHQGLQJ ± KHDOWKFDUHH[SHQGLWXUH±77; institutional legacy of budget and expenditure management systems 80–1; PLOLWDU\H[SHQGLWXUH±77; primary surplus by country 86; regression results for CIS-10 group 87; state expenditure LQUHODWLRQWR*'3± VWDWHUHFHLSWV vs payment trends in CIS 71; tax revenues and interest on debt in CIS 73; WKHRUHWLFDODVSHFWV ± ODFNRI revenue mobilization instruments 80; macroeconomic contraction 80); WLJKWHQLQJ¿VFDOSROLF\HIIHFWV WRWDO debt stock and debt service 91 ¿VFDOVXVWDLQDELOLW\PRGHO± &,6 group 85–93; empirical results discussion 85–90; formal model 83–5; regression results for CIS-10 group 87 (net exporters 88; net importers 89); theoretical model 82–5 (data description 85) foreign aid transfers: transition economies 22; see also¿VFDOGLDPRQG IRUHLJQFDSLWDORXWÀRZDQWLFLSDWLRQRI currency depreciation 182 foreign currency-denominated debt 182, 190; sovereign debt issues 181 IRUHLJQH[FKDQJH FDSLWDOÀLJKW 215–16; reserves 220 foreign worker remittances 214; see also migration from/within CIS former USSR (FSU): crisis of 1980s 4–5; GDP and industrial capacity growth, per FHQWFKDQJH ± 3; industrial FDSDFLW\JURZWK LQÀDWLRQ LQWHUQDO
Index GHEW ± 5; oil production 4, 8; perestroika reforms 2, 4–5; political economy 1960–1990s 2–10; shock therapy reforms 8–9; urbanization 3 France: education expenditure as % GDP 114; infrastructure indicators 113 generalized method of moments (GMM) 161–4, 163 Georgia: change in TB and BGSI over change in REER 169; debt stock/ service, 2006 91; education expenditure as % GDP 114; extended model estimation results (GMM) 177–80; ¿QDQFLDOFULVLV± *00 regression analysis 163; GNP per capita 96; govt and current a/c balances, % GDP 59; infrastructure indicators 113; J-curve effect observations 159; migration as % of total labor force 123; migration rates (current/projected) 121; OLS regression analysis 158; population (2008) 112; potential Diaspora stock 112 Germany: Berlin Wall 2; borrowing, and sustainability reasoning 82–3; education expenditure as % GDP 114; infrastructure indicators 113; pricing to market 146 JOREDOFUHGLWVTXHH]HÀLJKWRIFDSLWDOIURP CIS 182, 215–16 JOREDO¿QDQFLDOFULVLV± HIIHFWV on Russia 215–22 government: administrative center-toregional govt contradiction 30; current a/c balances as % GDP 30, 58–61 ¿VFDO SROLF\DQGWZLQGH¿FLWV DYHUDJHJRYW balance as share of GDP 30–1; sovereign debt considerations 43–4); general balances, as % GDP 2008–2009 214; govt and current a/c balances as % GDP 58–61; institutional legacy of budget and expenditure management systems 80–1; state receipts 101–2; state receipts vs payment trends in CIS 71 government expenditure: CIS, % of GDP ± ¿VFDOSROLF\ sustainability, military expenditure ±77 KHDOWKFDUHH[SHQGLWXUH± 77; sovereign debt considerations 43–4; state expenditure in relation to GDP ± see also¿VFDOGLDPRQG Gross National Income (GNI), CIS per capita 95–6, 96
259
KHDOWKFDUHH[SHQGLWXUH±77 +HFNVFKHU±2KOLQWKHRU\ household consumption (HC), current a/c surplus relation, estimation results 66–8 +XPDQ'HYHORSPHQW,QGH[81'3 Hungary: education expenditure as % GDP 114; infrastructure indicators 113 ,QGLD 'LDVSRUDUHVRXUFHV± education expenditure as % GDP 114; infrastructure indicators 113; J-curve effect observations 152; non-resident Indians (NRIs) 116 India Development Bonds (IDB) 116 Indonesia, current a/c change and GDP growth 184–5 LQIUDVWUXFWXUH GHYHORSPHQW ± indicators by country 113 LQWHUHVWUDWHUH¿QDQFLQJ191 International Monetary Fund (IMF) 85; extended forecast, CIS transition economies 13 Ireland: education expenditure as % GDP 114; infrastructure indicators 113 Israel: Diaspora resources 115–16; education expenditure as % GDP 