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China's Transition Experience,
Reexamined
by Jeffrey Sachs and Wing Thye Woo
he most remarkable difference
between reforms in China and
T in countriesof Centraland Eastem Europeand the formerSovietUnion
(CEEFSU) is that China succeeded in
producing more than a decade of phenomenal growth, while countries of
CEEFSU,no matteTwhichreform strategy has been tried, have seen a sharp
Chinese-stylereforms to Russia or to
other countries of CEEFSU would not
be possible or desirable. Supporters of
introducingChinesegradualismin Russia might as well advise Russia to solve
its agriculturalproblemsby shiftingfrom
wheat to rice. We can summarize the
structural differences, and their implications, as follows:
*1. In 1978, at the start of the reform
period, China'sheavily subsidizedstate
sectoremployeda relativelysmallshare,
18 percent, of the labor force while the
agricultural sector-not subsidized by
the state-accounted for 71 percent of
the labor force. State-ownedenterprises
(SOEs) offered a generous package of
wages and social protection, pensions,
initial downturn in production, usually
with a significant rise in unemployment.
Theundoubted Chinese success ledmany
What's inside.
economists to urge CEEFSU to adopt
Latvian Banking Crisis: Stakes and
the Chinese dual-track approach (see
Mistakes-ThefallofBaltijaBankisana
box next page). By 1996, however, the
omen-to avoidtremorsintheirfinancial
call for thsul-raksectors, transition economies should
heavily subsidized housing, medical cov-
call for this dual-track approach has
tighten bank supervision, warn Alex
basically disappeared in the fast-reform
countries of CEEFSU, since their sharp
initial downturn has been followed by
rapid growth.
Poland's
GDP
rapiPol-nds
grwth per
pr capita
caitaGDP
growth was around 6 percent in 1995,
around the levels of the East Asian tigers. A similar rate of growth is expected in 1996.
Fleming and SamuelTalley.(page 6)
Reviewedby Martin Schrenk (page 22)
Using World Bank Credit Lines. Alex
-sFleming
reports
on an innovative
method
-used in
the Baltics-to
recapitalize
banks. (page 9)
QuotationoftheMonth:"WeWillRegulate
Foreign-controlled
Enterprises.
" If
Zyuganov
wins..-a leading
Communist
outlines a scenario for Russia. (page 24)
HowtoTenderinBosnia.Ourcompilation
includes an interview with Procurement
CoordinatorNaushad Khan; a lookat the
specificsof reconstructionprocurement;
and a basic primer on World Bank procurementprocedures. (pages 11-18)
PurchasingPower Parities (page 19)
Milestonesof Transition(page 25)
Shifting from Wheat to Rice?
The differences in initial conditions and
economic structures are so profound
that it has been necessary for countries
of CEEFSU to follow a fundamentally
different kind of reform from Chinese
gradualism. A simple transplantation of
LettertotheEditor-RussianEconomic
Crime:TheFlipSide
Leonid Grigoriev and GregoryKisunko
respond to Michael Gray and Aleksandr
Zhilin.(page 20)
BookoftheMonth-LeszekBalcerowicz:
Socialism,Capitalism,Transformation
WorldBank/IMFAgenda(page28)
ConferenceDiary (page30)
New Books andWorkingPapers
(page32)
BibliographyofSelectedArticles
(page39)
The World BanklPRDTE
erage, childcare, food, and&recreational
facilities. The peasants received none
ofthese benefitsand are still consuming
roughly one-third of what urban residents consume.While most state enterprise workers have chosen to keep their
privilegedpositions (at least duringthe
first fifteenyears of reforms), the peasants havebeen only too glad to shift out
oflow-incomeagriculturalactivitiesand
into the new, higher-incomejobs in the
nonstate sector,notably in the township
and village enterprises (TVEs) and in
enterprises in special economic zones
of the coastal provinces (see box on
page 3). Thus, the nonstate sector grew
despite the preservation of the state
sector.Itis importanttonotethatChina's
rural reforms contributed directly to a
one-timejumpinproductivityinagriculture between 1979 and 1985, but after
that, agricultural productivityreturned
to its historicaltrend. Therefore, rapid
growth in China has comemainly from
the non-state, nonagricultural sectors.
Countriesin the CEEFSU, by contrast,
lacked a vast surplus-labor sector, and
the (also heavily subsidized) state sector workers were eager to keep their
privilegesrather than risk the transition
to the nonstatesector.In Russia, around
three-fourths of the population are urban residents,andas of1991, morethan
90 percent of the population were employed in state-ownedenterprises. Further, Russian farners on state farms
(sokhozes) and collective farms (kolk
hozes) receivedapproximatelythe same
.2. Market reforms in the CEEFSU
countriesnecessarilyinvolvedan initial
declinein industrialproduction.Inthese
countries heavy industry was overdevelopedunder the old regimes' bureaucratic directives while the service sector was correspondingly underdeveloped.In Chinaa declineofagriculture's
contributiontothe GNP itselfgenerated
growth, without a squeezeof the existing industry. Besides,industry was not
as excessivelybuilt up, since it had enduredamuch shorterperiodunder stable
central planning than the industries in
the CEEFSU.The experienceof China
and the CEEFSU countries suggests
that the marketization of a planned
economyinevitablyshifts resources toward the service sector: from the agricultural sectorin China,andfromindustry in the countries of the CEEFSU.
Seen this way, much or all of the initial
drop in industrial production in the
CEEFSU countries after the start of
reformswas a natural part ofthe needed
reallocation of employment and resources.
*4. One key macroeconormicburden is
social expenditure. In China social
spending from the central government
coversa smallfraction ofthe workforce,
much less than 20 percent.In CEEFSU.
What Is the Dual-Track Approach?
The basic Chinesestrategyfor moving
fromeconomicplanningto a marketsystemhasbeenthe gradualdecentralization
ofeconomic
decisionmaking,
includingthe
liberalization of the non-state-owned
economy.Thedual-trackapproachof establishinga markettrack,parallelto an
existingplantrack,
pervadesalmostevery
areaof economicpolicymaking:sectoral
reform,pricederegulation,enterpriserestructuring,regionaldevelopment,trade
promotion,foreignexchangemanagement,
income and benefits as SOE workers,
central-localfiscal arrangements, anddothanks to very large subsidies from the
mesticcurrencyissuance.Forexample,the
central government. Therefore, when
typical process of dual-price transition is
the new. nonstate sector was progresas follows:
sively legalized during 1986-9 1, an SOE
* Opening the free market while keeping
workersitnitthstate supplyunchanged at the (lower)plan
price.
could experience a drop in income and
* Adjusting the plan price incrementally
security. The flow of workers to the
overtimetoapproachthemarketprice.The
nonstate sector was insufficient to reinsupply offered at the plan prices is norvigorate the economy.
mally fixed by quota, if not reduced, over
time. Generally, no "shock" is observed
when convergence of the two prices occurs.
2
3. In both regionspartial liberalization
unleashed macoreconomic pressures,
especiallyby allowing state enterprises
to reduce actual and reported profits, so
their tax payments decreased. These
pressures were more manageable in
China, partly because the state enterprise sector employeda smallerpart of
the labor force, partly because of rapid
growth in other sectors, and partly because of adequatemonetarypolicy. The
pressures turned explosive in much of
the CEEFSU, particularly Bulgaria,
Poland, and the (former) Soviet Union,
because of deeper structural problems
as well as gross macroeconomicmismanagement during the communistreform period (and well into the
postcommunist reform period in much
of the former Soviet Union).
This approachwasintroducedat the end
of1978withrapidandcomprehensive
liberalizationoftheagriculturalsectorwhile
theindustrialsectorremainedundertraditionalcentralplanningmanagement.
The
agriculture communeswere disbanded
overatwo-yearperiodbydistributingthe
landwithmultiyear(usuallyfifteen-year)
leasesto the peasants,and allowingthe
leasestoberelativelyfreelytradable.
State
procurementpricesforagriculturalproducts were raised, and freemarketsfor some
agriculturalproductswereallowed.Farmers now enjoy wide-ranging production
freedom:only5percent oftheirproduction
in 1993was set by the state plan.
In 1984the dual-track arrangement was
extended to industrial goods, with state
procurement quotas for consumer goods
much lowerthan for producer goods.The
proportion of planned production of total
industrial output value has been reduced
from more than 90 percent in 1978 tO 5
percentin 1993.
March-April 1996
Transition
by contrast, social spending from the
central government covers nearly the
entire population, and public demands
for social guarantees outrun the fiscal
capacity of the state.
No Such Thing as Free Subsidies
The usual argument for the superiority
of China's two-track approach comparedwithaPolish-style"bigbang"goes
something like this. Economic reform
involves substantial upheaval, so it is
desirable to moderate the size of the
shocksthat will hit the economyduring
the transition. Therefore, it is useful to
protect the old sectors of the economy
at the same time that new economic
opportunitiesare introducedby market
liberalization.Since the old sectors are
inefficient,they will lose out in competition with the new sectors, but this will
happengraduallyasworkersvoluntarily
flowfrom the old state enterprisesto the
new and more efficient nonstate enterprises. A direct "assault"onthe existing
state enterprises-by cutting subsidies,
raising input prices, privatizing ownership-is both unnecessary and traumatic.But in Chinathe proportionofthe
labor force employed by state-owned
units was 18 percent in 1978 and was
still 18percent in 1993.This meansthat
there were actually 35 million more
Chineseworking.mstate-ownedunis in
.
Chineseworking in state-ownedunits in
1993 than in 1978. The state-owned
sector is not "witheringaway."
Severalstudies have concludedthat tofactor productivity(TFP) growth of
tal
talfactorproductlvlty(TFP)growthof
the Chinese SOE sector has been positiveinthereformnperiod.However,these
calculations are based on questionable
price defiatorsof intermnediate
and final
outputs.Evencalculatingwiththesedata,
annual TFP growth of SOEs reached
only about half of that achievedby the
collectively owned enterprises (which
includetown and village enterprises)
Besides,overall profitabilityofthe SOE
sector has been declining.Many SOEs
Volume 7, Number 3-4
are still running losses, a d'ecaXd&
after
the start of enterprise reforms. In 1992,
a boom year, output grew 13 percent,
and yet two-thirds of Chinese SOEs
were loss-makers. The heavy losses
have continued to the present. Some
blamethetoughcompetitionbynonstate
enterprises. But decline in profits occurred across the board, even in heavy
industrieswith negligiblenew entry by
nonstate firms. Excessive wage increasesthroughoutthe SOE sector may
have been a more relevant reason for
the profitability decline.Managershave
little incentiveto resist wage demands
becausetheir future promotionto larger
SOEs is determinedin part by increases
in worker welfare during their tenure.
The financialweaknessof SOEs undermines macroeconomic stability; it reduces fiscal revenue, widensthe budget
deficit, and causes faster monetary
growth; and it forcesthe centralbank to
cover the bulk of SOE losses through
bank loans. The relatively small size of
the SOE sector (comparedwith countries of the CEEFSU) enabled the goverminentto help out the loss-makers
without endangering macroeconomic
stability,andto retain somecontrol over
the enterprises,especiallyovertheirfulfillment of production quotas at plan
prices. With the state still being able to
monitor the SOEs, there was less need
to consider immediateprivatizationbecause widespreadspontaneous privatization did not occur. But the fact remains that just as it did not succeed in
producing the new socialistman during
the CulturalRevolution,China,like Easem Europe and Russia, has not su.
ceeded in producing profitable SOEs
Another Look at China's Succes.
Story
In additionto the "advantagesof bacl
wardness" in economicstructure, thei
are several other factors that have con
tributedto China's superiorgrowth performance:
China's reforms did not start at a
time of high macroeconomic crisis
and severe external debt requiring
implementationof an austerity program.
*
SOE, COE, TVE,FFE, SEZ
In China,an SOEis a nationallyowned predominantlyestablishedin the SEZs,
enterprise;the centralgovernmentis the
SpecialEconomicZones.
ultimateauthorityforthe enterprises'operationsandthedispositionitsassets,even Openingof the economyto foreigntrade
though the SOEin most caseshas been and investmenthas causedChineseexassignedto the provincialor countygov- portstoboom,especiallyexportsfromthe
emmentforsupervisionand
management. TVEsin recentyears(seetable).
Thenonstateenterprisesarethose
inwhich
thecentralgovernmentlacksfinalauthority over the dispositionof assets. The China'sExportBoom,1987-94
nonstate sectorconsistsof communityTVEshare Total
owned (collective-owned)enterprises
TVE Total in totalexport-GDP
(COEs),cooperatives,individual-owned Year exportsexports exports
ratio
enterprises,privatecorporations,andforeignjointventures.
COEsareownedbyall
1987 16
147
10.9
13
the residentsofthe city,township,or vil1988 27
177
15.3
13
lage,andcoopeTativesby
a smallgroupof
1989 37
196
18.9
12
persons. The most prominenttype of
1990 49- 299
16.4
17
nonstate enterprise is the community 1991 167 383
17.5
19
-ownedenterprisesintheruralareas,known1992 119 468
25.4
19
astownshipandvillageenterprises
(TVEs). 1993 235 529
44.4
17
ForeignFundedEnterprises(FFEs)were 1994 340 1042 32.6
23
3
The World Bank/PRDTE
* China's saving rate is unusually
high even by East Asian standards.
Householdsavingis about 23 percent of
disposable income in China versus 21
percentin Japan, 18percentfor Taiwan,
16 percent for Belgium, 13 percent for
West Germany, and 8 percent for the
UnitedStates.The annualflow of household savingintothe formal financialsystem (the state banks and rural credit
cooperatives) rose steadily from 3.4
percent of GDP in 1980to 11.7percent
in 1991.
Thehigh householdsaving rate plays an
importantrole in stabilizingthe Chinese
economy. It has enabled the government to rely on seignorage (moneyfinancingof the budget deficit and offbudgetSOE subsidies),sincethe householdsare willingholdersofthe increased
moneysupply. (Comparablesubsidization of industry in Russia has so far
produced very high inflation, because
theincreasedmoneysupplyhasnotbeen
willinglyheldby householdsandfirms).
- The two disastrous leftist campaigns, the Great Leap Forward
(1958-62) and the Cultural Revolution (1966-76), undermined belief
in Marxist dogmas, weakened the
state's administrative capacity, and
discredited central planning. The
Great Leap Forward program of crash
industrializationstarvedaround 30 millionto death in the 1958-61 period, and
the Cultural Revolutionpurged around
60 percent of party officials.
The legacy of these two disasters enabledDengXiaopingto quicklytransfer
a significantamountofformal andinformal economicpolicymakingpower and
resources to the provinces when he retumed to power in 1978. The central
ministerial and party apparatus were
too politically exhausted and too discredited to resist his decentralization.
This endingofBeijing'sstrangleholdover
politicalpower has beenfundamentalto
4
the continuation of economicreforms.
(When the conservatives sought to reimposea Stalinistcentralplanningeconomy in the immediate aftermath of the
Tiananmen shootingsin 1989, the provincial representatives were strong
enough to repel the recidivist tendency
toward centralplanning.Furthermore,it
was the mobilizationof this new decentralizedpoliticalpowerbyDengXiaoping
after the collapse of the Soviet Union
that forced the conservative faction to
accept the new vision of a socialist
market economy.)
