Abstract
The fall of the Berlin Wall and the subsequent break-up of the Soviet Union resulted in a transition of the fifteen new states and the countries of Central and Eastern Europe from central planning to market. The transition led to massive disruptions of the economies of these countries and huge short term declines in output and incomes. The economic dislocation resulting from the transition led these countries to seek the assistance of bilateral donors as well as the IMF and the World Bank of which most were not members. This chapter discusses the problems of transition from plan to market and the response of the international community in assisting these countries during the 1990s. It focuses on two issues: privatization and the integration of Russia and the new independent states as well as the coutnries of Central and Eastern Europe into the world trading system.
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Notes
- 1.
Gorbachev had signaled in late 1988 that force may not be used to prop up Eastern European regimes and Hungary had opened its borders with Austria in September 1989 leading to a large number of East Germans leaving their country. But given past Soviet interventions in Hungary and Czechoslovakia , there was always some fear that the Soviet Union and the German Democratic Republic (GDR) would resort to force.
- 2.
F. W. de Klerk met with Nelson Mandela in December 1989 and released him from prison in February 1990, a momentous event with great repercussions for the future of South Africa and development more broadly.
- 3.
Staff in the World Bank office in Beijing went for a short period to Japan but they returned to continue their contacts with the Chinese authorities to the chagrin of the US.
- 4.
According to the charters of the two institutions, a country first has to become a member of the IMF and then of the World Bank .
- 5.
The redrafting of the legal framework was urgently needed. Every reform needed a new law—privatization, capital markets, corporation law, bankruptcy law, anti-monopoly and so on. The FSU and CEE countries had a legal system based on the Napoleonic Code while most of the World Bank advisors drafting was based on Anglo-Saxon law traditions. Eventually, the Bank sponsored legal reform programs to harmonize the legal codes.
- 6.
Havrylyshyn was prescient: Ukraine voted 90% for independence on December 1, 1991 and the USSR was dissolved at the end of that month. Havrylyshyn joined for a time the Ukrainian government, and later became a Senior Advisor in the IMF .
- 7.
The legal aspects of this agreement are unclear as the World Bank is supposed to make loans only to members which was not the case at the time for the USSR . In practice, this technical assistance loan was subsequently disbursed in four countries, Russia , Belarus , Kazakhstan and the Kyrgyz Republic .
- 8.
I should not have been surprised: on December 1, in a referendum, 90% of Ukrainians had voted in support of independence from the Soviet Union .
- 9.
I spent 1992 mostly on issues related to Ukraine and later Moldova . Starting in 1993 and until 1997, I worked on World Bank operations primarily in Russia , while researching policy issues of trade and payments in Russia and the so-called Commonwealth of Independent States (CIS).
- 10.
The Ukrainian authorities told me early in 1992 that they were prepared to shoulder part of the debt burden as evidence of their sovereignty. Russia took over all the debt but also assets of the USSR abroad such as embassies.
- 11.
The World Bank had actually prepared a program of privatization that it had submitted to the government in 1989, but implementation was delayed until 1993.
- 12.
Ira Lieberman was the first adviser to the Russians on their privatization program from the World Bank . He managed the World Bank loan in support of privatization and provided to the Russian advisers a comparative analysis on the Polish and Czech programs based on work he had done for US AID. The Bank then hired a consulting consortium—lawyers, fund experts, voucher experts and consultants—with EU funds through EBRD , the partner in the design of the Mass Privatization Program.
- 13.
There were in fact two privatization agencies—GKI run by Anatoly Chubais and another one, the State Property Fund reporting to the Parliament. Chubais worked out a compromise whereby the State Property Fund handled the auctions at the Oblast and municipal level and GKI designed the program and set the rules and policy governing the program. The State Property Fund later handled the cash sales from which the state received little to no money.
- 14.
Uneximank bought 38% of Norilsk Nickel for a loan (unpaid) of $170 million. Norilsk was estimated to have had profits of 2 billion in 1999 (Nellis 2008, p. 112).
- 15.
Bulgaria , Croatia, Czech Republic , Poland , Romania , Slovenia, Slovakia.
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Michalopoulos, C. (2017). The Collapse of Planning and the Troubled Transition. In: Aid, Trade and Development. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-65861-2_5
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