Transition economy

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A transition economy or transitional economy is an economy which is changing from a centrally planned economy to a market economy. [1] Transition economies undergo a set of structural transformations intended to develop market-based institutions. These include economic liberalization, where prices are set by market forces rather than by a central planning organization. In addition to this trade barriers are removed, there is a push to privatize state-owned enterprises and resources, state and collectively run enterprises are restructured as businesses, and a financial sector is created to facilitate macroeconomic stabilization and the movement of private capital. [2] The process has been applied in China, the former Soviet Union and Eastern bloc countries of Europe and some Third world countries, and detailed work has been undertaken on its economic and social effects.

Contents

The transition process is usually characterized by the changing and creating of institutions, particularly private enterprises; changes in the role of the state, thereby, the creation of fundamentally different governmental institutions and the promotion of private-owned enterprises, markets and independent financial institutions. [3] In essence, one transition mode is the functional restructuring of state institutions from being a provider of growth to an enabler, with the private sector its engine. Another transition mode is change the way that economy grows and practice mode. The relationships between these two transition modes are micro and macro, partial and whole. The truly transition economics should include both the micro transition and macro transition.[ citation needed ] Due to the different initial conditions during the emerging process of the transition from planned economics to market economics, countries uses different transition model. Countries like the People's Republic of China and Vietnam adopted a gradual transition mode, however Russia and some other East-European countries, such as the former Socialist Republic of Yugoslavia, used a more aggressive and quicker paced model of transition.[ citation needed ]

The term "transition period" is also used to describe the process of transition from capitalism to the first stage of socialism, preceding the establishment of fully developed socialism (aka communism).

Transition indicators

The existence of private property rights may be the most basic element of a market economy, and therefore implementation of these rights is the key indicator of the transition process.

The main ingredients of the transition process are:

According to Oleh Havrylyshyn and Thomas Wolf of the International Monetary Fund, transition in a broad sense implies:

Edgar Feige, cognizant of the trade-off between efficiency and equity, suggests [7] that the social and political costs of transition adjustments can be reduced by adopting privatization methods that are egalitarian in nature, thereby providing a social safety net to cushion the disruptive effects of the transition process.

The European Bank for Reconstruction and Development (EBRD) developed a set of indicators to measure the progress in transition. The classification system was originally created in the EBRD's 1994 Transition Report, but has been refined and amended in subsequent Reports. The EBRD's overall transition indicators are:

Context

The economic malaise affecting the Comecon countries – low growth rates and diminishing returns on investment – led many domestic and Western economists to advocate market-based solutions and a sequenced programme of economic reform. It was recognized that micro-economic reform and macro-economic stabilization had to be combined carefully. Price liberalization without prior remedial measures to eliminate macro-economic imbalances, including an escalating fiscal deficit, a growing money supply due to a high level of borrowing by state-owned enterprises, and the accumulated savings of households ("monetary overhang") could result in macro-economic destabilization instead of micro-economic efficiency. Unless entrepreneurs enjoyed secure property rights and farmers owned their farms the process of Schumpeterian "creative destruction" would limit the reallocation of resources and prevent profitable enterprises from expanding to absorb the workers displaced from the liquidation of non-viable enterprises. A hardening of the budget constraints at state-owned enterprises would halt the drain on the state budget from subsidization but would require additional expenditure to counteract the resulting unemployment and drop in aggregate household spending. Monetary overhang meant that price liberalization might convert "repressed inflation" into open inflation, increase the price level still further and generate a price spiral. The transition to a market economy would require state intervention alongside market liberalization, privatization and deregulation. Rationing of essential consumer goods, trade quotas and tariffs and an active monetary policy to ensure that there was sufficient liquidity to maintain commerce might be needed. [9] In addition to tariff protection, measures to control capital flight were also considered necessary in some instances. [10]

Transition in practice

The most influential strategy for the transition to a market economy was that adopted by Poland launched in January 1990. The strategy was strongly influenced by IMF and World Bank analyses of successful and unsuccessful stabilization programmes which had been adopted in Latin America in the 1980s. The strategy incorporated a number of interdependent measures including macro-economic stabilization; the liberalization of wholesale and retail prices; the removal of constraints to the development of private enterprises and the privatization of state-owned enterprises; the elimination of subsidies and the imposition of hard budget constraints; and the creation of an export-oriented economy that was open to foreign trade and investment. The creation of a social safety net targeted at the individual to compensate for the removal of job security and the removal of price controls on staple goods was also part of the strategy. [11]

The choice of the transition strategy was influenced by the critical state of most post-socialist countries. Policy-makers were persuaded that political credibility took precedence over a sequenced reform plan and to introduce macro-economic stabilization measures ahead of structural measures that would by their nature take longer to implement. The "credibility" of the transition process was enhanced by the adoption of the Washington Consensus favoured by the IMF and the World Bank. Stabilization was deemed a necessity in Hungary and Poland where state budget deficits had grown and foreign debts had become larger than the country's capacity to service. Western advisers and domestic experts working with the national governments and the IMF introduced stabilization programmes aiming to achieve external and internal balance, which became known as shock therapy. It was argued that "one cannot jump over a chasm in two leaps". [12]