*Central planning in China was always much shallower than in the
CEEFSU. The Sovietcentralplan controlled25 millioncommoditieswhereas
the Chinese centralplan controlledonly
1,200 commodities, Furthermore, the
breakdown of the national distribution
system during the decade of the Cultural Revolutionforcedlocal authorities
to promote small and medium-sizeindustrial enterprises in order to meet local demand.
Existence of family ties between
the mainland Chinese and the overseas Chinese has facilitated the conductof business.The explosivegrowth
of the Special Economic Zones (SEZs)
in southern China is a result of wholesale movementoflabor-intensiveindustriesfromHongKongandTaiwan,which
were losing their comparative advantage intheseindustries.Chinawas closer,
wages were lower, and language difficultieswerenonexistent,comparedwith
the alternative sites in Southeast Asia.
Managers could commute daily from
Hong Kong to supervisetheir factories
in Shenzhen. The family connections
greatly reducedthe transaction costs of
the investmentby providingreliable local supervisors, inside information on
the enforcement of regulations, and
contacts with the local authorities.
*
Ofall the factors identifiedas important
causes of China's achievementsin the
1978-92period,onlythehighsavingrate
could be considered (in part) a policy
lesson for economicreforms. The other
factors are rather specific to China's
circumstances.
Keeping the Bird Happy
Gradualism in China is as much the
result of a political strugglebetweenthe
Stalinists and the refon-ners,and of a
general lack of consensusin the society
at large, as it is the result of a particular
theory of reform. The Stalinists subscribe to the "birdcage economy"doctrine. In the conceptionof its originator,
Chen Yun, the central plan is the cage
andthebird is the economy.The premise
is that without central planning, the
economy will be in chaos and production will be inefficient-that is, without
the cage the bird will fly away. The
amount of market activity that is to be
tolerated to keep the economyworking
is analogousto the amountthat the cage
needs to be swungto create the illusion
of greater space and keep the bird
happy.Thereformers,ontheotherhand,
believethatonlyamarketeconomywill
promote long-term economic development.
"Muddlingthrough"hasnotbeenastrategy, as claimed by some observers, so
much as a result of the lack of political
consensus. The reformerswere able to
convincethe Chinese leadershipin October 1992 to formally abandon "the
planned commodityeconomy"in favor
of "a socialist market economy with
Chinese characteristics."
In November 1993,forthe firsttime, the
party identified ambiguous property
rights as an importantcause ofthe inefficiency of the state enterprise sector,
and decidedthat large and medium-size
state-owned enterprises should experiment with the corporate system, and
March-April 1996
Transiton
that some small state-owned enterprises
could be contracted out or leased; other
SOEs shifted to the partnership system
in the form of stock sharing, or were
sold to collectives and individuals.
National Peoples' Congress-Waits and Sees
China's economictargets imply a strategy
ofcontinued austerity.However,pressure
from ailing state enterprises and inland
provincesfora selectiveeasing of credit is
intense. AllofthekeyreportstotheMarch
session of the National Peoples' Congress
Since there IS now more political constressed that the government would continue its "appropriately" tight monetary
sensus at the elite level, popular support
policy through 1996 and for the next five
at the mass level, and better knowledge
generally of the steps required to estabyears in order to control inflation. Prime
lish a market economy. it is not surprisMinister LiPeng acknowledged,inhisrethe need for a "reasonable scale" of
ing that Chinahasccelrateport,
ing that China has accelerated its ecoinvestment in fixed assets and in ongoing
construction projects. There is debate
nomic reforms since 1994. The new
among Chinese leaders over whether to
reform measures included unification of
the exchange rate, making the currency
relax credit. Someleading officialsargue
convertible for current account transthat any loosening now would risk a new
actions, a new tax system, the comimerboutofinflation. However,alarge number
of SOEs and less-developed inland provinces are pushing for a loosening-up.
cialization of the state-owned banks,
Nonetheless, economic targets are based
and the corporatization of SOEs.
on the continuation of the tight credit
To sum up, the different results that we
policy.
saw in China, Poland, and Russia immeEconomicfGLipredictedGDPgrowth
8 percent this year and average annual
the
implementation
of
difof
diately after
growth of 8 percent thereafter up to 2000.
ferent economic reform programs arose
more from differences in their economic
Thisis down from average growth of 11.8
structure than from the economic stratpercent in 1991-95. On the basis of these
egies implemented. China's reformproband furtherprojections,GDPis expectedto
risefrom5.8trillionrenniinbi($700billion)
to 8.5 trillionby 2000, and to doubleby 17
lem is basically the classic development
trillion by 2010. Actual GDP growth this
problem of promoting the movement of
low-productivity, surplus agricultural layear couldbearound 9to 10percent.Tight
bor into industry and services, while
credit and strong demand have led to upwardpressure onthe exchangerate, which
has eroded much of the gain in external
Central and Eastern Europe's and
competitivenessthatresultedfromthe1994
Russia's reform problem is the much
devaluation.
moredifficultand conflictual adjustment
problem of inducing labor to move from
uncompetitive, heavily subsidized indusHowever,althoughafall in net exportswill
tries to newly emerging, efficient industend to slowthe economy-trade was in
deficitinDecemberandJanuaryafternineteen consecutive months of trade surtries.
pluses-this may be offsetby strong conThis article is drawnfrom the articles
sumption and capital investment. After
and ongoing research of the authors.
growth in fixed assets investment came
down to 18.8 percent last year, Li envisages a 32 percent expansion in 1996 and
Jeffrey Sachs is professor of Internaaverage annual growth of 30 percent to
2000.Total fixedassetinvestmentin 1996
tional Trade at Harvard University
and advises governments in several
is expectedto reach 2.1 trillion renminbi,
countries including Bolivia, Estonia,
with 1.4trilliongoingto SOEsandinstituMongolia, Poland, and Russia.
tions, and 660 billion to community-run
and privateorganizations.Priority will
Wing Thye Woo is professor of Economics at the University of California, Davis.
Volume7, Number 3-4
apparently be given to key projects under
tobecontrolled, especiallyhigh-gradereal
estate and urban construction projects.
Inflation. Beijing enjoyed considerable
success in reducing inflation last year to
less than 15 percent from 21.7 percent in
1994, albeit with the aid of price freezes,
administrative measures, and subsidies.
The government hopes that inflation will
drop to 10 percent in 1996 and remainbelow 8 percent through the next fiveyears.
Budget. The draft budget provides for a
deficit of61.4billion renminbi in 1996, a
slight improvement over last year's 62.1
billionrenmtinbi.Totalrevenuewillamount
to an estimated687.2billionrenminbi, an
increase of 11. I percent over 1995, with
expenditurestotaling748.6billionrenminbi,
up 9.9 percent. Tax reform,includingimprovements in collectionandthenew revenue-sharing agreements with the provinces, has helped to stabilize government
State-owned Enterprises.Toassistailing
state-ownedenterprises(SOEs),whichare
burdened by excess workers, outdated
equipment,andpoormanagement,reformers last year proposed a two-tier strategy
(see Transition, November-December
1995):
*One thousandkeySOEs are tobe singled
outfor special assistance, including lowinterest loans, debt forgiveness,and technical aid, in order to transformthem into
modern corporateentities capableof operating independently from the state and
assumingresponsibilityforttheirownprofits and losses.
*A special fund is to be established to
encourage other SOEs to merge, offset
debts, and improve efficiency. It is also
understood that many ofthese companies
will declare bankruptcy. (Mergers, however, may create monopolies and can
couple more efficientfirms with less efficient ones.)
Theparliament's recentsessiondidnotyet
discuss these proposals.
BasedonreportsofOxfordAnalytica,the
Oxford (U.K.)-based international con-
constructionininfrastmrcture,
agriculture
sultingfirm. (Email: ra@oxford-analy
and industry,as well as to inland regions.
The startup of new projects will continue
tica. com).
5
The World BanIkPRDTE
Latvian Banking Crisis: Stakes and Mistakes
By Alex Fleming and Samuel Talley
I
n the spring of 1995 Latvia experienced the largest banking crisis
of any country ofthe former Soviet
Union (FSU) to date: the banking system lost about 40 percent of its assets
and liabilities, and depositors are estimatedto havelostalmost$800millionin
savings.Earlier,bankers had hopes that
their country would become the Switzerland of the Baltics. Offeringexceedinglyhigh ratesofinterest and operating
undera liberalregulatoryand disclosure
regime. Latvian banks attracted large
capital inflowsand short-term deposits
fromRussia andthe CIS. Butthenbanks
began to fail with alarming frequency
toward the end of 1994. The crisis
reachedits peak when Bank Baltija, by
far the largest bank in the country, was
forcedto suspend its activities.
The Evolving Banking System
When Latvia gained independence in
1991,it inheritedbranches of the same
specialized Soviet banks as other FSU
countries: the savings bank, the industrial/construction bank, a social bank,
and an agricultural bank. While most
FSUcountriesconvertedthesebranches
intonationallyownedbanks that continued their former specialization, the
Latvian government decided to combine the forty-five branches of these
former Soviet banks and place them
undertheauspicesofthe Bank ofLatvia.
This enabledthe governmentto pursue
a flexiblebankrestructuringstrategy. In
1993ninebrancheswere soldto private
commercial banks (seven of them to
Bank Baltija); fifteen branches were
consolidatedintoeightprivatebanks and
soldthroughofferingsof shares; and the
rump of twenty-one branches were
structured into one state bank-the
UniversalBank of Latvia, or Unibank.
6
Earlier.however,the Bankof Latviadid
not play any type of governancerole in
the branches under its wing. Branch
managersfollowed a business-as-usual
policy, and as a result, a significant
amountof bad lendingtook place. Most
bad loans were concentrated in the
branches of Unibank. An audit showed
that as of March 1994, Unibankowned
40 percent of all nonperformingloans in
the bankingsystem,whichtotaledabout
25 millionlat ($50 million).These loans
were taken off Unibank's books and
replaced by governmentbonds.
Rise and Fall of Bank Baltija
Governmentpolicy toward the evolving
commercialbanking sector was driven
primarilyby parliament'sinsistencethat
any person or entity should have the
right to establish a bank. As a result, a
plethora of banks emerged: by 1993
morethan sixtybanks hadbeenlicensed.
Some were pocket banks owned by
state enterprises;some were purely private, dedicated to raising deposits to
onlend to the owners; and some were
set up with specific functions in mind
(Olympija Bank was set up to help finance the Latvian Olympic team).
Baltija's assets grew from about $25
millionin January 1993,to almost $500
millionby early 1995. Its own capital
grew fromabout $1 millionin early 1993
to $44 millionin January 1995. Baltija
had thirty-seven branches and fortynineofficesthroughoutLatviawith1,300
employeesin total. In April 1995,when
the banking crisis began, the bank had
total depositsof$3 92 millionand a loan
portfolio of $283million. Thebank was
ready to develop a large network of
branches and become the number one
retail bank, in competitionwiththe savings bank. It offered extremely high
interest rates on lat deposits-90 percent for one-year deposits-at a time
whenthe savingsbank was offeringjust
14 to 20 percent, and other banks a
maximum of 52 percent. By the end of
1994 Baltija attracted some 200,000
personal accounts.
The incentive for establishing a bank
was simply to gain access to a much
cheaper source of funding than would
be possiblethrough existingbankinginstitutions. All of these private or quasiprivate banks were allowedto develop
with little supervisionfrom the Bank of
Latvia. From 1992 to 1994the private
banks' share of total assets in the banking sector grew from 47 percent to 85
percent. Credits granted by the new
commercial banks accounted for 89
percent of the total by the end of 1994,
a huge jump from 23 percent two years
earlier.
BankBaltija expandedat unprecedented
speed between 1993and 1995. In 1994
it became the largest Latvian commercialbank in tenns ofassets, own capital,
and deposit funding.Nine main shareholders owned 91 percent of the total
shares; roughly 59 percent were owned
bythe familyof AlexanderLavent,chairman of the bank's supervisory board.
AmongLavent's companies,several are
Russian-dominatedand registered offshore.
In March 1995the centralbank invited
all banks to prepare and present fmancial statementsthat hadbeen audited on
thebasis ofintenationalaccountingstandards. Bank Baltija failed to present
such accounts, or to give its auditorsCoopers and Lybrand-full access to
neededdocumentationfortheaudit.That
March-April1996
Transition
behaviorraisedconcernthatBaltijamight million to the Russian Inte#wkbank.
have an insolvency problem, even if
(Moscow-based Intertek is a pocket
moderate in size.
bank, owned by major oil companies,
along with the Russian Ministry of EnAs enterprisesstarted to withdrawtheir
ergy,its largestshareholder.Somecrossdeposits from the bank, followed by
ownershipbetween Baltija and Intertek
households,whichwere slower to grasp
was also suspected.) In return, Baltija
the gravity of the problem, the Bank of
was to receive Russian government
Latvia provided modest support for
bonds equal to 29 percent of the par
Baltija, as did a few large corporations value of the loans sold. The Russian
and commercialbanks. It also initiated bankneverdeliveredthebondstoBaltija.
an across-the-boardinvestigationofthe
bank's financialoperations.The accoun- Finally,Baltijawas declaredinsolventin
tants dug deeperand deeperintoBaltija's July 1995 and placed under the control
books and learned that the bank's negaofthe central bank. Ofthe roughly$500
tive networthwas about $320million,or
millioninassets on Baltija'sbooks,some
7 percent of Latvia's expected 1995
$260millionhaddisappearedbythetime
GDP. The Bank of Latvia refused to
the administratortook over.Attemptsto
provide further liquidity support. The
cancel the loan-sale agreement with
crisis had cometo a head.
Intertek and have the loans returned to
Baltija failed. Intertekhas refused even
Officials of the Bank of Latvia and the
to confirm that a loan agreement was
government began protracted negotiaever signed and claimsthat all original
tions with Baltija's ownersand manage- documents on the loans have been rement. But the bank's managers and
turned to Baltija. Funds were also
owners were just maneuvering to gain blocked at Baltija's correspondent actime and opportunityto strip the bank of
counts with banks in Russia, Belarus,
its assets. In late April 1995. for exand Ukraine.But Baltija has refused to
ample, Bank Baltijaallegedlysoldmore
die. It was declaredbankrupt, but later,
than half of its loan portfolio of $160
receiveda reprieve.On April 4, 1996,it
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was again declared bankrupt and this
time was put in the hands of a liquidator.
BesidesBank Baltija, other middle-size
banks were involved in the crisis, included the Latvian deposit bank, the
Centrabank, and OlympijaBank.Those
were eventually declared insolvent. A
number of smaller banks also experienced difficulty.In all, about 40 percent
ofthe assets andliabilitiesinthebanking
system were compromised,totaling almost$900million.
What Caused the Crisis?
Questionablebanking practices during
transition, the effects of stabilization,
and ill-fated responsesto developments
in the Russian commoditiesmarket all
had ahandintheLatvianbanking crisis.
*Transition uncertainties.Major play-
ers in the banking system-the enterprise borrowers, the bankers, and the
banking supervisors-are all prone to
mistakes as the economies make the
transition from a command to a free
market system. As a consequence,
nonperformingloansincreaseacrossthe
banking sector;moreover,a lack of laws
governingloancollateralmayinhibitcollections. (In Latvia commercialbanks
had to make provisions of about $140
mifllionat the end of 1994, and another
$86 millionin the first half of 1995.)
