Crisis, Stabilization and Growth: Economic Adjustment in Transition Economies

365 Pages·2001·8.58 MB·English

by  Patrick Conway (auth.)

CRISIS, STABILIZATION ANDGROWTH:
ECONOMIC ADJUSTMENT IN
TRANSITION ECONOMIES
CRISIS, STABILIZATION AND GROWTH:
ECONOMIC ADJUSTMENT IN
TRANSITION ECONOMIES
by
PATRICK CONWAY
Department of Economics
University of North Carolina
SPRINGER SCIENCE+BUSINESS MEDIA, LLC
Library of Congress Cataloging-in-Publication Data
Conway, Patrick J.
Crisis, stabilization and growth : economic adjustment in transition economies /
by Patrick Conway.
p. cm.
Includes bibliographical references and index.
ISBN 978-1-4613-5621-9 ISBN 978-1-4615-1573-9 (eBook)
DOI 10.1007/978-1-4615-1573-9
1. Former Soviet republics--Economic policy. 2. Former Soviet republics-
Economic conditions. 3. Former Soviet republics--Economic conditions--Case
studies. 4. Saving and investment--Former Soviet republics. 1. Title
HC336.27 .C665 2001
338.947--dc21 00-048795
Copyright © 2001 Springer Science+Business Media New York
Originally published by Kluwer Academic Publisher in 2001
Softcover reprint ofthe hardcover Ist edition 2001
AlI rights reserved. No part of this publication may be reproduced, stored in a
retrieval system or transmitted in any form or by any means, mechanical, photo
copying, recording, or otherwise, without the prior written permission of the publisher,
Springer Science+Business Media, LLC .
Printed on acid-free paper
For Carol, Chris and Paul.
TABLE OF CONTENTS
ListofFigures IX
ListofTables xiii
ListofSymbols xv
ListofCountryAcronyms XIX
ForewordandAcknowledgements XXI
I. TheTransition Economies 1
II. Saving:byPlan andintheMarket 19
m. Consideringthe CompetingExplanationsoftheTransition in
Inflation andEconomicGrowth 73
IV. TheInflationary ExplosionFollowingPriceLiberalization 125
V. The CrisisYears 149
VI. DirectedCredits andFinancial RepressioninBelarus 193
VII. StabilizationinTransition Economies 229
vm. Ukraineinthe StabilizationPhase 243
IX. Georgia:fromCrisisto Stabilization..andThen ? 267
X. FalloutoftheRussianFinancial Crisis forthe
Transition Economies 303
XI. Conclusions- andPolicyAdvice 327
Bibliography 333
Indices 343
LISTOF FIGURES
1.1. First-GenerationTransitionsofthe FormerSovietRepublics. 8
1.2: Second-GenerationTransitionsintheformer SovietRepublics 9
1.3. OutputReduction intheTransition II
11.1. Savinginthe FlowofFunds 23
11.2. Intermediationinthe FlowofFunds 24
11.3. SourcesofSavingfor FinancingInvestment, 1990 25
11.4. TheSavingChoiceinan IntertemporalModel 29
11.5. TheFlowofFunds intheSovietUnion 34
11.6. Currencyand DepositHoldings: USand USSR,1985 35
11.7. The FlowofCurrencythroughGosbank 36
11.8. The PatternofTradeofthe FormerSovietRepublics 38
11.9. Equilibriumvaluesofreal interestrate 44
11.10. TheImpact ofProductivityDeclineonSavingandtheReal InterestRate 45
11.11. ProductivityDeclineinthe AbsenceofInternationalBorrowing 46
11.12. CorrelationsofDirect and IndirectMeasures ofNational Saving 57
11.13. AveragePrivateSavingRatios 58
11.14. TheTransitioninSavingduringtheCrisis Period 61
11.15. SavinginTransitionDuring theStabilizationPeriod 63
III.!. AverageDeclineinGDPduringTransition 74
I1I.2. TheHistorical Record onInflation inthe Post-SovietEconomies 76
111.3. Equilibriuminthe Financialand ProductMarkets 85
IlIA. Equilibriuminthe MarketsforFinancial Instruments 91
I1I.5. TheDynamicofAdjustmenttoaWealth Overhangwith
EarmarkedFinancial Instruments 92