The many foreign advisers from, principally, the United States, the United Kingdom and Sweden were often under contract to the international financial institutions and bilateral or multilateral technical assistance programmes. They favoured free trade and exchange rate convertibility rather than trade protection and capital controls, which might have checked capital flight. They tended to support privatization without prior industrial restructuring; an exception was to be found in Eastern Germany where the Treuhand (Trust Agency) prepared state-owned enterprises for the market at considerable cost to the government. [13] Western technical assistance programmes were established by European Union – through the Phare and TACIS programmes – and other donors (including the US AID, the UK Know-how Fund and UNDP) and by the IMF, the World Bank, EBRD and KfW, which also advanced loans for stabilization, structural adjustment, industrial restructuring and social protection. Technical assistance was delivered through the exchange of civil servants and by management consultants, including Agriconsulting, Atos, COWI, Ernst & Young, GOPA, GTZ, Human Dynamics, Idom, IMC Consulting, Louis Berger, NIRAS, PA Consulting, PE International, Pohl Consulting, PwC, and SOFRECO.

It had been expected that the introduction of current account convertibility and foreign trade liberalization would force a currency devaluation that would support export-led growth. [14] However, when prices were de-controlled enterprises and retailers raised their prices to match those prevailing in the black market or towards world price levels, earning them windfall profits initially. Consumers reacted by reducing their purchases and by substituting better quality imported goods in place of domestically produced goods. Falling sales led to the collapse of many domestic enterprises, with personnel lay-offs or reduced hours of work and pay. This further reduced effective demand. As imports grew and exporters failed to respond to opportunities in world markets due to the poor quality of their products and lack of resources for investment, the trade deficit expanded, putting downward pressure on the exchange rate. Many wholesalers and retailers marked prices according to their dollar values and the falling exchange rate fed inflation. The central banks in several countries raised interest rates and tightened credit conditions, depriving state agencies and enterprises of working capital. These in turn found it impossible to pay wages on time, dampening effective demand further. [15]

The impacts of the conventional transition strategies proved to be de-stabilizing in the short-term and left the population impoverished in the long-term. Economic output declined much more than expected. The decline in output lasted until 1992-96 for all transition economies. By 1994, economic output had declined across all transition economies by 41 percent compared to its 1989 level. The Central and Eastern European economies began growing again around 1993, with Poland, which had begun its transition programme earliest emerging from recession in 1992. The Baltic States came out of recession in 1994 and the rest of the former Soviet Union around 1996. Inflation remained above 20 percent a year (except in the Czech Republic and Hungary) until the mid-1990s. Across all transition economies the peak annual inflation rate was 2632 percent (4645 percent in the CIS). [16] Unemployment increased and wages fell in real terms, although in Russia and other CIS economies the rate of unemployment recorded at employment exchanges remained low. Labour force surveys undertaken by the International Labour Organization showed significantly higher rates of joblessness and there was considerable internal migration. [17] High interest rates induced a "credit crunch" and fuelled inter-enterprise indebtedness and hampered the expansion of small and medium-sized enterprises, which often lacked the connections to obtain finance legitimately. [18]

In time domestic producers were able to upgrade their production capacity and foreign direct investment was attracted to the transition economies. Local-manufactured higher quality consumer goods became available and won market share back from imports. Stabilization of the exchange rate was made more difficult by large-scale capital flight, with domestic agents sending part of their earning abroad to destinations where they believed their capital was more secure. The promise of European Union membership and the adoption of the EU's legislation and regulations (the Community acquis or acquis communautaire) helped secure trust in property rights and economic and governmental institutions in much of Central and Eastern Europe.

Some economists have argued that the growth performance of the transition economies stemmed from the low level of development, decades of trade isolation and distortions in the socialist planned economies. They have emphasized that the transition strategies adopted reflected the need to resolve the economic crisis besetting the socialist planned economies and the overriding objective was the transformation to capitalist market economies rather than the fostering of economic growth and welfare. [19]

But by 2000, the EBRD was reporting that the effects of the initial starting point in each transition economy on the reform process had faded. Although the foundations had been laid for a functioning market economy through sustained liberalization, comprehensive privatization, openness to international trade and investment, and the establishment of democratic political systems there remained institutional challenges. Liberalized markets were not necessarily competitive and political freedom had not prevented powerful private interests from exercising undue influence. [20]

Ten years on, in the Transition Report for 2010, the EBRD was still finding that the quality of market-enabling institutions continued to fall short of what was necessary for well-functioning market economies. Growth in the transition economies had been driven by trade integration into the world economy with "impressive" export performance, and by "rapid capital inflows and a credit boom". But such growth had proved volatile and the EBRD considered that governments in the transition economies should foster the development of domestic capital markets and improve the business environment, including financial institutions, real estate markets and the energy, transport and communications infrastructure. The EBRD expressed concerns about regulatory independence and enforcement, price setting, and the market power of incumbent infrastructure operators. [21]