-~~~~~~~~~~~~~~~Dubious
bankactivities.Duringtran~~~~~~~~~~~~~~~sition,
many banks were createdto satisfy the rent-seeking of owners and
management. Such get-rich-quick ambitions are fostered by a loose legal and
supervisory framework. (Loopholes
characterized banking laws in Latvia
and other FSU countriesduring at least
the first phase of transition.)
From the magazine Business Central Europe, Vienna
Volume 7, Number 34
*Stabilizationfallout.As observedprimarily in Latin America, banking becomes susceptibleto crisis as stabilization takes hold. Tightmonetarypolicies
7
The World Bank/PRDTE
force up nominal interest rates and simultaneouslyreduce rates of inflation,
creating a strong movementfrom negative to positivereal interest rates. This,
in turn. can impedeborrowers'ability to
repay loans, with an adverse impact on
the quality of the banks' loan portfolio.
In Latvia, beforestabilizationtook hold
in 1992,inflation was running at more
than 500 percent and real interest rates
were significantlynegative. As a consequence of tight monetary policy, by
mid-1993both real deposit and lending
rates had become highly positive.
Through 1994and into 1995the rate of
inflation fell further, and real interest
rates rose again, though temporarily.
*Particular circumstances. During
1993 and 1994 selling Russian metals
andothercommoditiestotheWestproved
very profitablefortraders and financing
banks, as prices remained well below
world marketprices.Latvianbanks used
the high-returnopportunityandcharged
high interest rates on financing. When
Russian prices increased to near world
levels,financingopportunitiesbegan to
dry up, and banks scrambled to find
equallyprofitable,thoughperhapsriskier,
lending outlets. Thus, Bank Baltijaand possibly other banks-bid for lat
deposits at high interest rates. This
1994to $369 millionat the end of June
1995 as the Bank of Latvia intervened
to maintain the lat's parity vis-a-visthe
special drawing right (SDR).
-The budget. A severe budgetary crisis
in 1995has beenworsenedby the banking crisis in two ways. First, the lost
liquidityofenterpriseshas reducedtheir
ability to pay taxes. The expectedbudget deficit of $80 million for 1995 has
ballooned to $140 million, or about 3
percent of GDP. Second, the fall in
liquidity of the banking sector led to a
declinein the banks' demandfor shortterm treasury bills. Their outstanding
stock from a peak of about $115million
in early March 1995, shrunk to almost
half that level just three months later.
-Other banks. Although there were
someconfidence-relatedruns on a number of banks, the banking sector as a
whole remained relatively immune to
the crash of the Baltija, since the interbank market-a possible channel for
contamination-accounted for only 6
percent of total bank liabilities (at endApril 1995).Somestronger banks have
benefitedsignificantlyfromthe difficulties elsewhere in the sector. Unibank,
for instance, has continuously gained
deposits.
reparations and strengtheningof bankingregulation and supervision:
*Compensation. To rekindleconfidence
in the banking sector, the former government decided to compensatehousehold depositors who lost funds in the
failedbanks, upto$1,000perdepositor.
Thenew governmentwill onlypaycompensation to the extent that there are
proceeds from the bank liquidation
process.
*New banking legislation. The Bank
of Latvia developed, and the government approved,anew bankinglaw in an
effort to rebuild shatteredpublic confidence in the banking system and to
strengthen the legal and institutional
framework.The new commercialbankinglaw, already enacted,givesthe Bank
of Latvia a broad range of enforcement
powers for supervisingthebanking system, such as cease-and-desistauthority
andthe power to removebank management or fine banks-provisions typically found in effective banking laws,
but absentfrom the 1992 Latvian banking laws, which mandatedeither moral
persuasionor revocationoflicenses,but
didnot leave room for other, intermediate sanctions.
strategy backfired as market interest
*lghter
ratesfell, exposingBaltija to significant
net interest margin pressures.
the Bank of Latvia has beenreinforced,
and its organization restructured. The
central bank has movedto tighten prudentialregulations;it is requiringbanks
to establish internalcontroldepartments
andhas contractedwith foreignaccounting firms to supplement the work of
onsiteexaminers.Somebankshavebeen
forcedto close. At present, ofthe thirtynine banks permitted to operate, only
fourteenare authorizedto accept householddeposits.Theothertwenty-fivehave
restricted licenses.
*Politics. In the elections last fall, the
ruling centrist parties, most of which
were associated with the banking colBanking Crisis Impact
lapse, lost power. Gaining seats were
the parties at the extremesof the politiThe effects of the banking crisis were
cal spectrum,someofwhichhad strongly
wide-ranging.Decreasedliquiditycaused criticizedthe government'shandling of
by the loss of deposits(money supply in the banking crisis. While the banking
real terms declinedby 17percent during crisis may not have been the primary
thefirstfivemonthsof 1995),alongwith cause of a shiftin voter sentiment,it was
other resultsofthe crisis (adversewealth certainly a contributing factor and an
effects, shaken economic confidence), elementin political campaigns.
prevented the 5 percent real growth
expectedfor 1995:(growthwascloseto
Dealing with the Aftermath
zero for the year). Net international reserves of the Bank of Latvia declined Correctivemeasures in the wake of the
from a high of $466millionat the end of
banking crisis have included financial
8
supervision. Supervision of
Alex Fleming is Principal Financial
Economist and Samuel Talley is Consultant at the World Bank.
March-April 1996
Transition
Using World Bank Credit Lines for Bank
Rehabilitation: Pioneer Practice in the Baltics
by Alex Fleming
In
the FSU and beyond, the World
Bank has been asked increasingly
toassistintherestructuringofbankingsystems. In the past, the WorldBank
has largely supported bank restructuring and recapitalizationefforts through
structural adjustment loans, if the eligible member country puts in place a
restructuringprogram, and if domestic
currencycounterpart funds are used for
recapitalization.
In the Baltics a new approachto recapitalizationis beingused, developedin the
contextofthe $35 millionEnterpriseand
Financial Sector Restructuring Project
for Latvia. It is now also being replicated under the Private Agricultural
DevelopmentProject for Lithuania.
Preconditionsfor using a credit line for
a recapitalizationprogram are:
-A strong argument for the bank (or
banks)concernedto remain operational.
*A strong business plan.
-A governmentcommittedto the bank's
revival.
*Aneffectiveinstitutional development
program to strengthenthe bank.
*Anestablishedtimetable for the privatization of the bank.
The core problem of insolventbanks in
the FSU is that their loanportfolioscontain a significant proportion of
nonperforming loans. Some are the
product of directed, politically based
lending decisions and some have resulted from the economicdistress borrowers have experiencedas a result of
transition. In either case, the result is
that an intolerably large proportion of
the bank's assets producesno earnings,
cannotbe repaidwhendue, andthus has
no value. If Western accounting prinVolume 7, Number 34
ciples are applied to such a bank, with
appropriatecapitaldeductions(reserves
and writeoffs) for these bad loans, the
result is insolvency-an excess of the
bank's liabilities,primarilydeposits,over
the fair value of its assets (see stage I
of the figure on page 10).
An insolventbank can continueto operate for a period, so long as it does not
become illiquid, that is, if the revenues
and repaymentsfromits goodloans provide a cash flow sufficientto discharge
the bank's liabilities as they fall due.
This will occur if the magnitude of the
bad loans is small in proportion to the
total assets. It can also occur if the
holders of the bank's liabilitiesare willing to defer collectingthe amountsthat
are due them. In the FSU this commonly occurs in state-owned banks,
because the state, as the bank's dominant creditor, and state-owned enterprises, as the majordepositors,forpolitical reasons do not call on the bank to
makepayment on its liabilitiesor to pay
out deposits. The situation,however, is
not sustainable over a long period of
time, because the bank has no way to
generateprofits sufficientto fillthe gap
createdby its bad loans. In the end, an
insolventbank has no value and cannot
be privatized.
In this situation, the government typically has only two options: eitherliquidate the bank, or recapitalizeit, replacing the bad assets with good assets. In
the simplest terms, for a 100 percent
state-owned bank, the recapitalization
can be done by transferring cash to the
bank in exchangefor its bad loans. This
allows the bank to use the cash to earn
revenues (that is, make new loans) and
eliminates the need to spend management time to collect on bad loans.
Few transition governmentscan afford
to make such cash paymentsall at once,
which is where the World Bank can
assist. While, in theory,the WorldBank
could lend the government money to
pay overto the insolventbank, in reality,
there is a timingproblem since the situation is usuallytoo urgentto wait forthe
WorldBank to process a loan. In such a
case, the governmentcan make its payment in the form of governmentbonds,
which immediatelytake their place as
earningassets on the commercialbank's
balance sheet (see stage 2 of the figure
on next page). To provide sufficient
value to fill the balance sheet gap, the
govemmentbondsareusuallyhigh-yield-
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9
The World Bank/PRDTE
ing,medium-termobligations.TheWorld
Bankfunding,incontrast,is muchlongerterm, and carries a much lower interest
cost (although an exchange risk is involvedforthe government).IntheLatvia
EnterpnseandFinancialSectorRestructuring Project a standard World Bank
creditlinewas used,in part,to gradually
replace one expensivegovernment obligation (the governmentbonds held by
the commercialbank) with a lower-cost
obligation(the government'sobligation
to repay the World Bank loan).
This replacementis accomplishedwhen
the commercialbank locates a subloan
project acceptable under World Bank
standards and fundsthat subloan with a
World Bank loan disbursement under
the line of credit. Initially;the disbursement is made to the government. It is
thentransferredto the commercialbank,
in exchange for an equivalent value of
theoriginalgovemmentbonds(seestage
3 ofthe figure). In this way the governmentis redeemingits bonds,in precisely
the same way in whichbridge financing
is redeemed in a typical construction
project.The commercialbankthentransfers the funds received from the govemmentto its sub-borrower,which creates an earning asset on the bank's
balance sheet.
*It is consistentwith World Bank lendingprinciplesin providingresourcesfor
completelynew investment or associated workingcapital. Fillingagap inthe
balance sheet of the bank undergoing
recapitalization,it is not refinancingexisting loans for productive assets. The
To clarifythe mechanismit is useful to
bonds on the bank's balance sheet simcompareit with a traditional credit line. plyperform a bridgingfunctionenabling
Suchacreditlinewillbedisbursedthrough the bank to generate income until the
the government and onlent to a particisubloan comes onstream.
pating bank. The onlent funds would
*The budgetary pressures associated
appearas aliabilityonitsbalancesheetwith recapitalizationare amortizedover
a liability to the government-and then
a longer timespan than would be posflow through the balance sheet as a
sibleusingnormalgovernmentrevenues.
subloan to an enterprise on the assets
*Asprivatizationistheultimategoal,itis
side of the balance sheet. In contrast, important to remove the government
and as illustratedin the attached figure,
commitmentto the bank as quickly as
the recapitalizationtechniquedescribed possible. The recapitalizationmethod
above creates an asset on the balance described above permits the governsheet of the bank involved,but there is
ment to take bonds offthe balance sheet
nocorrespondingliability.The liabilityto rapidly.
the bank is directly with the govern- *The technique provides for recapitalment.
ization of a bank simultaneouslywith
restorationof the bank's lendingcapacThere are several advantages to this
ity.
approach:
Bank Recapitalization
Stage I
Government
Stage 2
Stage 3
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Transition
Tendering in Bosnia
Interview with the Procurement Coordinator
E
nterprises all over the world
are flexing their muscles to parE
ticipate in lucrative Bosnia reconstruction projects. Contracts for
goods and works, worth billions of dollars are being awarded to lucky bidders.
Mr. Naushad Khan, responsible for supervisingWorldBankprocurementprocedures for Bosnia, was interviewed by
Transition editor Richard Hirschler.
Q. What major informationsources,
tion: the World Bank will soon set up a
would you recommend to interested
bidders?
Bosnia Reconstruction Home Page-a
Web site on the Intemet-with major
details about available business opportunities, and further Email addresses
and phone and fax numbers of World
Bank task managers and other officials
dealing with the Bosnia reconstruction
projects. The World Bank has just released a summary oftwenty reconstruction projects approved as of April 30,
A. General Procurement Notices, published in the UN publication "Development Business," provide the most essential information about the BosniaHerzegovina reconstruction projects;
these list the required goods, works, and
services, and give names, addresses,
Q. How different are the procurement procedures for the Bosnia
and phoneand fax numbersof the local
projectmanagersinBosnia.Theselocal
1996 (see table).
projects?
project managers are the best source of
informnation.World Bank task managers can also supply important details.
And there's a new source of informa-
Available from Jennifer Keller, World
Bank, Room no. H 10-096, (202) 4731448, Email. Jkeller@ worldbank
. org).
A. The major difference is that the time
factor is extremely important; because
ofthe urgency, we have radically simplified the procurement procedures and
cut the required time. For example, in
certain
thendequredtingroresfaxles can
certaintenderingprocedures, faxes can
World Bank Projects in Support of the Priority
be used for sending out invitations to
Reconstruction Program in Bosnia and Herzegovina,
ans d freeivingtheir
offers.n
as of April 30, 1996
suppliersandreceivingtheiroffers.This (US$ mIillion)
and other procedures have enabled us
to reach the implementation stage for
several projects in record time-this is
important, because the reconstruction
efforts cannot tolerate any delays.
International suppliers and contractors
have participated and will continue to
participate in the reconstruction of
Bosnia and Hezegovina; but some works
are more suitable for local contractors,
particularly since they will generate
much-needed jobs in the country. Also,
if a major plant was damaged during the
war the reparation or restoration order
war, the
reartong or restor.Ationera
will go to the origial supplier. A general
piece of advice for both domestic and
international bidders: your chances are
better if your bid meets all the criteria in
the bid document, especially the deadlines, considering the extreme urgency
of implementation.
WB Group Appproval Date
ProjectName
Project Cost Support Actual/Proposed
TrustFund-supportedProjects
Emergency Recovery
160
45
February29,1996
EmergencyFarmReconstruction
50
20
March28,1996
Water,Sanitation, and Solid WasteUrgent Work 70
20
March28,1996
Emergency Transport Reconstruction
152
35
March29,1996
WarVictimRehabilitation
30
10
May 14,1996
Emergency Education Reconstruction
33
10
May14,1996
Emergency DistrictHeating Reconstruction
58
20
May 14,1996
aIDA-supportedProjects
Transition Assistance Adjustment
110
90
June1996
Emergency Electric PowerReconstruction
140
30
June/July 1996
EmergencyLandmineClearing
70
15
June/July1996
Demobilization Support and LocalPublic Works 43
15
June/July 1996
Microbusiness/LocalInitiatives
25
15
Summer1996
DemobilizationSupport and Training
20
7
Summmer
1996
EmergencyNatural Gas Systemrehabilitation
58
15
Summer1996
Emergency Housing Repair and Reconstruction 140
15
Summer1996
Essential Hospital Services
95
15
Fal 1996
Education Reconstruction
60
20
Fall 1996
Transport Reconstruction II
158
20
Fall 1996
Emergency Forestry
35
15
Fall 1996
WaterManagementRehabilitation
80
15
Fall 1996
Source: World Bank.