114; infrastructure indicators 113; State of Israel Bonds 115–16 -FXUYHHIIHFW± VDQG V ± DGGLWLRQDOWHVWV EDVLF export/import/trade balance set-up ± FRXQWU\VSHFL¿FUHVXOWV± currency devaluation and effects on EDODQFHRISD\PHQWV ± current a/c and exchange rate, non-linear relationship 143; data description 154–5 (balance on goods and services trade and income transfers (BGSI) 154–5; real effective exchange rate (REER) 153, 155; trade balance (TB) 154–5); delayed J-curve effect 148; dynamic J-curve estimation, general equilibrium (GE) approach 150–1; empirical results review 155–61; exchange rate and trade balance relationship adjustment, currency-contract period and passthrough period 145–6; explanation and illustration 141–4, 142; generalized method of moments (GMM) tests 161–4, 163; main results robustness 161–4; OLS regression analysis 158; pricing to market 146; recent regression models 151–3; theoretical model 153–4;
260
Index
J-curve effect – contd. trade balance equation 148; US economy, hard landing due to overUHOLDQFHRQIRUHLJQIXQGV± Japan: recent regression models 151–3; trade elasticities, and J-curve effect 150 Kazakhstan: change in TB and BGSI over change in REER 170; debt stock/ service, 2006 91; education expenditure as % GDP 114; extended model estimation results (GMM) 177–80; ¿QDQFLDOFULVLV± *00 regression analysis 163; GNP per capita 96; govt and current a/c balances, % GDP 59; infrastructure indicators 113; J-curve effect observations 156, 159–60; migration as % of total labor force 123; migration rates (current/projected) 121; OLS regression analysis 158; population (2008) 112; potential Diaspora stock 112; state corporations 19–20 Korea, current a/c change and GDP growth 184–5 Kyrgyz Republic: change in TB and BGSI over change in REER 171; debt stock/ service, 2006 91; development strategy 229; education expenditure as % GDP 114; extended model estimation results (GMM) 177–80 ¿QDQFLDOFULVLV ± ¿VFDOVKDUH GMM regression analysis 163; govt and current a/c balances, % GDP 59; infrastructure indicators 113; J-curve effect observations 156, 160; migration as % of total labor force 123; migration rates (current/projected) 121; OLS regression analysis 158; population (2008) 112; potential Diaspora stock 112 Latvia: education expenditure as % GDP 114; infrastructure indicators 113 Lithuania: education expenditure as % GDP 114; infrastructure indicators 113 Malaysia, current a/c change and GDP growth 184–5 Marshall–Lerner Condition (MLC) 141 0DU[.DUO± RQFUHGLW Migration Development Bank (MDB) 119, ±
migration from/within CIS 18, 118–39; by country of origin 123 FODVVL¿FDWLRQRI SROLF\UHJLPHV± 'LDVSRUD regulatory mechanism 130–3, 139 (center/recruiting agency, actions on migrants’ return 132–3; migrants’ records to Diaspora center 131–2; old and new Diaspora problems 130–3); economic growth aspects 135; historical and political aspects 120–2; illegality 119; management 98; Migration 'HYHORSPHQW%DQN 0'% ± 235; net migration rates 121 (% by country 125; as % of total labor force 122; net population loss effects 122; proportion to countries’ total labor forces 122–8, 123–4, 123; to Russia 124); net population loss 122; remittances transferred home (effects on home economy 129–30, 214; from Russia to CIS economies 133–5, 134; single-largest source of foreign exchange (IMF 2005) 135; value 119); returning migrants, effects on home country 133; temporary labor migration triad 128–30, 138 (effects on real wage in domestic economy 129; immigrant labor acquiring new/superior skills and leadership positions 128–9); trends 120–8 PLOLWDU\H[SHQGLWXUH±77 model of policy, currency and reserves dynamics 181–211; Appendix, growth GH¿QLWLRQV ± &,6KLVWRU\± currency crisis scenario in CIS 204–6; current account % of GDP change, and GDP growth in East Asia 184–5; ¿QDQFLDOFULVLVHIIHFWV± QHW H[SRUWHUVDQGQHWLPSRUWHUV± 188–91 (with explicit reserves targeting 200–4, 200–3; numerical analysis and possible scenarios 196–206; UH¿QDQFLQJLQWHUHVWUDWHLQ&,6 countries/groups 191; without explicit reserves targeting 196–200, 196–7); total foreign reserves (less gold) to GDP ratio 186 (theoretical model with foreign reserves 192–6) PRGHOV ¿VFDOSROLF\VXVWDLQDELOLW\± J-curve effect observations 153–4; Mundell–Fleming model (MFM), open economy balance of payments 141; Polak, analytical outcomes 34; see also ¿VFDOGLDPRQG WZLQGH¿FLWV
Index Moldova: change in TB and BGSI over change in REER 172; debt stock/ service, 2006 91; education expenditure as % GDP 114; extended model estimation results (GMM) 177–80; ¿QDQFLDOFULVLV± ± GMM regression analysis 163; GNP per FDSLWD 96; govt and current a/c balances, % GDP KHDOWKFDUHH[SHQGLWXUH±77; infrastructure indicators 113; J-curve effect observations 156, 160; migration as % of total labor force 123; migration rates (current/projected) 121, 229; OLS regression analysis 158; population (2008) 112; potential Diaspora stock 112 money transfer mechanism, host and home HFRQRPLHV± Mundell–Fleming model (MFM), open economy balance of payments 141 natural resources exports, decline 214 Norway: education expenditure as % GDP 114; infrastructure indicators 113 RLOSULFHV oil production, in FSU and Russia 4, 8 open economies: balance of payments 141; Mundell–Fleming model (MFM) 141; vital considerations 140–1 ordinary least squares–panel-corrected standard errors (OLS-PCSE) 40; and MLE regression results, Diaspora resources 114–15; regression analysis, J-curve effect 158 perestroika reforms 2, 4–5 Phillippines, current a/c change and GDP growth 184–5 Polak model, analytical outcomes 34 Poland: education expenditure as % GDP *13SHUFDSLWD 2006) 96; infrastructure indicators 113; population (2008) 112; potential Diaspora stock 112 pricing to market 146 primary surplus, by country 86 real effective exchange rate (REER) 153, 155 Ricardian equivalence concept 81 Romania: education expenditure as % *'3 *13SHUFDSLWD
261
200, 2006) 96; infrastructure indicators 113; population (2008) 112; potential Diaspora stock 112 Russia 215–22; average annual foreign UHVHUYHV ±218; Central Bank RI5XVVLD UH¿QDQFLQJ190; ruble exchange rate 2008–2009 216); change in TB and BGSI over change in REER 173; debt stock/service, 2006 91; as destination for labor migrants from CIS countries 18; development incentives 18–19; education expenditure as % GDP 114; extended model estimation results (GMM) 177–80 ¿QDQFLDOFULVLVRI ¿QDQFLDOFULVLVRI ± EXGJHWGH¿FLWPHDVXUHV± FDSLWDO ÀLJKW ± FKDQJHLQRLO price, Russia’s industrial production index and unemployment, 2008–2010 217; daily nominal exchange rate RUS/ USD 216 ¿VFDOSROLFLHV± IRUHLJQ exchange reserves, 2006–2010 218; JOREDO¿QDQFLDOFULVLVHIIHFWV± LQÀDWLRQGHYDOXDWLRQ SURGXFWLRQ UHGXFWLRQ ¿VFDOSROLF\DQDO\VLV 18–19; foreign exchange accumulation ± IRUHLJQH[FKDQJHUHVHUYHV ± *00UHJUHVVLRQDQDO\VLV *13SHUFDSLWD 96; govt and current a/c balances, % GDP 60; identifying sustainable sources of long-term growth 18; infrastructure indicators 113; J-curve effect observations 156, 160–1; as magnet for migration 120–8, 123–4, 125–6; migrants (as % of total labor force 123; distribution by industry 126); migration rates (current/projected) 120, 121; OLS regression analysis 158; population (2008) 112; potential Diaspora stock VKRFNWKHUDS\ ± ± state corporations 19–20 VRYHUHLJQERQGV± FRQVXPHUSULFH LQÀDWLRQ ,1) ÀRWDWLRQUXOHV 105–6; regression results 106 VRYHUHLJQGHEWJURZWKGH¿QLWLRQV state corporations 19–20, 25–8 State Diaspora Supervisory Board (SDSB) 110 state receipts 101–2; vs payment trends in CIS 71 sustainability, intertemporal budget FRQVWUDLQW ,%& ±