Income inequality as measured by the Gini coefficient rose significantly in the transition economies between 1987 and 1988 and the mid-1990s. Poverty re-emerged with between 20 and 50 percent of people living below the national poverty line in the transition economies. The UN Development Programme calculated that overall poverty in Eastern Europe and the CIS increased from 4 percent of the population in 1988 to 32 percent by 1994, or from 14 million people to 119 million. [22] Unemployment and rates of economic inactivity were still high in the late 1990s according to survey data. [23]

By 2007, the year before the global financial crisis hit, the index for GDP had reached 112 compared to 100 in 1989 for the transition economies. In other words, it took nearly 20 years to restore the level of output that had existed prior to the transition. The index of economic output (GDP) in the countries of Central and Eastern Europe was 151 in 2007; for the Balkans/ South-eastern Europe the index was 111, and for the Commonwealth of Independent States and Mongolia it was 102. Several CIS countries in the Caucasus and Central Asia as well as Moldova and Ukraine had economies that were substantially smaller than in 1989. [24]

The global recession of 2008-09 and the Eurozone crisis of 2011-13 destabilized the transition economies, reduced growth rates and increased unemployment. The slowdown hit government revenues and widened fiscal deficits but almost all transition economies had experienced a partial recovery and had maintained low and stable inflation since 2012. [25]

Process

Transition trajectories have varied considerably in practice. Some nations have been experimenting with market reform for several decades, while others are relatively recent adopters (e.g., North Macedonia, Serbia, Montenegro), and Albania. In some cases reforms have been accompanied with political upheaval, such as the overthrow of a dictator (Romania), the collapse of a government (the Soviet Union), a declaration of independence (Croatia), or integration with another country (East Germany). In other cases economic reforms have been adopted by incumbent governments with little interest in political change (China, Laos, Vietnam). [26] Transition trajectories also differ in terms of the extent of central planning being relinquished (e.g., high centralized coordination among the CIS states) as well as the scope of liberalization efforts being undertaken (e.g., relatively limited in Romania). Some countries, such as Vietnam, have experienced macro-economic upheavals over different periods of transition, even transition turmoil. [27]

According to the World Bank's 10 Years of Transition report "... the wide dispersion in the productivity of labour and capital across types of enterprises at the onset of transition and the erosion of those differences between old and new sectors during the reform provide a natural definition of the end of transition." [28] Mr. Vito Tanzi, Director of the IMF's Fiscal Affairs Department, gave definition that the transformation to a market economy is not complete until functioning fiscal institutions and reasonable and affordable expenditure programs, including basic social safety nets for the unemployed, the sick, and the elderly, are in place. Mr Tanzi stated that these spending programs must be financed from public revenues generated—through taxation—without imposing excessive burdens on the private sector. [29]

According to the EBRD a well-functioning market economy should enjoy a diverse range of economic activities, equality of opportunity and convergence of incomes. These outcomes had not yet been achieved by 2013 and progress in establishing well-functioning market economies had stalled since the 1990s. On the EBRD's measure of transition indicators the transition economies had become "stuck in transition". Price liberalization, small-scale privatization and the opening-up of trade and foreign exchange markets were mostly complete by the end of the 1990s. However economic reform had slowed in areas such governance, enterprise restructuring and competition policy, which remained substantially below the standard of other developed market economies. [30]

According to  Stuart Shields, liberalization of the ECE economies took place notably through various changes which were supported by the EBRD, for instance, set in different different steps. Firstly, measures of competition and financial discipline were put in place in the beginning. As part of the second wave of reforms, changes were focused on the opening of key parts of the economy to foreign competition in order to improve human capital and to foster entrepreneurship in those economies. Thus, they turned to labour market transformation by highlighting the need for a more flexible labour market. Furthermore, new institutional frameworks were needed, to help with transformations such as privatisation and the increasing flows of Foreign direct investment as part of what is described as “an institutional shock therapy”. [31]

Inequality of opportunity was higher in the transition economies of Central and Eastern Europe and Central Asia than in some other developed economies in Western Europe (except France, where inequality of opportunity was relatively high). The highest inequality of opportunity was found in the Balkans and Central Asia. In terms of legal regulations and access to education and health services, inequality of opportunity related to gender was low in Europe and Central Asia but medium to high in respect of labour practices, employment and entrepreneurship and in access to finance. In Central Asia women also experienced significant lack of access to health services, as was the case in Arab countries. [32] While many transition economies performed well with respect to primary and secondary education, and matched that available in many other developed economies, they were weaker when it came to training and tertiary education. [33]

Over the decade 1994 to 2004, the transition economies had closed some of the gap in income per person with the average for the European Union in purchasing power parity terms. These gains had been driven by sustained growth in productivity as obsolete capital stock was scrapped and production shifted to take advantage of the opening-up of foreign trade, price liberalization and foreign direct investment. However the rapid growth rates of that period of catch-up had stalled since the late 2000s and the prospects for income convergence have receded according to the EBRD's prognosis, unless there are additional productivity-enhancing structural reforms. [34]