Volume7. Number34
131
TheWorldBankJPRDTE
Procuring Bosnia Emergency Projects
Procurement procedure of the World
Bank has been customizedto the emergency projects under the Bosnia Reconstruction Program (see page 11).
Procurement for Goods:
*Internationalcompetitive bidding
(simplified)will be used for procurement packages estimated to cost more
than $5 millioneach. For every project
a General Procurement Notice will be
publishedin the UnitedNation's "Development Business." It will cover procurementpackages and consultant servicestobeprocured,andinviteinterested
eligiblesuppliers, contractors,and consultants to send their inquiriesto project
implementationagenciesin Bosnia and
Herzegovina. Suppliers, respondingto
thisnotice.willreceivethe WorldBank's
standard bidding documents.The General Procurement Notice will also be
publishedin the local press, followedby
specific adds for individual contracts.
The period allowed for submission of
bids may be reducedto four weeks. Bid
and paymentcurrency will be limitedto
one currency widely used in intemational trade.
*Limitedinternational bidding (LIB),
tenderingby invitation,will be used for
procurementpackagesestimatedto cost
$2 millionto $5millioneach.Ifthenumber of suppliersis limited,all shouldbe
includedin the tender. Dispatch of biddingdocumentsandreceiptofbids should
be done by the fastest means of communication, such as fax machines.
(Proj'ect implementationagencies and
procurementagents will be required to
put in place a mechanism to ensure
transparency and fairness and to avoid
any manipulation of bids received by
fax.) LIB contractsof less than $5 million-related to the list of suppliersand
technical specifications-will require
prior approval by the World Bank.
12
*Internationalshopping will be used
for procuring equipment and materials
of standard specificationcommodities,
estimatedtocost$200,000to$2million
per contract. Procurement is based on
comparisonofpricequotationsobtained
from at leastthree suppliersin two countries.
*Nationalshopping will be used for
contracts for goods availablein Bosnia
and Herzegovina up to an estimated
cost of $200,000 per contract with at
least three quotations.
*Directcontracting will be used for
proprietary items, for reasons of compatibilityandstandardization,
inany other
justified case. All direct contracting
packagesshouldbe identifiedinthe procurement plan for each project and be
preapproved by the Bank. Any direct
contracting duringproject implementation will need prior Bank approval. Existing contracts will not be extended.
Procurement for Works:
*International competitive bidding
packageswillusetheWorldBank's standard bidding documentsfor works. The
advertisementprocedurewill
bethe same
as for goods.Giventhe dispersednature
of works (repairs to roads, and the like)
and the lack of interest from foreign
contractors, national competitive bidding is proposed for contracts amounting to $1 millionto $5 millionper contract. However, interested foreign
contractors will be allowed to participate in the bidding. Contractors will be
requested in the local press to express
their interest for a general
prequalification.The prequalified contractors will be listed in a registry that
will remain open for additions or deletions duringthe courseofproject implementation.The prequalificationcriteria
shall be approved by the World Bank.
Bidding documents will be sent to
prequalifiedcontractorswho will be allowed four weeks to submit their bids.
Deutsche marks will be used as the
currency of bid pricing and contract.
*Nationalcompetitive bidding (simplified) willbe used for workscontracts
estimated to cost up to $1 million per
contract. These works will be procured
under lump-sum, fixed price contracts
awarded on the basis of quotations obtained from three qualified contractors
in response to a written invitation.The
invitation shall include a detailed descriptionofworks,includingbasic specifications, the required completion period, a basic form of agreement
acceptable to the bidder, and relevant
drawings,whereapplicable.The award
shall be made to the contractor who
offers the lowestprice quotationfor the
required work, and who has the experienceand resources to successfullycomplete the contract.
*Direct contracting for works. Any
direct contracting not identified in the
procurementplan will be subject to the
Bank's prior approval.
Procurement for Services:
Consultants will be procured in accordance with the bank guidelines, including provisions related to both competition andsole-sourcing.The sole-sourcing
packages will be identifiedandjustified
intheprocurementplanforeachproject.
Directcontractingduringprojectimplementation will need the World Bank's
prior approval. Procurementdocumentation for consultant contractsprocured
competitivelyand exceeding$2 million
each will be subject to the Bank's prior
review. Followup assignmentswill be
permissibleto the extentthat this will be
indicated in initial terms of reference.
March-April 1996
Transition
Secondhandequipment, suchas buses,
can be procured through sole-sourcing
withthe Bank'sprior approval,provided
the equipmentis appraised by an independentagencyto confirmthat the used
equipment being considered will meet
the criteriafor quality,technicalrequirements, and economic value, and that
spare parts and service for the equipment will be availablefor the operation
of the equipment.
The Bank has prepared several standard procurement documents, which
are requiredto be used in Bank-financed
projects. These include:
*Standard bidding documents:
Prequalification (for Goods/Works),
Goods (ICB), Works, Commodities,
Textbooks,Pharmaceutical(ICB). Supply and Installation, Procurement of
Computer Systems (Single- and TwoStage),and StandardEvaluationReport
for (Goods/Works).These documents
are organizedin fixed andvariableparts;
changes specific to a procurement action are made only in the variable sections. Other documents to facilitate
documentpreparationand expediteprocurement: Works (NCB), Simplified
NCB (Works),Shopping(CivilWorks),
and Shopping(Goods).
*Consultant standard documents:
Standard Letter of Invitation for Consultant Services, Lump-Sum Standard
ConsultantContract, Time-basedStandard ConsultantContract (ComplexAs-
signments),and StandardEvaluationReport for Consultants.
Lack of institutional capacity in Bosnia
and Herzegovinarequiresthat procurement agents and constructionmanagers
be responsible for the wholeprocess of
procurement. Sole-sourcing may be
accepted if justified. The agent's contracts would cover "door to door" services, including bidding. contracting,
verification/inspection,
certification,and
preparationofwithdrawal applications.
These requirements will be reflected in
the terms of reference for procurement
agents. The procurement agents will
report to their principals, that is, the
implementationagencies,andwill cooperate fully with them.
What You Always Wanted to Know about
Procurement-But
Were Afraid to Ask
Ws
rorld Bank-supportedprojects
cover a variety of develop)
ment activities, in a range of
sectors, includingagriculturalprojects;
infrastructureprojectstoconstructports,
roads, water systems, andpower plants;
and projectsin education,environment,
finance, law, population,health and nutrition, urban and rural development,industry, information systems, telecommunications, and privatization.
Bank-supportedprojectsrange from the
complex and equipment-intensive to
those in which training skills and specific knowledge are the principal resources transferred (see chart on page
14 for a breakdown of lending by sector).
Annually,World Bank fund borrowers
award some 30,000 contracts(about 70
percentare for goodsand equipment,20
percent for civil works, and 10 percent
for consultantservices). Smalland medium-size companies, as well as large
Volume 7, Number 3-4
ones, can profit from business generated by the World Bank.
Business Opportunities and the
Project Cycle
Project identification,preparation, appraisal,implementation,
supervision,and
postevaluation constitute the project
cycle.Dependingonthenatureandcomplexity of the project, it will take one or
two years-sometimes longer-from
the time a prospectiveproject is identifled until a loan is approved.By following where each project is in the cycle
and understanding what takes place
during each stage, consultants, civil
works contractors, and suppliers can
identifybusiness opportunities and developmarketingplans.The biddingprocess typically begins at the preparation
stage, although someprocurementmay
occur this early (for example,
contractor'sprequalification).Consulting services may be procured at almost
any stage in the project cycle, but the
need is greatest in the preparation and
implementation stages, when consultants may be used by borrowers to begin
identificationandpreparationofprojects,
to draftbidding documents,tosupervise
procurementand contract execution,or
to provide other technical assistance.
Identification
Onlygovernmentscan proposeprojects
for World Bank assistance but identification can come from several sources,
includingBank-sponsoredidentification
missions,othermultilateraldevelopment
agencies, and sometimes even private
sponsors. A list of all identifiedprojects
is publishedin the UnitedNation's "Development Business." Each identified
project is the subject of a World Bank
Project Information Document (discussedlater).Contractors,suppliers,and
consultants should contact borrowing
countries during the project identifica13
The World Bank/PRDTE
tion stage to express interest in supplying goods, works, or services for a specificproject.Theyshouldobtainas much
informationas possible on what goods
and services will be needed and when,
and on how to submit bids and proposals. However,a potential private investor may contact eitherthe International
FinanceCorporation(IFC)foradditional
financing,orthe MultilateralInvestment
GuaranteeAgency (MIGA) to guarantee an investment.
Preparation
Preparationofa project entailsdeveloping an identifiedidea into a detailedproposalthatconsiderstechnical,economic,
financial,social, environmental,and institutional aspects of the project. The
goal is to determinethe best method of
achievinga project'sobjectivesby comparingthe relative costs and benefits of
alternatives. Usually, consultants are
hired by the borrowingcountry to assist
with feasibilitystudies, designanalysis,
environmentalimpact assessments,and
other aspects of project preparation.
ButAhe3ank frequentlyhelps arrange
financingfor consultingservices during
this phase.
Appraisal
Afterproject preparation has been completed by the borrower, the Bank reviews the proposals and undertakes a
full-scale project appraisal. This is a
comprehensivereview of the technical,
economic, financial, and institutional
aspects of the proposal. It is conducted
by Bank staff under the guidance of a
task manager, sometimeswith the aid of
external consultants. The types of
works, goods, services, and equipment
necessary for the project are reviewed
duringappraisal. The procurementprocedures and schedule are also determined at that stage. The complete financingplan is examinedto ensurethat
cost estimates are accurate and that
sufficient funds are available to complete the project.
At this stage bidding documents will
normally be prepared. In certain cir-
cumstances,to hasten a project's future
implementation,procurementmaystart.
After the appraisal report is issued and
reviewed,formal loan negotiationstake
place between the Bank and the borrower.Theseagreements,includingprocurement arrangements, are then formalized in loan documents that are
submittedto the ExecutiveDirectorsof
the World Bank for approval.
Implementation and Supervision
After the loan is approved, funds are
availableto implementthe project and
purchase the items, works, and expertise needed. Construction activities,
equipment, and supplies are generally
purchased during the implementation
stage. Implementationof the project is
the responsibilityof the borrower,as is
procurement of goods and services.
Thoughthe World Bank is not a party to
anyprocurement contract,procurement
procedures-as reflected in the loan's
legal documents-must be followed
before funds may be disbursed. The
Bank supervises project implementa-
WorldBank AverageAnnual Lending by Sector
Percent
AgicultireandRiralDeveloprnent
US$ million
__
4160
Transportation 15.9%
3490
Energy
2950
2290
Eduation 1
Mlhti-S&ctor 6.
1520
Uian Deve1opm n6n
1360
4
Water Supplyand &vera_
1030
Population,Health,and Nutrition
950
Industry
_
750
Pttlic Sctor Management 3
750
Environnment
Telecorrmunications .20
0
700
440%
500
1000
1500
2000
2500
3000
3500
4000
4500
Source: World Bank.
14
March-April 1996
Transition
tion and the procurement process to
ensure that these procedures are followed and that the process is transparent, fair, and impartial. Oncethe project
is completedand the loan is fully disbursed, the Bank undertakes an independent evaluation, comparing actual
with expected results, and applies the
lessons learned to future projects.
The borrower prepares bidding documents. They must include instructions
to bidders,evaluationcriteria,conditions
of the proposed contract, and a detailed
descriptionof the goods or works to be
procured. Bidding documents must be
made available to everyone who asks
for them and pays the borrower's fees,
if any.
Tohelp with a bid preparation,the Bank
has developedStandard Bidding Documents (SBDs)that are to be used by the
borrowers.By usingthe SBDs, borrowers can considerably accelerate the
preparationprocess.Suppliers and contractorsshouldalsobe familiarwiththese
SBDs. The Bankmonitors the procurement process to ensure that its guidelines are followed. Bank staff review
bidding documents for most contracts
before they are issued, the borrower's
evaluationof the bids, and the proposal
for contract award. Smaller contracts
are reviewed ex-post. When the contract is awarded.the Bank reviewsit to
ensurethat it corresponds with the bid.
After a firhi receivesthe biddiAg&cument, it should carefully examine the
provisions and requirementsto decide
whether it can submit a competitive,
responsive bid. The bidder should be
certainthatitunderstandsboththecommercial andtechnicalrequirements,and
followsthem in bid preparation.No assumptions should be made regarding
biddingterms and conditions.Any questions or doubts should be clarified with
the purchaser before preparing the bid.
If a company decides to bid, it must
followpreciselythe instructionsspelled
outinthe documentandsubmitits bid by
the required time and date to the specified place.
For any contract to be eligible for financmg from a World Bank loan, the
procurement must be completedin accordancewith the procedures set out in
the loan agreement,whichincorporates
those in the Bank's "Guidelines:Procurementunder IBRD Loans and IDA
Credits." For each loan, there are additional specific agreementsbetween the
Bank and the borrower on carrying out
procurement, which may include the
criteria for packagingthe contracts;the
various methods of procurement to be
used; the thresholdswithin whichthose
methods apply; and the rules for prior
and ex-post review of specifications,
bid documents,and contract award decisions.
ICB and Other Methods
Bids and Pieces
When a firm learns that procurementis
aboutto occur,it shouldwriteto, or have
a representativeor agent visit, the borrower and ask to receive the bidding
documents as soon as they are available. Interestedbidders should send the
borrower the fee specifiedfor the documents. Embassies will sometimespurchase documents on behalf of companies.
Volume 7, Number 3-4
Since specific procurement rules and
procedures differ dependingonthe type
of project, the World Bank has four
basic concernsthat govern its procurement policies:
To ensure that the loan is used to procure only those goods and services
neededto carry out the project, andthat
procurement is done in the most efficient and economicalmanner possible.
*Togive all qualified bidders from the
Bank's eligible countries an equal opportunity to competefor Bank-assisted
contracts.
*To encourage development of local
contractors and manufacturers in borrowing countries.
*To promote transparency in the procurement process.
Experiencehas shownthat these objectives can best be achievedthrough an
international competitive bidding
(ICB) process with a margin of preference given to domestic goods, plants,
and, under certain conditions,domestic
contractingservicesin developingcountries. The bidding procedure for goods
andworks is similar,althoughtheevaluation criteria differ. In the case of civil
works, for instance,the price and sometimes the completion period may be
considered.When goods are purchased,
technicalfactors suchas capacity,maintainability,fuelefficiency,andafter-sales
servicemay be consideredin additionto
price.
Public notification for each project,
ICB is achievedthrough a GeneralProcurement Notice for goods and works,
which appears in the United Nations
publication "DevelopmentBusiness."
The notice gives general information
about the procurementtobe carried out.
Borrowers are required to keep information on those who express interest in
biddingfortheprojectandtonotifythem
when specificbids are announced.Invitations to bid for specific contractswill
also be advertised in at least one major
local newspaper.Further, for large specializedcontractsinvitationswill be advertisedin "DevelopmentBusiness"and
in well-known technical magazines,
newspapers, and trade publications of
wide internationalcirculation.Borrowing countries are also invitedto provide
copies of advertisementsto Bank mem15
The World BanklPRDTE
ber country representatives-usually
commercial officers or attaches-located in their country.
by invitation rather than in response to
an advertisement.
sive and other appropriate technologies.