262
Index
Tajikistan: debt stock/service, 2006 91; education expenditure as % GDP 114; extended model estimation results (GMM) 177–80 ¿QDQFLDOFULVLV ± *00UHJUHVVLRQ analysis 163; GNP per capita (1993, 96; govt and current a/c balances, % GDP 60; infrastructure indicators 113; J-curve effect observations 156, 161; migration as % of total labor force 123; migration rates (current/projected) 121; OLS regression analysis 158; population (2008) 112; potential Diaspora stock 112 tax revenues: and interest on debt in CIS 73; see also¿VFDOGLDPRQG Taylor-type monetary policy rules 205–6 Thailand, current a/c change and GDP growth 184–5 WUDGHEDODQFH GH¿QHG HTXDWLRQ and exchange rate (currency-contract period 145; pass-through period 145) transformational change 1 WUDQVLWLRQGH¿QHG Turkmenistan: debt stock/service, 2006 91; education expenditure as % GDP 114; ¿QDQFLDOFULVLV± ± *13 SHUFDSLWD 96; govt and current a/c balances, % GDP 61; infrastructure indicators 113; migration as % of total labor force 123; migration rates (current/projected) 121; QRWLQ&,6 SRSXODWLRQ 112; potential Diaspora stock 112 WZLQGH¿FLWVWKHRU\ ± DYHUDJHFXUUHQW a/c balance as % GDP 31; average govt balance as share of GDP 30–1; commodities exports in net exporters’ group 52–6, 54; consumption and current a/c correlation 51, 52; core and extended models estimation results (net exporters 62–3; net importers 64–5); country performance based on country groups 44–8; current a/c surplus and private consumption, negative relationship 49–50, 50; current a/c to ¿VFDOEDODQFHDQGWRLQYHVWPHQW correlation 42, 42, 49; data overview 39–40; demand for consumer goods and VHUYLFHV± ¿VFDOEDODQFHDQGFXUUHQW a/c 30–3 (share of GDP 1989–2009 31–2 ¿VFDODQGWUDGHEDODQFH improvements after 1998 32–3; govt and
current a/c balances as % GDP 30, 58–61; household consumption (HC) to current a/c surplus relation estimation results 66–8; hypothesis 33; identity derivation 33–8; intertemporal budget FRQVWUDLQW ,%& ± LQYHVWPHQWDQG current a/c relationship 39; national income accounting 33–4; Polak model 34; private consumption, and current a/c 48–52, 50; second decade of transition period and country categories 44–8; sovereign debt considerations 43–4; sustainability critique 35–8; transition UHIRUPVVHSDUDWLRQEHWZHHQ¿UVWDQG second decades 51–2; trend charts 53–4, 54 WZLQGH¿FLWVLGHQWLW\GHULYDWLRQ 33–8; see also¿VFDOSROLF\DQGWZLQ GH¿FLWV UK: British exports 143; loss of competitiveness in world markets 143–4 Ukraine: change in TB and BGSI over change in REER 175; debt stock/ service, 2006 91; education expenditure as % GDP 114; extended model estimation results (GMM) 177–80; ¿QDQFLDOFULVLV± ± *00 regression analysis 163; GNP per capita 96; govt and current a/c balances, % GDP 61; infrastructure indicators 113; J-curve effect observations 156, 161; migration as % of total labor force 123; migration rates (current/projected) 121; OLS regression analysis 158; population (2008) 112; potential Diaspora stock 112 81'3+XPDQ'HYHORSPHQW,QGH[ unemployment, CIS transition economies 16–18 USA: education expenditure as % GDP 114; infrastructure indicators 113 Uzbekistan: debt stock/service, 2006 91; education expenditure as % GDP 114; ¿QDQFLDOFULVLV± ± *13 SHUFDSLWD 96; govt and current a/c balances, % GDP 61; infrastructure indicators 113; migration as % of total labor force 123; migration rates (current/projected) 121; QRWLQ&,6 2/6UHJUHVVLRQ analysis 158; population (2008) 112; potential Diaspora stock 112