The recent history of transition suggested that weak political institutions and entrenched interest groups had hindered economic reform. The EBRD's Transition Report 2013 looked at the relationship between transition and democratization. The report acknowledged that the academic literature was divided on whether economic development fostered democracy but argued that there was nonetheless strong empirical support for the hypothesis. It suggested that countries with high inequality were less inclined to support a limited and accountable state. In general, the proportion of the population with an income of between US$10–50 a day (the so-called "middle class") correlated with the level of democracy; however this correlation disappeared in transition countries with high income inequality. Those countries with large natural resource endowments, for example oil and gas producers like Russia and Kazakhstan, had less accountable governments and faced less electoral pressure to tackle powerful vested interests because the government could rely on resource rents and did not have to tax the population heavily. Countries with a strong institutional environment – that is, effective rule of law, secure property rights and uncorrupted public administration and corporate governance – were better placed to attract investment and undertake restructuring and regulatory change. [35]

To spur further economic reform and break out of a vicious circle, the EBRD Transition Report 2013 proposed that the transition economies should:

Countries in transition

Although the term "transition economies" usually covers the countries of Central and Eastern Europe and the former Soviet Union, this term may have a wider context. Outside of Europe, there are countries emerging from a socialist-type command economy towards a market-based economy (e.g., China). Despite such movements, some countries have chosen to remain non-free states with regard to political freedoms and human rights.

In a wider sense, the definition of transition economy refers to all countries which attempt to change their basic constitutional elements towards market-style fundamentals. Their origin could be also in a post-colonial situation, in a heavily regulated Asian-style economy, in a Latin American post-dictatorship, or even in a somehow economically underdeveloped country in Africa. [3]

In 2000, the IMF listed the following countries with transition economies: [5]

In addition, in 2002, the World Bank defined Bosnia and Herzegovina, and the Federal Republic of Yugoslavia (later Serbia and Montenegro) as transition economies. [28] In 2009, the World Bank included Kosovo in the list of transition economies. [37] Some World Bank studies also include Mongolia. [38] According to the IMF, Iran is in transition to a market economy, demonstrating early stages of a transition economy. [39]

The eight first-wave accession countries, which joined the European Union on 1 May 2004 (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia) and the two second-wave accession countries that joined on 1 January 2007 (Romania and Bulgaria), have completed the transition process. [40] According to the World Bank, "the transition is over" for the 10 countries that joined the EU in 2004 and 2007. [41] It can be also understood as all countries of the Eastern Bloc. [42]

According to the United Nations Department of Economic and Social Affairs' World Economic Situation and Prospects report, the following 17 countries are classified as "economies in transition" as of January 2024: [43]

Branch of economics

Transition economics is a special branch of economics dealing with the transformation of a planned economy to a market economy. It has become especially important after the collapse of Communism in Central and Eastern Europe. Transition economics investigates how an economy should reform itself to endorse capitalism and democracy. There are usually two sides: one which argues for a rapid transformation and one which argues for a gradual approach. Gérard Roland's book Transition and Economics. Politics, Markets and Firms (MIT Press 2000) gives a good overview of the field. A more recent overview is provided in Transition Economies: Political Economy in Russia, Eastern Europe, and Central Asia by Martin Myant and Jan Drahokoupil. [44]

Comparative tables

Two extremes: Romania and Kyrgyzstan

At the beginning of the 1990s, Communist leaders remained in power in Romania and - with the exception of Kyrgyzstan - in Central Asia. [45] These two countries were both exceptions within their respective regions: Romania was the only one of the 6 former non-Soviet Warsaw Pact countries to opt for gradual instead of radical reform, while Kyrgyzstan was the only Central Asian country and the only one in the CIS other than Russia to implement radical reform. According to the EBRD's Structural Reform Index, a country can be defined as a "full-fledged market economy" once it crosses the threshold of 0.70, which Kyrgyzstan accomplished in 1994 (the first CIS country to do so) and Romania in 1998 (and Russia, for reference, in 1996). [46] [47]

1998Reform type [48] GDP ($ billions)Real GDP index
(1989=100) [49]
Population under
$2.15/day [50]
External debt
(% of GDP) [51]
Private sector share
(% of GDP) [52]
Cumulative FDI inflows
(1989 to 1998; $ millions) [53]
Flag of Kyrgyzstan (2023).svg  Kyrgyzstan radical1.6 [54] 6049.1%89.560332
Flag of Romania.svg  Romania gradual38 [55] 766.8%24.0604,510