Procurement procedures
are broadly
consistent with ICB procedures.
*Nationalcompetitive bidding (NCB),
In the comparison of bids. manufactured goods with a minimum of 30 percent domestic content-raw
materials,
components-are
afforded a margin of
preference equal to the applicable customs and import tariff, or 15 percent of
the cost, insurance, and freight (CIF)
price of the imported goods offered by
the competitor, whichever is less. In the
case of domestic civil works contractors, the margin of preference is 7.5
percent over the price of the competing
when the type of goods or scope of
work is unlikely to attract foreign competition. A similar method of procurement may also take place in projects
where local communities or local nongovernmental organizations (NGOs), or
both, could participate in order to increase the utilization oflocal know-how
and materials or to employ labor-inten-
and local shopping
(generally soliciting at least three bids)
for purchasing low-value, off-the-shelf
items.
*International
*Directpurchase, normally on a negotiated basis, when proprietary equipment can be obtained from only one
supplier.
Consultants in the Middle Ages
foreign contractor. This preference is
available only to low-income countries.
The bidding documents will clearly indicate any preference to be granted and
the detailed bid evaluation procedure.
All Bank-assisted ICB contracts must
be awarded to the lowest evaluated responsive bid, based on the evaluation
criteria set forth in the bid documents.
The lowest evaluated bid may not necessarily be the lowest priced bid. Other
A
J
k
factors may also be taken into account,
suchas quality,durability,availabilityof
X
i
after-sale service and spare parts, training, and even maintenance and operat-
ing costs. These factors will be clearly
conveyed in the bid documents. There
is no quota system that links the award
of contractsto the size of contributions
or share of membership
by a country in
,
the Bank.
Where ICB is not the most economical
and efficient method of procurement
(for example, the amount of the purchase may be small, the goods or works
may be urgently needed, or there may
only be a few suppliers), more appropriate methods of procurement should be
used. The more common forms are:
*Limited international bidding (LIB),
in which suppliers or contractors of specialized goods and services participate
16
From the magazine Hungarian
Economy
March-April 1996
Transition
Althoughtheprimaryfocusofthe Banks
lendingis onspecificprojectinvestments,
a notable amount (around20 percent) is
distributedthroughstructuraladjustment
loans (SALs) and sectoral adjustment
loans(SECALs)for country adjustment
operations in reforming economicand
fiscalpoliciesand addressingbalance of
payments problems. Most SALs provide foreign exchange to finance general imports.The funds are made available to public and private sector entities
to purchase imported goods and services, and are not linkedto the procurementofparticularinputsneededtoimplement specificinvestmentprojects. They
may also be used for payments ofgoods
already procured or deliveredwithin a
certain period. Certain items, such as
luxurygoods,militarysupplies,environmentallydangerousmaterials, andother
commodities, are prohibited, and are
specifiedin the loan agreement. In the
case of SECALs, funds may be allocated to purchase particular categories
of goods related to a specific sector.
Procurement is usually conducted
through established procedures of the
public sector,providedthese have been
examined and found acceptable to the
World Bank, or through normal commercial procedures in the private sector. In large contracts-generally exceeding $5 million-simplified ICB
procedures are followed.Potential suppliers should track these operations in
orderto identify both the types of goods
and products that the borrower envisages procuring and the procurement
procedures that will apply.
The wide variety of projects involved
providesa broad scopeof opportunities,
which range in value from a few to
millionsof dollars:
*Forprocurement of goods: vehicles,
machinery, tractors, farm implements,
fertilizer,transportequipment,electrical
machinery and plants, industrial facilities, miningequipment,hardware, teleVolume 7, Number 34
communicationsystems, satellite communication systems, schooltextbooks,
furniture, spare parts, and raw materials.
*Forprocurementfor civil works. construction of ports, highways, schools,
hospitals,housing,railways,bridges,irrigation works, water supply and sewerage facilities, and power plants.
*Forprocurement of services: design
and feasibility studies, supervision of
installation and construction, environmental assessment studies, monitoring
of management activities, aerial photography and mapping, oil and gas exploration, financial services, and auditing assistance.
Procuring Consultants
As with procurement of goods and
works, the consultant selectionprocess
is entirelythe borrower's responsibility.
The Bank's role is to ensure that only
capable firms are consideredfor selection, that the selection process is equitable, and that the chosen firm or individual is able to provide the required
services. The same rules of eligibility
apply:consultantsfromallmembercountries are eligible for consideration to
work on any project financed by the
World Bank.
Procedures for competitiveselectionof
consultants include a series of steps to
be undertakenby the borrower and reviewed by the Bank. These include
preparation of a description of the assignment (terms of reference), a budget, the selectionprocess to be followed,
preparation of a shortlist of firms to be
invitedto propose, and the letter ofinvitation (LOI) to submit a proposal. The
shortlist, not containing more than six
firms, should reflect both competence
and diversity,and ideallyshouldhaveno
more than two firms from any one country, at least one from the borrower's
country, and one from a less-developed
country. If requested by the b-rower
the Bank will providea long list of firms
for considerationfor the shortlist. The
borrower evaluates the proposals, including consideration of alternative
methodology,and negotiates the terms
of the contract. The winning proposal
and the draft contract are also reviewed
by the Bank.
To assess the qualificationsof firms and
to assist borrowers in establishing a
shortlist, the Bank maintainsa computerized roster of consultingfirms interested in doing business on Bank-assisted projects, called the Data on
Consulting Firms (DACON) system.
(There is no similar registrationsystem
for manufacturers and other suppliers
of goods or contractors for works.)
Consultingfirmsarenotrequiredtoregister, and registration does not signify
Bank endorsementof the firm's qualifications or Bank approval of the firm's
appointment for any specific project.
The informationcontainedin DACON
is purely descriptive, not evaluative.
Registration with DACON can benefit
a consultingfirm, however.
Opportunitiesfor consultantsare available in many areas. In the early stages
ofprojectpreparation, forinstance,consultants may be requiredto prepare feasibility studies, environmental assessments, engineeringand project design,
and cost estimates. During the implementationphase,consultingservicesare
frequentlynecessaryto prepare bidding
documents, evaluate bids, and supervise constructionand installation. Consultants are also usedto conductstudies
in such areas as marketing,distribution,
exportopportunities,sectormasterplans,
and investment.There are also opportunities to prepare feasibility studies for
follow-on projects and to provide all
types of training needed by the borrower.
17
The World Bank/PRDTE
If a consultingfirm accepts a contractto
provide services on a project, it cannot
bid to supply goods because the firm
would haveprior knowledgethat might
give it an unfair advantage over other
bidders.The Bankdoesnot object, however, if the firm accepts an assignment
for instance,to prepare the engineering
designfor a project and-in a follow-on
assignment-prepares bidding documents, evaluates the bids, and supervisesthecontractfortheborrower. Likewise, in a turnkey contract, consulting
firmsand suppliersmaybe associatedin
a joint venture.
InformationSources-Where, Who,
What?
TheUnitedNationspublishesabiweekly
called "DevelopmentBusiness," which
is availableby subscription. "Development Business" carries informationon
businessopportunitiesgeneratedthrough
the World Bank, regional development
banks, and other developmentagencies.
The text of "DevelopmentBusiness" is
alsoavailablethroughan on-lineservice
called Scan-a-Bid.
"DevelopmentBusiness" includes the
followinginformation:
*Monthly Operational
Summary
(MOS) is a monthlyreport (also available as a separate subscription)listing
all of the projects being considered for
financingby the World Bank.
*General Procurement
Notices
(GPNs) are issued by the borrower for
projects that contain ICB, generally
aroundthetime ofprojectappraisal, and
at least eight weeks before bid documents are available. This is the earliest
public notice of procurement,and is the
time for companiesto contact the borrower if they are interestedin supplying
the goodsor services listedin the notice.
Publication of GPNs in "Development
Business" is mandatory.
18
-Specific ProcurementNotices (SPNs)
are invitationstobid forspecific itemsor
works. SPNs describethe item(s)being
procured and give details about purchasing bid documents, deadlines for
submittingbids,andother requirements.
Publication of SPNs in "Development
Business" is mandatory for large contracts. SPNs are also published in the
local press of the borrowing country.
*MajorContract Award Notices identify the successfulbidders for contracts
that have recently been awarded. This
informationis useful in identifyingsuccessful firms for possible collaboration
on future contract competitions.
Information about the Bank's activities
is available at the Bank's Public Information Center (PIC), (Web; http://
www. worldbank.org/html/pic/PIC.
html). The PIC offers a completeset of
Project InformationDocuments(PIDs),
EnvironmentalData Sheets(Eds), staff
appraisalreports (SARs),a sunrnary of
postevaluation reports (OED Precis),
and a catalog of Bank documents.FacsimileandIntemetusers worldwidemay
select and request the documents they
need. PIDs are provided free of charge,
eitherin electronicform or as hard copy.
The World Bank also provides regular
business briefings at its Washington
headquartersand its Paris office. These
briefings cover the Bank's financing
activities, methods of operation, procurement policies and procedures, and
procedures for selecting consultants.
The next seminars in 1996 are scheduledforThursdays,June6,July ll,September 5, October 10,November7, and
December5. Interested companies can
alsoobtainsupplementalinformationon
specific projects from the Bank's operational staff and from the Executive
Director's office.
the project from inception to completion,includingmonitoring,procurernent.
and consultant selection.The task manager is selected from the professional
staff based on experience and professional training. The task manager can
answer specificquestionsabout a given
project and is therefore a useful source
of informnationfor interested suppliers.
Each region has a procurementadviser
in the office of the vice president who
monitorsprocurementactivities,reviews
documents, and provides advice and
assistanceto the task managers on procurement matters.
The Procurement Policy and Coordination Unit, (Web;http://oprlhtml/opr/
procure/contents.html) located in the
Operations Policy Department, is responsible for developing policies and
guidelineson procurement and consultant selection and ensuringthat they are
properly and consistently followed by
borrowers and suppliers. Business Affairs Services,whichprovidesinformation to the business community,and the
DACON Center, which handles consultantregistrations,are partofthis unit.
The Bank's residentmissionsintheborrowing countries may provide useful
informationon Bankactivitiesand businessopportunitiesinthe respectivecountries.The singlemost usefultool inidentifyingindividualsinvarious positionsin
theorganizationistheWorldBankGroup
Directory.It can help companieslocate
and direct their inquiries to the right
person or persons within the Bank, as
well as the IFC and MIGA. It also provides the addresses of resident missions.
Based on Guide to International Business Opportunities in Projects Funded
by the World Bank. To order: See
World Bank publications ordering
information on page 32.
Each project is handledby a task manager who has overall responsibilityfor
March-April 1996
Transition
Purchasing Power Parities
Purchasingpowerparities (PPPs)are
the rates of currencyconversionthat
GDP Per Capita in Austrian
Schillings and U.S. Dollars,
PPPs, ExchangeRates, and
Comparative Price Levels
eliminatethe differencesin price levels
betweencountries.As such, they are an
important tool for cross-country comparative analysesofmacroeconomicaggregates, such as GDP per capita.They
can be particularly usefulwhenmaking
interational comparisonsof price 1evels andreal ncomepansoeens
econofl ies
els and real income between economies
that have high rates of inflation such as
those that have been experiencedin the
majority of the transition economies.
1993
Country
Schillings
UnitedStates
336,937
Austria
265,028
Sloveria
127,693
CzechR.
116,766
Hungary
82,668
Slovakia
79,944
Russia
68,633
Belarus
68,792
Poland
64,741
Bulgaria
58,139
Croatia
53,068
Estoria
52,727
Lithuania
51,035
Romania
50,510
Ukraine
45,889
Latvia
42,563
Moldova
30,710
(CPL), 1993
Intemationalpriceandvolumecompansons between OECD countries and
transition economies are undertaken
within the framework of the European
ComparisonProgram (ECP), which is
organizedand coordinatedby the Austrian Central Statistical Office, Statistics Finland,Eurostat,andthe OECD,in
consultation with the Economic Commission for Europe. The ECP was establishedin 1980.To date,four comparisons have been completed, with an
increasingnumber of countries participating in each.
Dollars
Exchange
PPPs
rates
Country (100Ats) (100Ats) CPL
Slovenia 563.0
973.0 58.0
CzechR.
75.5
251.0 30.0
Hungary 416.0
791.0 53.0
Slovakia
79.5
265.0 30.0
Russia
1,665.0 7,644.0 22.0
Belarus 1,372.0 21,087.0 7.0
Poland 62,532.0 156,023.0 40.0
Bulgaria
60.7
238.0 26.0
Croatia 16,773.0 30,639.0 55.0
Estonia
27.7
114.0 24.0
Lithuania
5.8
34.4
17.0
Romamia 1,717.0 6,524.0 26.0
Ulraine 6,223.0 41,766.0 15.0
Latvia
1.3
5.8 23.0
Moldova
1.7
14.3 12.0
24,301
19,115
9,210
8,422
5,962
5,766
4,950
4,962
4,669
4,193
3,827
3,803
3,681
3,643
3,310
3,070
2,215
The most recent comparison, covering
twenty-four OECD countries and fifteen transition countries of Central and
Eastern Europe and the former Soviet
Union, has just been completed, with
1993 as the reference year. Selected
results from this comparison are available as a special annex in the quarterly
publication Short-term Economic Indicators, TransitionEconomies, number 1/96,publishedin mid-February.
Excerpted from the Transition Brief
a quarterly published by the OECD.
(Web site: http://www.oecd.org/sge/
ccet/trans. htm)
Per Capita Indexesfor GDP,
1993
Country
Volume,
Slovenia
CzechR.
48
Hungary
Slovakia
Russia
Belarus
Poland
Bulgaria
Croatia
Estonia
Lithuania
Romania
Ukraine
Latvia
Moldova
Valueb'e
44
31
30
26
26
24
22
20
20
19
19
3
5
3
16
11
4
a. UsingPPPconversion.
b. Usingnominalexchangerate.
Volume 7, Number 3-4
IF
c7
.
1
a1
/
-
5
17
Note: Austria=100.
From th
28
13
16
9
6
2
10
6
11
c
1I
-
.
_-_
"Statues of Lenin-buy,
buy, buy!"
From the World Press Review
19
The World Bank/PRDTE
Letter to the Editor
Russian Economic Crime: The Flip Side
by Leonid Grigoriev and Gregory Kisunko
T
wo articles in the NovemberDecember issue of Transition
T
focused on economic crime in
Russia ("Russia Fights Crime and Corruption,"by MichaelGray, and "Quotation of the Month: Criminal Financial
Dealings Dramatically Increased in
Russia," by Aleksander Zhilin). Both
representedtypical views on the Russian criminal scene: one, the views of a
legal professional, and the other, the
views of ajournalist. But there are few
(if any) studies that investigatethe root
causes of economiccrimes in the transition economies. In our view, protection (racket),fraud, money laundering,
andother crimes-certainly widespread
in today's Russia-should be perceived
as economic phenomena, not just as
legal,moral and law enforcementproblems. Correspondingly,ways should be
found to understand, cope with, and
eventuallyuproot these crimes
The textbooksfail to describe the effect
of widespreadeconomiccrime and corruptionon economiclife. The continued
operation of the criminal element, with
its threat of violence,can substantially
alter the behavior of enterprises and
individuals,and in the process the rules
of the economicgame. The influenceof
criminalforcesunderminesmarket efficiency,and may underminedemocracy,
inthe transitioneconomies.Understanding the extent of economic crime, its
developmentfrom petty to larger scale
crimesandcorruption,as wellas "industrialization"of economiccrime into organizedcrime-this is what economists
focus at present.
