Structural Reform

Abstract

Structural reform constitutes the essence of transition. It encompasses all the necessary adjustments for a successful transformation of the transition economies towards the market system. Its basic objective is directed at reallocating the resources of the particular economies so as to better reflect the influence of market forces correcting, as a result, for the distortions inherited from the previous regime. This reallocation, in spite of the output decline that it caused across all transition economies initially, brought about significant efficiency gains, a necessary precondition for the resumption of output growth. As we will see in the next chapter, a wide body of research suggests that the countries which attempted to correct more rapidly the distortions inherited from central planning were the ones that experienced a substantial and sustained improvement in economic performance as well as a faster reduction in inflation.