Real wages during the 1990s

Real wage
(1989=100.0)
[56]
1990199119921993199419951996199719981999
Flag of Armenia.svg  Armenia 107.772.339.66.316.820.029.026.231.935.1
Flag of Bulgaria.svg  Bulgaria 111.568.076.777.663.760.249.640.147.052.2
Flag of the Czech Republic.svg  Czech Republic 96.368.976.078.884.992.2100.4102.3101.0107.1
Flag of Estonia.svg  Estonia 102.568.245.246.350.954.055.259.563.566.2
Flag of Hungary.svg  Hungary 94.387.786.583.189.178.274.377.179.681.0
Flag of Latvia.svg  Latvia 105.071.949.051.857.957.754.160.763.065.0
Flag of Lithuania.svg  Lithuania 108.875.346.628.432.533.534.839.544.647.8
Flag of Moldova.svg  Moldova 113.7105.264.441.833.834.336.338.240.435.1
Flag of North Macedonia.svg  North Macedonia 79.267.941.656.551.248.648.849.450.953.0
Flag of Poland.svg  Poland 75.675.473.371.271.673.777.982.485.295.8
Flag of Romania.svg  Romania 105.288.977.364.464.672.779.862.361.162.3
Flag of Russia.svg  Russia 109.1102.468.969.163.745.952.054.547.238.2
Flag of Slovakia.svg  Slovakia 94.267.376.669.271.475.381.987.488.886.1
Flag of Slovenia.svg  Slovenia 73.861.861.370.475.479.483.185.486.789.4
Flag of Ukraine.svg  Ukraine 109.3114.2123.763.256.462.259.357.755.748.4

1990s lowest GDP

During the 1990s, the GDP of the transition economies declined sharply relative to its 1989 level. However, this decline varied considerably from country to country: for some, GDP bottomed out at or over 75% of its 1989 level, while for others, it plummeted to below a third. The worst among the 15 post-Soviet countries was represented by Georgia in the year 1994, with 25.4% of its 1989 GDP. The lowest decline was represented by the Czech Republic, with 84.6% of its 1989 GDP in the year 1992. Uzbekistan had the highest GDP bottom among the post-Soviet countries, with 83.4% of its 1989 level in the year 1995. Albania experienced the worst decline among the non-Soviet countries of the defunct Warsaw Pact, its GDP amounting to only 60.4% of its 1989 level in 1992. The absolute worst was to be found in the former Yugoslavia - war-torn Bosnia and Herzegovina's GDP declined to only 12% of its 1989 level. All the transition countries for which such data is available are listed below (countries in bold bottomed out at a higher level than the U.S. during the Great Depression, when 1933 American GDP was 73.4% of its 1929 level): [57] [58] [59]

Country1990s lowest GDP (1989 = 100)
Flag of the Czech Republic.svg  Czech Republic 84.6
Flag of Uzbekistan.svg  Uzbekistan 83.4
Flag of Poland.svg  Poland 82.2
Flag of Slovenia.svg  Slovenia 82.0
Flag of Hungary.svg  Hungary 81.9
Flag of Romania.svg  Romania
Flag of Slovakia.svg  Slovakia
75.0
Flag of East Germany.svg Eastern Germany 68.0 [60]
Flag of Bulgaria.svg  Bulgaria 63.2
Flag of Belarus.svg  Belarus 62.7
Flag of Kazakhstan.svg  Kazakhstan 61.2
Flag of Estonia.svg  Estonia 60.8
Flag of Albania.svg  Albania 60.4
Flag of Croatia.svg  Croatia 59.5
Flag of Russia.svg  Russia 55.3
Flag of North Macedonia.svg  North Macedonia 55.1
Flag of Lithuania.svg  Lithuania 53.3
Flag of Latvia.svg  Latvia 51.0
Flag of Kyrgyzstan (2023).svg  Kyrgyzstan 50.4
Flag of Turkmenistan.svg  Turkmenistan 42.0
Flag of Yugoslavia (1992-2003); Flag of Serbia and Montenegro (2003-2006).svg  Serbia and Montenegro 40.0
Flag of Tajikistan.svg  Tajikistan 39.2
Flag of Azerbaijan.svg  Azerbaijan 37.0
Flag of Ukraine.svg  Ukraine 36.5
Flag of Moldova.svg  Moldova 31.7
Flag of Armenia.svg  Armenia 31.0
Flag of Georgia.svg  Georgia 25.4
Flag of Bosnia and Herzegovina.svg  Bosnia and Herzegovina 12.0

Debt defaults [61]

CountryYears in default
Flag of Albania.svg  Albania 1991 - 1995
Flag of Bosnia and Herzegovina.svg  Bosnia and Herzegovina 1992 - 1997
Flag of Bulgaria.svg  Bulgaria 1990 - 1994
Flag of Croatia.svg  Croatia 1992 - 1996
Flag of Moldova.svg  Moldova 1998
2002
Flag of Mongolia.svg  Mongolia 1997 - 2000
Flag of North Macedonia.svg  North Macedonia 1992 - 1997
Flag of Russia.svg  Russia 1991 - 1997
1998 - 2000
Flag of Yugoslavia (1992-2003); Flag of Serbia and Montenegro (2003-2006).svg  Serbia and Montenegro 1992 - 2004
Flag of Slovenia.svg  Slovenia 1992 - 1996
Flag of Ukraine.svg  Ukraine 1998 - 2000

The EU candidate countries plus Russia (1998)