Money laundering-a major headache
for American law enforcement along
withdrugtrafficking-is aprincipaltopic
20
of Michael Gray's article. But in Russia
the classical moneylaundering-transformationof drug money into legal revenues-is still a secondary problem.
Primary attention shouldbe focused on
fighting crimes in the formal economy.
Western theory focusesmainly on economic analysis of entry decision-in
other words, what conditions motivate
individualsto shifttheirlawfulbehavior
to criminalacts. Andthat is the basis for
Michael Gray's evaluation of Russian
legislation on economiccrime. He applauds the new laws for attempting to
create a structure that makes possible
the effective enforcement of the legal
prohibitions.True, thisis amajortask for
the Russianlegal andenforcementagencies. But in the transitional economiesa
successful strategy against economic
crimes must aim at isolating criminals
and this, in the long run, will require a
stable society.In the short run the first
priorityshouldbeto establishclearproperty rights; otherwise, legal initiatives
willsetprecedentsfor exemptionsrather
thanbowingtoestablishedgeneralrules.
Historically,any seriousweakeningof a
state and its legal institutionshas led to
a deteriorationin public safety. Government (read law enforcementagencies),
to be effective, needthe support of the
public, ofthose who are most concerned
with protecting their income and property interests. Therefore it is extremely
importantto developa strong ownership
function. MichaelGray's call for better
laws is timely, but clearcut property
(commercial) regulations should take
precedence,while tough criminal laws
should play only a supportingrole.
Liberalization and privatization of an
economy without there being a clear
and enforceable legal and institutional
framework in place, may weaken the
ownershipfunction, leavinga system in
which there is no clearcut control of
privatizedassets by formalowners.This
can encourage the criminal elementto
profit from loopholesin the law, appropriating the incomes of households,enterprises, or even whole industries.
On the other hand, if privatization were
carried out with adequatetransparency,
public supervision,and focus on corporate governance, it will ensure the support of property owners and entrepreneurs, with clearly definedlegal rights,
who could become increasingly supportive of law enforcement agencies.
This, in turn, would safeguardthe civil
and criminal code. A growing number
of entrepreneurs would discourage
costly backstage agreements and payments of "protection fees."
At present, to require "financialinstitutions to report all suspicious transactions (with suspiciousclearlydefinedby
the law)," as proposedby MichaelGray,
would not be immediatelyeffective in
curbing crime. Privatization, as it has
been conducted to date, has involved
transactionswith large amountsofcash.
Cashplays amajor role in othertransactions as well. Indeed,about 40 percent
of the working capital used in the Russian economy in 1993 was cash (the
level was only 20 percent in 1992).
Recording these cash transactions is
extremely difficult. Beyond such accounting problemsthere is the fact that,
according to some Russian estimates,
about half of all foreign investment in
Russia has been financed from money
March-April 1996
Transition
of "dubious"domestic origin (but not
necessarily derived from organized
crime).
As to the increasing criminality in the
financialsector,presentedin Alexsander
Zhilin's article, the claim that "shadow
capital" in circulationin Russia, equals
"legal governmentfunds," means little
without clarifications.
Enormous
amounts of cash circulated in the
economy,much ofit absolutelyuntraceable. No oneknows, whetheritis "legal"
or "criminal"money.And how doesone
define money that has origins in the
"gray" zone but has made two or three
legal rotations?
The same reasoning can be applied to
the crime rate. The numbersmay actually be higherthan thought, because of
underreporting.What is crucial, especially for crimein the financial sector,is
not the number of cases but the financial
damage done.For example,in 1994 St.
Petersburg registered the most fraud
cases of any Russian city (with 2,062
cases, it surpassed Moscow by 100).
But only 2.8 percent (57) of the incidentswereclassifiedascasesof"skilled"
fraud. The other 97 percent were basically crimes of petty theft. "Skilled"
crimes should also include the 1994
championof economiccrimes:the pyramid schemes.Reporteddamagein 1994
fromthis type offraud totaled 20 trillion
rubles, or $9.1 billion (3.2 percent of
Russian GDP in 1994).
Ninety-fivepercent of Moscow banks
and their affiliates are controlled by
criminalkingpins,accordingtoMr.Zhilin,
who quotes interior ministry experts.
Whileit is true that organizedcrimehas
triedto controlthe financialandbanking
sectors-still the most profitable sectors in the Russian economy-many of
Russia's large banks are resistingthese
pressures. This is why, as Mr. Zhilin
himselfacknowledges,"bankingappears
to be one of the most dangerous occupationsin Russia."
Volume 7, Numnber3-4
"Criminalfinancialdealingdramatically
increased in Russia," Mr. Zhilin states.
This is true, but not necessarilyjust because of maffia connections. The financial and banking sectors grew rapidly in the past several years, but
mechanismsto account for their financial flows were missing. Thus, it is not
clear that the share of criminal activity
in banking and finance has risen in recent years. The public is still focusing
very much on these sectors because of
the large amount of funds misappropriated in the past.
Withthe developmentof institutionsand
regulations,thenumberofcrimes(though
not necessarily the amount of financial
damage)presumablywill drop. In Russia in 1994 the relatively new banking
sector accounted for 80 percent of all
crimes committedin the financial sec-
s-;
tor, but the growth rate is slowingbanking crimes increased fourfold between 1992and 1993,but "just"doubled
between 1993 and 1994. Criminal dollars at one stage or another have to go
through a bank to become "legal" dollars, and Russia is no exception.
In our view.the fast and relativelyunrestricted growth of banks helped the developmentof Russia's market economy.
Unfortunately, legislation to regulate
corporations.securities,andthelike, and
to facilitate much-needed institution
building,was delayed.These shortcomings-fallout fromthe Big Bang-have
hinderedassets redistribution.The Russian government-with the support of
its business sector andthe general public. as well as the benefits of intemational experienceand assistance-could
solve these problems.
V
AMBE:E.
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From the Washington Times
21
The World Bank/PRDTE
Book of the Month:
Leszek Balcerowicz: Socialism, Capitalism,
Transformation
A Review by Martin Schrenk
A
fter two decades of theoretical work on the defects of the
Polish variant of "real socialism," in the fall of 1989 Leszek
Balcerowicz was given virtually free
handto translatehis visionofanaltemative economicsysteminto a bold political program.His intellectualdetermination is matched by the political courage
withwhichhe guidedPoland'stransition
through its most difficult initial period.
Afterall,a"radical"or"BigBang"(terms
he prefers over "shock therapy") approachto transition from real socialism
to full-fledgedcapitalismhadneverbeen
tested before.
AlthoughPolandstillfaces seriousproblems, the economic feasibility of its
traverse from socialismto capitalismis
no longerseriouslyquestioned.This dual
success propelled Balcerowicz to the
position of celebrated spokesman for
the radicalapproachto transition.As its
policyprescriptions-radicalmacroeconomicstabilization,rapidniicroecononic
liberalization,andinitiationofprivatization at the most rapid pace possiblehave by now becomethe current orthodoxy,they will not be discussed in the
remainder of this review,
The opening statement of the bookcomingas quite a surprise-sides with
the institutionalists. It points out that
"[the book] deals with human behavior
and its outcomesunder both stable and
changinginstitutionalconditions. It belongs to a growing body of research
which takes institutions as the central
variable and tries to explain this change
ortheirimpact.These[institutional]
problems were pushed into the background
22
by the expansion of conventionalneoclassical economics [that] brought to
economics rigor in reasoning from assumedpremises,but at the cost of practical relevance."
The introductorychapter then proceeds
to identifyfour problems for the rest of
the book: first, the definitionof a sound
analyticalframeworkfor studyinginstitutionsandhumanbehavior; second,the
"compatibilityproblem"that arisesifinstitutionalarrangementsoriginatingfrom
differentsystemscoexist;-third,the "performance problem," that is, the economicoutcomesofdifferentinstitutional
arrangements; and fourth, the "institutional dynamics,"or the forces that govem institutional change. A conceptual
framework for addressing these problems is presented, reflecting the concerns noted above-and stimulatingthe
expectations of the reader.
Unfortunately,the rest of the book does
not quite live up to the expectations
raised by the introductory chapter. For
instance, most chapters in part 1, dealing with the legacyof central planning,
are hardly deploying the sophisticated
conceptual framework of the Introduction.
Vintage Arguments-Vintage Splits
The central proposition of the book is
thatthe radicalapproachtosystemtransformationworksin all conceivablecases,
whereas its converse-a "gradualist"or
"evolutionary"approach-cannot possibly work in the long run. A few common senseobservationsaboutthisproposition are in order.
Themessageis notnew,noris ituniversallyshared.Eventhe"gradualists"agree
that instantaneous change from one
system to the other would minimizethe
incidence of-what
Balcerowicz
calls-the "compatibilityproblems."
But
they doubt whether it is a feasible option, as the socialization of actors is
rooted considerablyin institutionalfactors-such as beliefs in stylized facts,
andthe role ofunwrittenrules in shaping
codes of behavior and organizational
routines. This makes the actors resistant to instantaneous change, they argue.
Mostanalysts wouldprobablyalsoagree
that there may be an optimal path of
transition for each particular country
(as to speed and sequence)that is feasible given the country's economic,
sociopolitical,and cultural conditions.
But theytend to disagree onthe relevant
sets of conditions, and the selectionof
facts and choiceof assumptionsdepend
ontheirphilosophicalpredisposition.All
arguments seem to have been made by
now, and mere repetition clearly offers
diminishing retums for advancing the
state of knowledge or convergencetoward a consensus.
Similarly,alltransitioncountrieshaveby
now chosen their specific path somewhere on the scale between the two
polar cases (shock therapy and incremental change) and moved some distance down the respectivepath of transition.The superiorityofoneorthe other
strategy-provided one could prove it
persuasivelyat this juncture-is immaterial for practical purposes. Enteringa
specific transition path creates
March-April 1996
Transition
path-dependenciesthat make a country
unable to backtrack to the initial point
and try anotherroute. And broad-brush
predictionsof ultimate successor disaster are exercises in prophesy. In short,
at this juncture it is too late to influence
transition strategychoicesand too early
to judge outcomes.
Nonertheless,reading many of the passionateassertions, one cannot help askingoneselfthe question"andwhat about
China?" Chinais hardlyevermentioned,
and if it is, thento emphasizethat it does
not provide useful lessons. China and
Viet Nam are "specials" (whereas all
other transition countries are presumed
to be of basically the same kind). Like
otherproponentsofthe radicalapproach,
the author also seemsto subscribe to the
presumptionthat China'spathis unlikely
to be sustainable.
Diminishing Political Capital
The author stresses time and again that
radical changesof the economicregime
are possibleonly duringa limitedperiod
of "extraordinarypolitics",whenradical
changes of the political regime, carried
by a spirit of revolutionaryenthusiasm
and accompanied by readiness to assume sacrifices for the sake of a better
future, release "politicalcapital," that is
an essentialresource for the completion
of system change. Once it is exhausted.,
"normalpolitics"returns, andorganized
oppositionreducesthe scope for further
progress to incremental changes.
This potentially powerful political
economyargument-the ultimatejustification of radical reform"for its advocates-would have deserved further
development.Arguably,the destruction
ofpolitical capital inthe process oftransition is rather due to the growing disillusionment with outcomes that do not
match the exaggerated expectationsfueled,if not created, by the proponents
of radical economicreform. Worse yet
Volume7, Number 34
for the exhaustion of political capital is
the sudden emergence of conspicuous
inequitiesin the distributionsof income,
consumption,andwealth early on in the
process. The author acknowledgesthis
dimension,but dismissesit as the manifestation of "envy,"suggestingjust anotherdistortedperceptioninheritedfrom
the past.
Envy and Social Acceptance
Envy is conventionallydefined in economic discourse as the response of an
individualtothe impossibilityoftrading
in his bundle of efforts and rewards for
that of another individual. Envy, thus,
reflectsa perceptionthat there is lack of
"fairness." Only in the neoclassical
framework of methodologicalindividualism and individual utility maximization-the narrowness of which the author rejects in his advocacy of the
institutionalapproach-canenvybedismissed as irrational or irrelevant.
Arguably, the concern with depletable
"political capital" is economicallyrelevant also in the long run, because the
economicefficiencyofasociety is linked
to a perception of sociopoliticallegitimacyofits elite,a connectionfrequently
referred to as "political sustainability."
Such legitimacy includes a communal
consensus on the fairness of the distribution of economicpains and gains of
transition.
Clearly, economic transition involves
seriousdistributionaldilemmas.An efficientcapitalistmarketeconomyrequires
efficient ownership,which is by definition highlyconcentrated.Relianceupon
traditional textbook virtues-such as
diligence,frugality, and thrift-for the
creationofa "fair"distributionofwealth
fromanegalitarianinitialpositionwithin
a few years is not a serious proposition.
On the contrary,rapid economictransition is inevitably and transparently a
rough-and-tumbleaffair from whichin-
siders are perceived to emerge as the
"winners"on the basis of shady, if not
illegal initiatives, at the very same time
that median incomes are falling drastically.
Free initial distributionof assets in pursuit of some form of "peoplescapitalism" is increasinglyperceivedasapopulistmovetomobilizeadditional"political
capital" for the government, and unlikelytomakea sustaineddifference.The
process of rapid economic appropriation of assets is therefore unlikely to
produce a complementary social acceptance. "Social capital,"thus, is inthe
final analysis equivalentto the capacity
of societytomaintainapoliticalmomentum supportiveoftransformationthrough
its potentially explosivephase without
losingthe politicallegitimacyofthe new
order in the process. In several transition countries we are beginningto see
the limits at this political sustainability,
withunpredictableramifications.Readers whohopedfor athorough discussion
of these vital questions on the basis of
theinspiringintroductorychapter,are in
for a disappointment.
Martin Schrenk is Consultant, Transition Economics Division, the World
Bank.
Balcerowicz,Leszek: Socialism, Capitalism, Transformation, CEU Press
Budapest, London, New York, 1995,
37 7p.
To Our Readers,
Our reader'sSurvey,publishedin
theJanuary-February
1996Transition
issue, received overwhelming
response.In the next issuewe will
reportthe results.
Manythanksfor your enthusiastic
responses
andhelpfulsuggestions.
TheEditor
23
The World Bank/PRDTE
Quotation of the Month: "We Will Adopt a Package
Designed to Regulate Foreign-controlled Enterprises."
If Zyuganov Wins....-Predictions
Vladimir
V Semago,
Communist
Deputy, Central Committee Member,
and Banker-Entrepreneur, was interviewed by Yevgeny Krasnolobov, correspondent for Moscow's Open Radio. The interview was published in
Prism, a biweekly publication of the
Jamestown Foundation on the Postsoviet States. This article is excerpted
from the interview.
Q. Many predict that if Gennadii
Zyuganov is elected president of
Russia, the Communist Party will
change the rules of the game, abolishing private property and
renationalizing enterprises that
have been sold to foreign companies.