II1.6. General Equilibriumwith Wealth Overhang 93
III.7. Financial Fragmentationthrough Marketfor Foreign Currency 95
I1I.8. Impact ofIncreasedEnergy Costs 96
I1I.9. Impact ofLossofConfidenceinJudicialSystem 97
111.10. The Impact ofFinancial Repression 98
III.II. DescribingtheTransitioninthe FormerSovietEconomies 100
III.l2. ExcessGrowthinthe FormerlySovietEconomies,1991-1997 108
I1I.l3. ExcessInflation inthe FormerlySovietEconomies,1991-1997 109
111.14. ExcessGrowthand Inflation intheCrisis Period 112
111.15. ExcessGrowthand Inflation intheStabilization Period 113
111.16. ExcessGrowth inthe Balticand non-BalticEconomies
ofthe FormerSovietUnion 115
111.17. ExcessInflation inthe Balticand non-BalticEconomies
oftheFormerSovietUnion 116
IV.I. Depositsofthe Population intheSovietUnion 130
IV.2. Steady-stateEquilibriuminSavingand Inflation 136
IV.3. AdjustmenttoaSteady StatefollowingaNegativeProductionShock 138
IV.AI. NumericalSimulation ofEquilibriumand Saddlepath 146
x
V.1. GovernmentBudget Deficitsasa Percentage ofGDP 153
V.2. Foreign and GovernmentSavingduringtheCrisis 162
V.3. TheRatio ofBanktoNon-BankSaving,SelectedTransitionEconomies 171
VA. Ukraine: Shiftfrom KarbovantsytoForeignCurrency-Denominated
TimeDeposits 173
V.5. Savingbythe Population (aspercentofGDP) 176
VLI. Belarus: ProductionAfter an Energy PriceShock 196
VL2. Belarus: RealExchange Rate 197
VI.3. Belarus: NBBReal DiscountRate 198
VIA. CurrencyHoldingsand DepositsofthePopulation 213
VL5. Cash/non-CashDichotomyinUSDexchangemarkets 215
VII.I. Financing theTransition: theInflationaryStimulus 232
VII.2. FinancingtheTransitioninUkraine 234
VII.3. EvolutionoftheAverageGeneralGovernment BudgetSurplus 236
VIlA. BudgetSurplusesand Inflation in1997 237
VII.5. The Evolution ofForeign SavinginTransition 239
VIlLI. Inflation intheConsumerPrice Index 244
VIII.2. RealGross DomesticProduct 245
VIII.3. RealBudget Surplus(aspercentofGDP) 246
ViliA. TheAvailability ofDomesticCredit 247
VIII.5. RealInterestRates 248
VIII.6. GrowthinMonetaryBase,ConsumerPrice Inflation
and Exchange Rate Depreciation. 249
VIII.7. Evolution ofthe RealExchange Rate 250
VIIL8. ExternalPosition oftheNational BankofUkraine 251
VIIL9. Components ofM2 252
VIILIO. Financial HoldingsofHouseholdsfromConsumerSurveys 253
VIII.II. DepositsintheCommercial Banks 254
VIILI2. TheScarcityofWorking Capital 256
VIII.13. (HID) Ratios plotted against the real interestrate 260
IX.I. Georgia: ValueofGEC per USDat officialauction 272
IX.2. The USDprice ofbread(at unofficialexchangerate) 273
IX.3. Ratio ofCurrencyinCirculationtoGDP 275
IXA. Ratio ofCurrencyinCirculationtoNetDomesticAssets 276
IX.5. Georgia: Real InterestRates on90-dayDeposits 278
IX.6. NominalInterestRates onLari-and USD-Denominated Deposits 279
IX.7. Georgia: NominalExchange Rate Evolutionwith the USD 280
IX.8. ReserveMoneyGrowth,NominalDepreciation and Inflation 282
IX.9. EvolutionofCommercial Depositssincethe Lari Introduction 283
IX.IO. Georgia: ShareoftheSmaller BanksinDepositCreation 284
IX.II. NetForeign AssetPositionofthe NBG 286
X.1. Russian BudgetDeficitaspercentofGDP 304
X.2. RealInterestRate onInterbank Credits 305
X.3. Russia100StockIndex 306
X.4. Russian Foreign Exchange Reserves 307
xi
X.5. Daily localcurrencyexchangeratesvisavisthe Russian Ruble 309
X.6. Exchange-RatePerformanceSubsequenttothe Crisis 3\\
X.7A. Volume ofForeignExchangetransactionsinGeorgia 3\2