Between 16 December 1991 and 10 June 1996, a total of 10 transition countries signed Europe Association Agreements (EAs), these agreements acknowledging their ultimate objective of joining the EU. The ten countries were subsequently divided. The five states deemed to have made the most progress (Poland, Hungary, the Czech Republic, Slovenia and Estonia) - constituting the Luxembourg Group - were invited in July 1997 to begin accession negotiations (these began in March 1998). The remaining five countries (Romania, Slovakia, Bulgaria, Latvia and Lithuania) - constituting the Helsinki Group - joined the Luxembourg Group in December 1999. [62]

1998GDP ($ billions) [lower-alpha 1] Real GDP index
(1989=100) [lower-alpha 2]
External debt
(% of GDP) [66]
Private sector share
(% of GDP) [67]
Cumulative FDI inflows
(1989 to 1998; $ millions) [68]
Freedom House's Nations in Transit cumulative score (8 to 56;
greater number = more authoritarian) [69]
Asset share of state-owned banks (%) [70]
Luxembourg Group
Flag of Poland.svg  Poland 158.5117.237.36515,0661348
Flag of the Czech Republic.svg  Czech Republic 60.895.4540.0759,9971418.8
Flag of Hungary.svg  Hungary 46.995.358.08016,4591311.8
Flag of Slovenia.svg  Slovenia 21.1102.2534.7601,1921641.3
Flag of Estonia.svg  Estonia 5.6579.9552.5701,382167.8
Helsinki Group
Flag of Romania.svg  Romania 42.178.123.6604,5103374.6
Flag of Slovakia.svg  Slovakia 22.299.853.7751,7622950
Flag of Bulgaria.svg  Bulgaria 12.767.380.6651,3233059.5
Flag of Lithuania.svg  Lithuania 1165.634.2701,5341845.3
Flag of Latvia.svg  Latvia 6.659.446.8651,604188.5
Russia
Flag of Russia.svg  Russia 263.855.870.4708,9013242.2

Industrial indicators

Deindustrialization
Following the collapse of Communism, the transition economies underwent various degrees of deindustrialization. Deindustrialization varied widely across the region, both in terms of when the fall in output bottomed out and how steep the decline in output was. The extremes were represented by Uzbekistan, where industrial output bottomed out in 1992 at 96.4% of its 1989 level, and Bosnia, where industrial output fell to 1.7% of its 1989 level in 1994. Such data is available for 27 countries, plus the territory of the former German Democratic Republic: [71]

  Lowest yearly industrial output during the 1990s higher than 1980 output
  Lowest yearly industrial output during the 1990s higher than half of 1980 output
  Lowest yearly industrial output during the 1990s lower than half of 1980 output
CountryLowest industrial output
as % of 1989 (year)
Flag of Uzbekistan.svg  Uzbekistan 96.4 (1992)
Flag of Poland.svg  Poland 69.7 (1991)
Flag of Hungary.svg  Hungary 66.8 (1992)
Flag of the Czech Republic.svg  Czech Republic
Flag of Slovakia.svg  Slovakia
Flag of Slovenia.svg  Slovenia
66.1 (1993)
Flag of Turkmenistan.svg  Turkmenistan 63.1 (1997)
Flag of Belarus.svg  Belarus 62.7 (1995)
Flag of Croatia.svg  Croatia 49.6 (1994)
Flag of Ukraine.svg  Ukraine 49.1 (1998)
Flag of Kazakhstan.svg  Kazakhstan 47.7 (1995)
Flag of Estonia.svg  Estonia 47.1 (1994)
Flag of Russia.svg  Russia 46.0 (1998)
Flag of North Macedonia.svg  North Macedonia 42.9 (1995)
Flag of Romania.svg  Romania 41.4 (1999)
Flag of Bulgaria.svg  Bulgaria 40.7 (1999)
Flag of Armenia.svg  Armenia 39.5 (1993)
Flag of Latvia.svg  Latvia 38.7 (1995)
Flag of Yugoslavia (1992-2003); Flag of Serbia and Montenegro (2003-2006).svg  Serbia and Montenegro 35.2 (1999)
Flag of East Germany.svg Eastern Germany 34.7 (1992)
Flag of Moldova.svg  Moldova 32.7 (1999)
Flag of Tajikistan.svg  Tajikistan 32.7 (1997)
Flag of Lithuania.svg  Lithuania 31.7 (1994)
Flag of Kyrgyzstan (2023).svg  Kyrgyzstan 26.7 (1995)
Flag of Azerbaijan.svg  Azerbaijan 26.3 (1996)
Flag of Albania.svg  Albania 18.1 (1996)
Flag of Georgia.svg  Georgia 13.2 (1995)
Flag of Bosnia and Herzegovina.svg  Bosnia and Herzegovina 1.7 (1994)