A. I would like to remindyou that foreigncompaniesappearedin Russia when
Vladimir Lenin offered them concessions. The last concessiondates back to
1947. Later, in 1986-87, the Central
Committee of the Communist Party
approvedthe revival of the cooperative
movement and, with some limitations,
allowedthe operation of private firms.
All these were initiated by the Communists. If we didthat in 1987,why would
of a Communist Banker-Entrepreneur
Q. Aren't you worried that the voters you are counting on to bring you
to power will eventuallyforce you to
take a different path? Those who
vote for Zyuganov are often equally
willing to back Anpilov. [Viktor
trolling shares in violation of the law,
Anpilov is head of the CommunistsWorking Russia-for the Soviet Union
Party. The editor.]
beyond the competence of political
forces and movements, including my
party.
A. The Commnunist
Party and Anpilov's
party have different constituencies.
DuringthelastDumaelectionsAnpilov's
party received some 4 percent of the
votes while Zyuganov's party received
more than 20 percent. We expect our
societytoaccept Marx andLenin'sideas
gradually. Anpilov's people are more
decisive.We know all too well that an
economyrun fully by the state is detrimental to society. The state, with its
success in certain economicareas, relegates other actors to secondary roles.
Full state control strengthensthe country-but it degrades the individual,diminisheshis role.
Q. Is it true that your party has compiled a blacklist of foreign companies to be excluded from Russian
businesses?
Q. What will actuallychangefor foreign investors if the Communists
come to power?
we destroy it now, in 1996? The demo-
A. There will be more order. We will
crats claim that the versatile economy,
based on many forms of ownership, is
their brainchild.In fact, they have simply ruinedthe country with their ill-advised and unprofessional actions. We
want to improvethe situation, based on
commonsenseand consolidationof the
society. We want to achieve economic
expansionwithoutappealingtoideology
andwithoutanypoliticalaction.Wewant
our peopleto live in normal conditions.
adopt a package designed to regulate
foreign-controlledenterprises.It is definitely better to play by the rules, evenif
they are not perfect,than to play without
any rules at all. A good example is the
earlier cooperationbetween the former
SovietUnionand the West; all countries
traded and cooperated with us. A reasonablepolicy,based oncommonsense,
is always beneficial. It would not be
right to try to revise all foreign investments in Russia, but certain deals, such
as appropriations of enterprises' con-
24
shoulddefinitelybeinvestigated.This is
up to the Prosecutor's Office. Our
people have every right to file lawsuits
inthe courts againstillegalprivatization
maneuvers. Such legal proceedings are
A. Whycompile suchalist?Irepeat, we
advocate handling the economyon the
basis of common sense, not of settling
scores with anybody.We do not have a
blacklistof stateofficialseither,although
the latter believe we have drawn one
up. We are ready to cooperate with
them, including the most high-ranking
ministerial officials, if they act for the
good of the country. We are against
assigning to every post politically
like-mindedpeople.
Q. If you come to power, which countries will you consider as Russia's
allies and which as adversaries?
A. All our neighbors could becomeour
allies. We will try to cooperate with all
countries. The Cold War is over. We
intend to convert and reorganize our
defense industry, which will become a
normal segment of our economy.
Q. What is the Communist Party's
stance on the plans for NATO's eastward expansion?
A. Negative. Russia definitelydoes not
need this.
March-April1996
Transition
Q. What practical steps do you consider appropriate to deter NATO's
expansion?
A. I do not believe that any practical
measures are required or that we should
seekto build up a new militarybloc. We
should rather use economic levers of
influence. For example, if the Baltic
States decide to join NATO, we can
reconsideroureconomicpoliciestoward
them. Probably, this will make them
change their mind. However,if NATO
countries agree to provide everything
necessaryto these states to help themin
their economicdevelopment,then let it
be so.
Q. Your program calls for the reintegration of the former USSR states.
How do you plan to achieve this?
A. The USSR and Russia had always
been one and the same state. In the
presentsituationreintegrationis dictated
primarily by economic considerations.
We advocate a gradual reintegration.
Q. So if the Communists come to
power in Russia, those American
investors doing business, say, in
Kazakhstan, will not have to deal
with Moscow in the next two years?
A. That is right. In all likelihoodthere
will be no return to an old-style soviet
system of govermnent.The system that
will establishitselfwillbe more flexible.
Perhapsthere eventuallywillbe twentyseven or thrity-two new, full-fledged
entitiesin the RussianFederation.In all
probabilitythis process will take 10-15
years. It is a common delusionthat the
Communists,ifthey cometo power.will
begin to pull the republics together by
force. We will not seek to have a reintegrationcompletedtomorroworwithin,
say, the next five years. The main thing
is to promote such a process and let it
proceedgradually and peacefullyover a
lengthyperiod.
Volume7, Number 3-4
Becominga monolith-as the Communist Party was in Stalin's time-would
mean the end of the party. A monolithic
party that rejects change or innovation
is a bad idea. Rather,a party should be a
living organismthat grows and evolves
overtime.The possibilitythat orthodox
communist ideas will prevail and ultimately determineour course, cannot be
completely ruled out. But while in
1917-18 the civil war helped the orthodox wing to gain the upper hand, the
present circumstances favor a social
democratic trend.
Q. How many Communistsstand on
a similar platform?
A. Many, perhaps the majority,understand the realities of the modem world,
and sharesocial-democraticvalues such
as pluralism in ownership.
The Jamestown Foundation can be
reached by (E-mail at Long@james
town.org) or fax (202) 483-8337.
Postal mail: The Jamestown Foundation, 1528-18th St., NW Washington,
DC 20036.
Milestones of Transition
Foreign direct investment in Central
and Eastern Europe almost doubled
last year to nearly $14 billion, as the
region began to compete more strongly
with other emerging markets, in Asia
and Latin America. The sharp increase
resulted mostly from the sell-off of big
stakes in energy and telecommunications utilitiesinHungaryandintelecommunicationsin the Czech Republic.
total annual losses and 17,000employees. A further 58 state firms-includingthenationalairline,theraillways,and
oil refineries-would be downsized or
placed on a strict rehabilitationregime.
Hungary plans to privatize two of its
largest banks, KereskedelmiBank Rt
and MagyarHitel Bank Rt, byt,ie endof
this year, Privatization MinisterTamas
Suchman announced. Smaller stateIMFBulgariamissionchiefAnnMcGirk ownedbanks will be sold off by the end
arrivedin Sofia on May 8, just as the
of 1997 at the latest. Generatingcash is
leva dropped significantly against the
less important than boosting the banks'
U.S. dollar (on May 9 the exchangerate
capital, Suchman added. Hungary has
droppedto 112.84leva to $ 1). The Bul- injectedmorethan300billionforints[$2
garian National Bank acknowledgesit
billion] into the banks over the past few
is powerless to arrest the decline beyears through a bank consolidationprocause of its tiny foreignreserves ($670 gram introduced by the previous govmillionon April 30) and massive immi- einment. Hungary is to sell state assets
nent foreign debt payments. Bulgaria's
worth over 300 billionforints this year.
extemal debt totals nearly $11 billion,
with more than $1 billion duethis year. In Hungary the first two months of
According to a World Bank official,
1996 saw the pace of imports overtake
Bulgaria must act quickly to close its
that of exports, turning around an exloss-making firms and restructure its
port-oriented trend that had lasted sevheavilyindebtedbanking system or lose
eral months, the Central Statistics Ofthe trust of internationallendinginstitufice (KSH) reports. Exports came to
tions. Aproposedprogramcallsforshut$1.8 billion from the beginning of the
tering more than 100 debt-riddenstate
yearthrough February,whichat current
companieswithmorethan $80 millionin prices is 5.5 percent more than during
25
The World Bank/PRDTE
the sameperiod in 1995.Importstotaled
$2.4 billion.an 11percent increase.The
upshot was a trade deficit of $630 million for the period, $145 million more
than a year earlier.The KSH accounts
for the deficit by pointing to the high
energyimports necessitatedby the unusually long winter. consumer prices
showed an annual increaseof 27.6 percent in the first quarter of this year,
while real wages declined by 5.9 percentduringtheperiod.Grosspublic savings came to 2,200 billion forints at the
end of February, 3.6 percent higher at
current prices than two months earlier.
gations since it assumed responsibility
for $103 billionof debt amassedby the
Soviet Union. It was due to repay $8
billionto sovereigncreditors alonethis
year. The Paris Club deal will considerably ease the burden, giving Russia a
six-year grace period on principal repayments and phasing its remaining
obligationsover twenty-fiveyears.Russia willcontinueto make annualinterest
paymentswhichwillamountto$2 billion
this year. Russia's payments under the
agreementwouldtotal about $2 billionin
1996 compared with $1 billion paid in
1995.
Hungary on March 29 became the
twenty-seventhcountry to join the Organization for Economic Cooperation
and Development(OECD). The Czech
Republicbecame the first fonner communist country to join the OECD, last
December.Poland is expected to join
later this year.
Russia's monthlyinflation in April was
2.2 to 2.4 percent compared with 2.8
percent in March. The economy will
grow by about 6 percent a year in 1997
and 1998,Russian Central Bank Chairman Sergei Dubinintold the EBRD annual meetingin Sofia. Annual inflation
this year will not exceed 20 to 25 percent, he said.
Poland liberalizedcapital flows linked
to direct investment as of April 1 and
plans furtherdismantlingof capital barriers for early 1997,deputyfinanceminister KrzysztofKalicki announced.The
next step, plannedfor January 1, 1997,
willbe easing curbs on portfolio investmentgivingPolishcitizensthe latitudeto
buy stocksonintemationalmarkets.The
move will require a bill upgrading the
current law on public trading in securities. The liberalizationaimsto facilitate
Poland'sentry into the OECD later this
year. The risk of capital outflow from
Poland as a result ofthe liberalizationis
thoughtto be low: economicgrowth and
the attractiveness of the Polish market
encourage the flow of capital into Poland, with much less flowing out.
Russia signed a long-term rescheduling agreementwith the Paris Club that
includes the repayment of $40 billion
over twenty-fiveyears with a six-year
grace period. Russia has been struggling to meet its internationaldebt obli26
The Russian Duma in mid-April approved a land law that sharply restricts
land privatization(bars foreignersfrom
owningland and puts a two-year moratorium on the resale of land that was
given free to fann workers). The law
directly challengesan earlier decree issued by President Boris Yeltsin, on
March 7. The decreewould have made
it easier forthe 12millionformercollective and state farm members to claim
personal land shares from their farm
and to sell the land or bequeathit to their
heirs.
In Marchwage arrears directlyattributable to Russia's federal government
amounted to 8 trillion rubles, whereas
total wagearrearswere 24trillionrubles.
This is partly the result of a slowingof
inflation,whichreducesnominalprofits
and therefore the profits tax collected
by the state.
Russia's government spent 6 trillion
rubles($1.2billion)onthe economicand
social reconstruction of Chechnya in
1995, ITAR-TASSreported on March
31. There are no reliable figures for
militaryoutlays,butthe operationalcosts
of the 40,000 or so troops in the
breakaway republic can be assumedto
have been several times that amount.
Russian President Boris Yeltsinissued
a decreeon 8 April orderingthe government to grant a six-month loan of 4
trillionrubles ($818 million)to the Pension Fund. The state owes pensioners
more than 6 trillion rubles in overdue
payments.Russia'snationalpensionfund
needs an immediatebailout to cover a
shortfall of nearly 13.8 trillion rubles
($780 million). The fund depends on
payroll taxes for revenue, but widespreadtax evasion has substantiallyreduced collections in recent months. In
February and March the federal
government'stax incomereportedlyfell
below 5 percent of GDP. Federal Tax
InspectorateChairmanVitalyArtyukhov
warnedthatofficialsare draftingapresidential decree that will make ministers
and department chiefs personally responsiblefor meetingtax collectiontargets.
President Yeltsin, with continued emphasis on social issues in advance of
Russia's presidential elections,decreed
the partial restoration of savings wiped
out by inflation as a result of the economic reformsbegunat the end of 1991.
The decree orders the government,the
central bank, and Sberbankto draw up
within three months a federal program
torepaysavingsdevaluedbetweenl991
and 1995. The total Sberbank debt is
estimated at 800 trillion rubles ($160
billion)in currentprices. Compensation
paymentswillbegintobe paid in 1997in
a processthat will take decadesto complete.
March-April 1996
Transition
PresidentYeltsinhas decreedthat supportingsmallbusinessesshouldbecome
a government priority in Russia,
Finansovye izvestiya reported on April
9. Thedecreepromises500 billionrubles
($102 million)for investmentcreditsto
smallbusinesses,and$200millionworth
in guaranteesto foreigncompaniesthat
open credit lines to small businesses in
Russia. The Federal Fund for Small
Business Support should receive5 percent of the privatization revenue annually, which means that in 1996 small
companiesshouldget 707 billionrubles
(in 1995 small businesses received 50
billion rubles from this source). Small
businesses in Russia repeatedly complain that high taxes and interest rates
make it difficult for them to survive.
bills. Inflationin April was 2.4 percent,
Ukrainian Radio reported on May 7.
ThisisthelowestrateofinflationUkraine
has seen in recent years. But at the
sametime,realincomesinthe firstquarter of 1996 fell by 19 percent.
Czech real gross domestic product
(GDP) rose 5 percent year-on-year for
the fourthquarter of 1995,puttingGDP
for the year 4.8 percent higher than in
1994,whengrowthwas 2.6 percent,the
Czech Statistical Bureau reported. The
government has forecast GDP growth
of 5.5 percent for 1996.
The Czech Republic recorded a trade
deficit of 8.7 billion crowns($322 million) in February, bringing the total for
the year so far to 15.3 billion crowns
Accordingto Russian government sta($562 million).Comparedwith the first
tistics, 33 percent of Russia's industrial two months of 1995, imports rose 23.5
enterprises operated at a loss in 1995, percent to 112.2billion crowns ($4.15
while for agriculture the figure was 57
billion),whileexports increasedby 19.2
percent.
percent to 96.9 billion crowns ($3.59
billion). Officials said February's figThe Russiangovernmenthas scrapped ures were positive, with exports of maall export tariffs exceptthose on oil and
chinery and motor vehicles rising siggas condensate, which will be phased nificantly.Lastyear'strade deficittotaled
outon July 1, About 140of 680 voucher a record 96.7 billion crowns($3.58 bilinvestmentfunds set up during Russia's lion).CzechindustrialproductioninFebfirstwaveofprivatizationhavecollapsed, ruary rose 14.1 percent over the same
the State Property Committee he remonth in 1995,while average wages in
ported. The remaining funds have asindustryfor the period rose 19.9percent
sets of 2 trillion rubles and have paid
over February 1995.
average dividendsof 70 percent to their
25 millionshareholders.
The Slovak parliament in March approveda lawon the protectionofprivate
Ukraine'sbudget deficit totaled 114.3 savings deposits based on compulsory
trillion karbovanets, or 6.9 percent of
contributions by financial institutions.