X.7B. Volume ofForeignExchangetransactionsinUkraine 313
X.8A.. RealExchangeRates: Georgia 3\4
X.8B. Real ExchangeRates: Ukraine 3\5
X.8C. TheRealExchangeRate(for Beet) inBelarus 3\6
X.9A.InterestRateon7-dayCreditAuction: Georgia 3\8
X.9B. Real interestrateoncommercialbankcredits: Ukraine 3\9
X.9C. Real InterestRateonDeposits inBelarus 320
X.IO. Netflows offoreignexchangeinUkraine 32\
X.II. ConsumerPriceInflationinfourTransitionEconomies 323
LIST OF TABLES
1.1. ConsumerInflation intheTransitionEconomies 12
II.I.Gosbank BalanceSheet 39
11.2. GrowthofCurrencyinCirculation,1987-1990 41
11.3. ExpenditureinTransitionEconomies 51
11.4. Gross DomesticSaving(Sp+SJ 53
II.s. Governmentand Private DomesticSaving,1994and 1997 54
11.6. Estimates ofHouseholdand EnterpriseSaving 56
11.7. TheShares ofInvestment Financed throughThreeSavingChannels 59
11.8. AverageTrendsinPrivateSaving 65
III.I. Inter-countryDeviationinEconomicGrowthand Inflation Rates 77
III.2. CausesofDeviationinGrowthand Inflation Rates 104
III.3. Competing HypothesesonEconomicGrowth Performance 107
IlIA. TheDeterminantsofEconomicLiberalization III
III.AI GDPGrowth Rates intheTransitionEconomies 118
III.A2. Commodity Inflation inTransitionEconomies 119
IV.I. Kazakhstan: ControlledPrice Increases 129
IV.2. PriceControlIncreases of2January1992 131
IV.3. Aggregate IndicesofWholesalePrices OfEnterprises 132
IVA. Kazakhstan: MonetarySurvey, 1992 140
V.I. GDPGrowth Rates 149
V.2. CommodityInflation inEconomiesofthe FormerSovietUnion 150
V.3. DeterminantsofBudgetaryStance in1994 154
VA. IntroductionofNewCurrenciesinthe FormerSovietUnion 156
V.5. Russia: Cash andTechnicalCreditsIssuedinthe First Halfof1993 158
V.6. Russia: State CreditstoCISStates fortheSecondHalfof1993 159
V.7. Discountsonaccounting credits ofvarious membersofthe
ruble currencyarea 161
V.8. Saving Banks: NominalAnnual InterestRates onDeposits,mid-1993 167
V.9. IncidenceofCash Shortage 168
V.IO. PremiumofCash overAccounting Creditsin
Foreign-ExchangeMarkets 169
V.II. DistributionofIncomeand ExpenditureinUkraine 182
V.12. Credit,Currencyand DepositCreationinSelectedRepublics 186
VI.I. Interestrates onDepositsand Creditsin1993inBelarus 199
V1.2: Consumption Account1993 202
VI.3: SavingAccount1993 203
VIA. NetLending Position: Various Actors 205
VI.5. Credittothe EconomyinBelarus: end-1993and end-March 1994 207
V1.6. BelagroprombankLending Characteristicsin1993and 1994 208
VI.7. Reduction inRealNetWorthofthe NBBand the BankingSystem 211
V1.8. Saving-InvestmentBalancesinBelarus 212
xiv
VLAI. Belarus: ConsolidatedGovernmentBudget 1993 219
VLA2. EnterpriseSectorFlowofFunds -1993 221
VLA3. National BankofBelarus: nominal change inbalances in1993 222
VLA4. Belarus Banking System(excluding NBB)in1993 223
VLA5. BalanceofPayments in1993 224
VLA6 Incomeand ExpenditureofPopulationin1993 225
VILI. EconomicGrowthduringthe StabilizationPeriod 229
VIL2. Commodity Inflation duringthe Stabilization Period 230
VIII.I GDP Function Regression Results 257
VIIL2.ConsumerInflation Rate: Ukraine 258
VIII.3. AssetRatio ResponsetoReal InterestRate Stimulus 261
VIII.4. AssetRatio ResponsetoReal InterestRate Stimulus 262
IX.I. Bank InterestRates onDepositsand Loans 277
IX.2. Error-CorrectionEstimation: DynamicEvolution
ofUSDExchange Rates 292
IX.3. Error-Correction Estimation: DynamicEvolution
ofRbIExchange Rates 294
IX.4. ResultsofCausalityTests, USDand RbI 296
X.I. Real EconomicGrowth Rates inFourTransitionEconomies 322