Trade openness and competitive industrial performance (CIP) in 1998

CountryTrade openness rank
(out of 109) [72]
CIP rank
(out of 87) [73]
Flag of Estonia.svg  Estonia 3rdN/A
Flag of the Czech Republic.svg  Czech Republic 10th24th
Flag of Lithuania.svg  Lithuania 19thN/A
Flag of Slovakia.svg  Slovakia 39thN/A
Flag of Latvia.svg  Latvia
Flag of Bulgaria.svg  Bulgaria
43rdN/A
Flag of Hungary.svg  Hungary 51st27th
Flag of Poland.svg  Poland 67th34th
Flag of Slovenia.svg  Slovenia 68th28th
Flag of Ukraine.svg  Ukraine 68thN/A
Flag of Russia.svg  Russia 89th44th
Flag of Romania.svg  Romania 97th41st
Flag of Albania.svg  Albania 100th68th
Flag of Croatia.svg  Croatia 101stN/A

See also

Notes

  1. 1998 GDP per capita multiplied by 1998 population [63]
  2. the average between the EIU estimate (used by the OECD) [64] and the UNECE estimate (used by the Council of Europe) [65]

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The economy of the Republic of the Congo is a mixture of subsistence hunting and agriculture, an industrial sector based largely on petroleum extraction and support services. Government spending is characterized by budget problems and overstaffing. Petroleum has supplanted forestry as the mainstay of the economy, providing a major share of government revenues and exports. Nowadays the Republic of the Congo is increasingly converting natural gas to electricity rather than burning it, greatly improving energy prospects.

<span class="mw-page-title-main">Economy of Togo</span>

The economy of Togo has struggled greatly. The International Monetary Fund (IMF) ranks it as the tenth poorest country in the world, with development undercut by political instability, lowered commodity prices, and external debts. While industry and services play a role, the economy is dependent on subsistence agriculture, with industrialization and regional banking suffering major setbacks.

<span class="mw-page-title-main">Economy of Uzbekistan</span>

The economy of Uzbekistan, formerly a Soviet-style command economy, has undergone changes that align more with a market economy.Under the administration of Islam Karimov currency conversion capacity was restricted, imports were controlled and Uzbekistan's borders with neighboring Kazakhstan, Kyrgyzstan, and Tajikistan were sporadically closed. Since the election of President Shavkat Mirziyoyev, Uzbekistan economic and social reforms have been implemented to boost growth and modernize the country. International Financial Institutions, including EBRD, Asian Development Bank and the World Bank, are supportive of the reform process and increased their presence in the country.

<span class="mw-page-title-main">European Bank for Reconstruction and Development</span> Financial institution which supports more than 30 countries

The European Bank for Reconstruction and Development is an international financial institution founded in 1991. As a multilateral developmental investment bank, the EBRD uses investment as a tool to build market economies.

<span class="mw-page-title-main">Economy of Tunisia</span>

The economy of Tunisia is in the process of being liberalized after decades of heavy state direction and participation in the country's economy. Prudent economic and fiscal planning has resulted in moderate but sustained growth for over a decade. Tunisia's economic growth historically has depended on oil, phosphates, agri-food products, car parts manufacturing, and tourism. In the World Economic Forum Global Competitiveness Report for 2015–2016, Tunisia ranks in 92nd place.

In economics, shock therapy is a group of policies intended to be implemented simultaneously in order to liberalize the economy, including liberalization of all prices, privatization, trade liberalization, and stabilization via tight monetary policies and fiscal policies. In the case of post-Communist states, it was implemented in order to transition from a command economy to a market economy.

<span class="mw-page-title-main">Nicolae Văcăroiu</span> Romanian politician

Nicolae Văcăroiu is a Romanian politician, member of the Social Democratic Party (PSD), who served as Prime Minister between 1992 and 1996. Before the 1989 Revolution, he worked at the Committee for State Planning, together with Theodor Stolojan. He was the President of the Senate of Romania for almost eight years, during two legislatures.

<span class="mw-page-title-main">Economy of Europe</span>

The economy of Europe comprises about 748 million people in 50 countries.

The economy of the Socialist Federal Republic of Yugoslavia (SFRY) was a unique system of socialist self-management that operated from the end of World War II until the country's dissolution in the 1990s. The Yugoslav economy was characterized by a combination of market mechanisms and state planning, with a focus on worker self-management and a decentralized approach to decision-making. Despite facing numerous challenges, including political instability and external pressures, the Yugoslav economy achieved significant growth and modernization during its existence, with a particularly strong emphasis on education, health care, and social welfare. However, the system ultimately proved unsustainable in the face of the global economic changes of the 1980s and the political tensions that led to the breakup of Yugoslavia in the 1990s. Despite common origins, the Yugoslav economy was significantly different from the economies of the Soviet Union and other Eastern European socialist states, especially after the Yugoslav-Soviet break-up in 1948.

The Balcerowicz Plan, also termed "Shock Therapy", was a method for rapidly transitioning from an economy based on state ownership and central planning, to a capitalist market economy. A group of experts, which they formed together with Balcerowicz, including Stanisław Gomułka, Stefan Kawalec and Wojciech Misiąg, in September 1989 created a reform plan based on an earlier idea of Jeffrey Sachs, and on October 6, an outline of this plan was presented to the public by Balcerowicz at a press conference broadcast by TVP.

Đổi Mới is the name given to the economic reforms initiated in Vietnam in 1986 with the goal of creating a "socialist-oriented market economy". The term đổi mới itself is a general term with wide use in the Vietnamese language meaning "innovate" or "renovate". However, the Đổi Mới Policy refers specifically to these reforms that sought to transition Vietnam from a command economy to a socialist-oriented market economy.

The economic history of the Republic of Turkey had four eras or periods. The first era had the development policy emphasizing private accumulation between 1923 and 1929. The second era had the development policy emphasized state accumulation in a period of global crises between 1929 and 1945. The third era was state-guided industrialization based on import-substituting protectionism between 1950 and 1980. The final, era was the opening of the economy to liberal trade in goods, services and financial market transactions since 1981.

After the dissolution of the Soviet Union in 1991 and the end of its centrally-planned economy, the Russian Federation succeeded it under president Boris Yeltsin. The Russian government used policies of shock therapy to liberalize the economy as part of the transition to a market economy, causing a sustained economic recession. GDP per capita levels returned to their 1991 levels by the mid-2000s. The economy of Russia is much more stable today than in the early 1990s, but inflation still remains an issue. Historically and currently, the Russian economy has differed sharply from major developed economies because of its weak legal system, underdevelopment of modern economic activities, technological backwardness, and lower living standards.

The Chinese economic reform or Chinese economic miracle, also known domestically as reform and opening-up, refers to a variety of economic reforms termed "socialism with Chinese characteristics" and "socialist market economy" in the People's Republic of China (PRC) that began in the late 20th century, after Mao Zedong's death in 1976. Guided by Deng Xiaoping, who is often credited as the "General Architect", the reforms were launched by reformists within the ruling Chinese Communist Party (CCP) on December 18, 1978, during the "Boluan Fanzheng" period. The reforms briefly went into stagnation after the 1989 Tiananmen Square protests and massacre, but were revived after Deng Xiaoping's southern tour in 1992. The reforms led to significant economic growth for China within the successive decades; this phenomenon has since been seen as an "economic miracle". In 2010, China overtook Japan as the world's second-largest economy by nominal GDP, before overtaking the United States in 2016 as the world's largest economy by GDP (PPP). On the other hand, a parallel set of political reforms were launched by Deng and his allies in the 1980s, but eventually ended in 1989 due to the crackdown on Tiananmen Square protests, halting further political liberalization.

<span class="mw-page-title-main">Erik Berglöf</span> Swedish economist

Erik Berglöf is a Swedish economist, currently the Chief Economist of the Asian Infrastructure Investment Bank (AIIB), the Beijing-based multilateral development bank established in 2016 with a mission to improve social and economic outcomes in Asia. In March 2019 Erik Berglöf was appointed to the European Council's High Level Group of Wise Persons on the European financial architecture for development where Berglöf and eight other economists will suggest changes to the EU's development finance structure. In 2017–2018 Erik Berglöf served on the secretariat of the G20 Eminent Persons Group on Global Financial Governance and on the Governing Board of the Institute for New Economic Thinking in New York.

The economic history of Azerbaijan covers the development of the country's economy from its incorporation into the Russian empire at the beginning of the 19th Century, through the period of independence under the Democratic Republic (1918-1920), as part of the Soviet Union (1920-1991) and subsequent transition to the Republic of Azerbaijan.

<span class="mw-page-title-main">Dollarization of Cuba</span> Policies implemented for the Cuban economy after 1993

The dollarization of Cuba refer to macroeconomic policies implemented with the aim at stabilising the Cuban economy after 1993. They were initially enacted to offset the economic imbalances which was a result of the dissolution of the Soviet Union in 1991. The main aspect of these reforms was to legalize the then illegal U.S. Dollar and regulate its usage in the island's economy.

<span class="mw-page-title-main">Poland and the World Bank</span>

After separating from the World Bank and other International Financial Institutions for decades due to pressure from the Soviet Union, Poland rejoined the World Bank on June 27, 1986. The World Bank was instrumental in financing and providing technical assistance for Poland as it transitioned from a Command Economy into a Market-Oriented Economy. As a middle income country, Poland has worked primarily with the International Bank for Reconstruction and Development since it is not eligible for loans from the International Development Association. Additionally, Poland has had a few projects with the Multilateral Investment Guarantee Agency and the International Finance Corporation. Currently, most of Poland's engagements with the World Bank Group concern environmental concerns and public finances.

Jamaica first joined The World Bank Group (WBG) on 21 February 1963, when the island nation became a member of The International Bank for Reconstruction and Development (IBRD), which lends to middle and low income nations. This occurred the same month as Jamaica joining the International Monetary Fund (IMF), and one year after declaring political independence. Since joining The World Bank, Jamaica has received in excess of $3 billion US Dollars in loans and grants. Jamaican Minister of Finance, Donald Sangster, led the Jamaican delegations to World Bank and International monetary Fund meetings between 1963 and 1966, while also serving as Governor of the World Bank and IMF. Sangster would go on to serve briefly as the Prime Minister of Jamaica.

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