GDP, in the first quarter of this year as
The law, whichgoes into effect on July
revenues reached only 17.7 percent of
1, 1996,is aimedat setting equalconditarget. Morethan 40,000 Ukrainianen- tions for the protection of private savterprises haveoutstandingbills amount- ingsinthe wholebankingsector.Instituingto $980million.Thirty percent of all tions will contributea onetime I million
electricity consumption and fifty percrowns($33,300)uponjoiningthe fund,
cent of heating has been supplied withaddingup to 0.3 percent of overall savout payment, according to Ukraine's ings depositsannually. In addition,the
Energy Minister Oleksii Shcheberstov. National Bank of Slovakia will make a
Power has been cut to 7,000 factories downpaymentof 100 millioncrownsto
that have failed to pay their electricity the fund.
Volume 7, Number 34
The economies of Eastern Europe
excludingthe CIS are expectedto grow
by 5 percentthis year, an EBRD report
forecasts. The EBRD said some parts
of Eastern Europe and the Baltic region
are beginningto be underpinnedby the
same factors that have supported high
growth in Southeast Asia. This year
Poland will become the first country in
the region to reach its pre-1990level of
output, to be followed next year by
Slovenia.Output inmostother countries
intheregionislikelytoreturntopre-l 990
levels duringthe nexttwo to three years.
EBRD shareholders,at the institution's
fifthannualmeetinginSofia,votedunanimously in favor of doublingthe bank's
capital to $25.2 billion. It was agreed
thatthebankshouldgiveahigherpriority to the least-developedcountries it
serves, including those of the former
SovietUnion. EBRD PresidentJacques
de Larosiere amnouncedthat the bank
would increaseits focus onthe developmentofthe private sectorin Central and
Eastern Europe. This replaces the emphasis in the bank's early years on utilitiesandinfrastructureprojects.Thebank
will also focus on the modernizationof
capital markets in Eastern Europe. (In
its five years of operation, the EBRD
has used 80 percent of its capitalbase to
approve 368 projects worth $10 billion.
De Larosiere called 1995 a "very good
year" for the EBRD, with profits reaching$9.4million,up from$1.2 millionthe
year before.The bank exceededits 1995
targets for both loan and investment
commitments, with 85 percent of the
projects approvedby its board goingto
private sectorundertakings.It approved
134 projects worth $3.6 billion, a 19
percent increase over 1994.).
We appreciate the contributions of
Open Media Research Institute's
Daily Digest
27
The World Bank/PRDTE
World Bank/IMF Agenda
The G-7, Readyfor a "New Partnership?"
The G-7 countries are planning to use
the June summitin Lyonas a launching
pad for a "newpartnership"with developingcountries,with the aim ofbuilding
political support for reform of the UN,
news agencies report. France's PresidentChirac, chairmanof the summit,is
invitingfor the first time the leaders of
the World Bank, IMF, and WTO to attend a special lunch session of the G-7
heads of government, at which the future of the UN's economic organizations will be discussed. The goal is to
eliminate the overlap between global
organizations.UNCTAD and UNIDO
are seen as immediate candidates for
reform.G-7 expectsto unveil a plan for
dealing with the debts owed by highly
indebted poor countries to the World
Bankandthe IMF.Undertheplan,countries that already qualify for bilateral
debt reduction through the Paris Club
will also be given access to a scheme
repaying debts to the World Bank and
the IMF.
Task Force Proposes Changes
An intergovernmental task force has
recommendedmodest changes in the
waythe WorldBank and regionaldeveloprnentbanks do business.The proposals, discussedin Washingtonduring the
April Joint Meetingsofthe IMF and the
World Bank Development Committee,
are designedto make the development
banks more effective and accountable,
establishing common benchmarks to
measure their performance. These
banks should promote health and education in transition economiesand developingcountries,and insteadofusing
syndicatedloans, should expand multilateral insurance coverageto commercial banks and others, through MIGA.
They need to focus on smaller, riskier
28
projects, to avoid competition with the
private sector. If that happens, shareholder nations in these organizations
shouldprovideadditionalresources,the
task force's report suggests, according
to Reuter.
poration (IFC), with 166 members.
BosniajoinedtheIMF onDecember 20,
1995.
Donors Agree on IDA Replenishment
Donors on April 12-13 pledged $1.23
billion in reconstructionaid for Bosnia
andHerzegovina,bringingtotalaidfunds
committedby the internationalcommunity to Bosnia to $1.83 billionfor 1996.
The pledges were made at a meeting in
Brusselschaired by the EuropeanCommission (EC) and the World Bank and
attended by representatives from fifty
countriesandthirtyinternationalorganizations. An earlier donors conference
last December pledged $600 millionin
aidaspartofathree-tofour-yearplanned
reconstructionprogramthat will cost an
estimated $5.1 billion. Adding to the
$150 millionit pledgedat the December
meeting, the World Bank approved a
further$160millioninnewcommitments
for this year, bringing its total commitmentto $3 10million.WorldBankPresident James Wolfensohnurged the creation of employment for the 300,000
soldiers who will soon be demobilized.
Representativesofmorethanthirtydonor
countries have agreed on new funding
for the International DevelopmentAssociation (IDA). A donors meeting in
Tokyoon March 19 endorseda package
that will allow concessionallending of
$22 billion to poor countries over the
next three years. New contributions
from donor countries shouldtotal about
$11 billion, with the rest comingmainly
from past donor contributions, repayments of IDA credits, andcontributions
from the World Bank itself. The threeyear package begins with a one-year
interimfund of about $3 billion running
from July 1996, with decisionmaking
andprocurementlimitedto contributing
donors and developing countries. The
United States will not contribute to the
interim fund; instead, it will pay $934
milliondue to fulfill its commitmentto
IDA's tenth replenishment,which ends
in June this year. IDA's beneficiaries
are seventy-eightpoor countries,which
have a total population of more than 3
billion.
Bosnia Joins World Bank
Bosnia and Herzegovinahas joined the
World Bank Group, effective February
25, 1993, the date membership of the
SocialistFederal Republic of Yugoslavia (SFRY)was terminated.This brings
the number of World Bank members to
180. Bosnia has also joined two Bank
affiliates,the IDA, whichhas 159members, and the InternationalFinanceCor-
Donors Pledge Another $1.23 Billion to Bosnia
Upgrading Social Services in
Russia
TheWorldBank on April 30 approveda
$200millionloanto Russiain supportof
social services in the Novosibirsk and
Rostov oblasts. The CommunitySocial
Infrastructure Project will finance the
rehabilitation of schools and hospitals
and the repair of water supply and samtation facilities. Earlier, on March 28,
another $350 million was approved to
help finance a four-year program of
urgently needed bridge works on federal roads in Moscowand five oblasts,
to be procuredunder internationalcompetitivebidding.
March-April 1996
Transition
IMF Disburses Tranches of New
Russian Loan
ment, power sector reform, and institutional development.
The IMF decided in early May to go
alheadwith the second$340 millionloan
payment to Russia, following the disbursementof a similar amount in early
April after Moscow acted to put its
economicreformprogramnbackontrack.
Some $4.1 billion will be disbursed to
Russia in the first year of thc program,
with decliningamounts thereafter. Thc
new loan is being awarded under the
same tenrs as the previous one-year.
standbyloan,that is, bymeansofmonthly
tranches; the progress of Russian economicreformwillbecontinuouslymonitored by IMF officials. (The $10.1 billion,three-year ExtendedFund Facility
loanto Russia was approved on March
26. Russia already has $10.8 billion in
outstanding IMF credits.)
IMF Standby to Ukraine
The IMF signedan accordwith Ukraine
for a new standby credit worth $900
million.The loanwill support Ukraine's
efforts to reducc both the government
budget deficit and inflation wlhilcstepping up the privatization of state enterprises.Itwillbedisbursedin ninemonthly
tranches of $1(00millionto allow close
monitoring of the authorities' performance. The aim of the reformprogram
willbeto haltthetdeclinein GDP and cut
inflation. The budget deficit will be reduced to 3.5 percent of GDP this year,
from 5 percent in 1995 , and privatization will be speededup.
IMF Approves Second Annual
ESAF Loan for Viet Nam
Mass of China Projects
In March-April the following China
projects were approved by the 'World
Bank:
- A $100millionIDA creditfortheThird
Basic Education Project. The project
will affect nearly 5 millionchildrenand
willsupporttheprogramgoalofmaking
primary educationuniversal by 2000.
*A$250millionloanthatwillsupportthe
Second Shanghai Sewerage Project.
* A $210 million loan for the Second
Shanxi ProvincialHighway Project (to
build about 259 km of high-grade highways andabout4,100 kmnofruralroads).
* A $100 million IDA credit to combat
poverty in China's Shanxi province (to
increasefarmproduction,improverural
roads, and help poor and disadvantaged
women earn income). The project is
expectedto benefitaround 3 millionrural people in the region.
*A$150nmillionloaninsupportofa$327
millionAnimalFeedProject,toincrease
livestockproduction.
* A $440 million loan for the Henan
thermalpowerproject,includinginvestVolume 7, Number 3-4
The InternationalMonetaryFund (IMF)
on March I approvedthe secondannual
loan for VietNam in an amount equivalentto about$178millionunderthethreeyear enhanced structural adjustment
facility (ESAF). (A total of about $535
millionwas approvedon November 11,
1994.) The loan will support the
government's1996macroeconomicand
structural reform program and will be
disbursed in two equal semiamnualinstallments,the first ofwhich is available
immediately.VietNam's Deputy Prime
Minister Phan Van Khai, speaking to
the National Assembly,said the budget
deficit was 4.3 percent of GDP last
year.He blamed the deficit on problems
with tax collection and evasion.
Donors Pledge $210 Million for
Mongolia
Donors have pledgedat least $210 million in assistanceto Mongoliafor 1996,
with the precise figureto be determined
bybilateralnegotiationsnowinprogress,
the Mongolia Assistance Group an-
nounced after meeting in Tokyoin late
February. The fifth donors meeting.
cochaired by the Japanese government
and the World Bank, and attended by
delegates and observers from twentyfour countries and eight international
organizations, expressed concern over
persisting high levels of inflation and
urged further reforms of the banking
system and the restructuring of
state-owned enterprises.
Curing Bulgaria's Health Sector
The World Bank on April 9 approved a
$26 million loan to infuse money into
Bulgaria's ailing health sector. The
projectwillshoreupthehealthministry's
managementand informationmactivities
and support primary health care, emergency medical services, and the blood
transfusion network. In Bulgaria life
expectancyhasnotincreasedsince 1970.
Infant mortality is on the rise, maternal
mortalityis twicethe levelofthe OECD
countries,and the abortion rate is one of
the highest in the world. It is estimated
that by 2025 morethan 21percent ofthe
populationwill be older than 65 years.
New IMF Reporting Standards
Finance ministers attending the spring
meetings of the World Bank and IMF
approved tough new economic reporting standards designedto avert future
Mexican-stylefinancialproblems. The
new IMF standards, endorsed by the
IMF's InterimCommittee,are designed
to improvethe quality andtimeliness of
financialstatisticsrangingfrominflation
and unemploymentto currency reserves
and trade deficits.
The Worsening Environment-A
New Report
The world population should jump 50
percentto 8.3 billionby 2025,withtwothirds massed in congested cities, according to a report recently releasedby
29
The World Bank/PRDTE
the WorldBarnk,UNEP,UNDP,andthe
World Resources Institute The report,
"WorldResources 1996-97:The Urban
UniversityPress,
Environment,"(Oxford
London/New York, 1996) forsees a
more serious impactonthe environ,ment
than ever before, warning that intense
industrialgrowthwilllikelydiminishefforts to cut climate-changinggas emissions, and that water shortages could
become critical in thirty years.
Conference Diary
Migration, Development, and
Politics
May3 l-June 5, 1996,MontSainteOdile,
France
Organized by the European Science
Foundation.
Information: European Science
Foundation, tel. (3388) 767-135, fax
414-6869, E-mail: (jacksonl@css.
bham.ac.uk or (n.j.lynn@bham.
ac. uk).
36th European Congress of Regional Science Association
August 26-30, 1996, Zurich, Switzerland
Support to Algeria
(3388) 366-987.
Organized by the Regional Science
Association. Topics include: Federal-
The World Bank approved on April 25
two loans to Algeria. A loan of $300
million will support the Algerian
government'sgoal of achievingan open,
market-based economy through macroeconomic stabilization and rationalization of public expenditures public
enterprise reform, and private sector
development.Another $50 million will
financevaonew
socialnprotectionsystem.
This safety net project includes a
labor-intensivepublic works schemeto
be carried out mainly by small private
enterprises,
Babson College and GEA College
Fifth Annual Conference
June 3-8, 1996,Portoroz, Slovenia
ism; Subsidiarityand-regions;Regional
dimension of environmental policies;
Regional and national planning in the
new European context; European integration andthe future of border regions;
Regionallabor markets.
Information: Angelo Rossi, ERSA Congress 1996, ORL-Institute, ETH
Hoenggerberg, CH-8093 Zurich,
Switzerland, (E-mail: ersa96@orl.
arch.ethz.ch), (Internet: WWW page:
http://www. orl. arch. ethz. ch/FB
Loans to Georgia
OnApril 25the WorldBank approveda
$14 millionIDA credit for Georgiathat
will help to reorient the health system
toward cost-effectiveness, modernize
the health financingsystem, rehabilitate
selected facilities and equipment, and
develophumanresources. Another $65
millionIDAcreditwillsupportGeorgia's
economicgrowth and its fight against
poverty. The IMF approved a threeyear loan totaling about $246 million
under the enhanced structural adjustment facility (ESAF) in support of the
government'seconomic and structural
reformprogramduring1996-98.Within
this medium-termstrategy, the program
for 1996 aims at an annual growth rate
Organized by the Babson College and
GEA College in association with the
Ministry of Economic Affairs of
Slovenia.Topicsinclude:Entrepreneurship for emergingeconomies;Trends in
entrepreneurshipin Central and Eastern Europe; Strategies for developing
and promoting entrepreneurial firms;
Establishing entrepreneurial training
centers; Practicum for entrepreneurship educators;Teachingentrepreneurship (cases, research and writing).
Information: Mrs. Tatjana Trebec,
GEA College, Centre for Entrepreneurship Education, Dunajska 156,
61113 Ljubljana, Slovenia, tel.
(38661) 66-475- 7008, fax (38661)
1688-213, (E-mail: viljem.psenicny
@guest.arnes.si) or (ordan.berginc
@guest.arnes.si).
Transformation, Geography, and
Identities
June 11, 1996,Birmingham,United
Kingdom
OrganizedbytheUniversityofBirmingham,SchoolofGeography/Postsocialist
Areas Research Network
Information: Louise Jackson or Nick
Oekonomie/congress).
Contribution of Management Education towards the Development of
Market Economy: The Case of
EURO-CIS Cooperation
September2, 1996, Moscow,Russia
Organizedby the European Foundation
for Management Development,Academy of National Economy,Moscow.
Information: Anna Lysenko, Academy of National Economy, Vernadsky
Ave. 82, 117571 Moscow, Russia, tel.
(7095) 434-0563, fax (7095) 4202065.
Sixth International Conference on
Applied and Business Demography
September19-21,1996,BowlingGreen,
Ohio, United States
of 8 percent, an inflation rate of 20 to 25
Lynn, School of Geography, Univer-
Organized by the Bowling Green State
percent by year-end, and an external
current account deficitof 77.1percent of
GDP.
sity of Birmingham, Edgbaston, B15
2TT, United Kingdom, tel. (44121)
University.Topicsinclude:Demographic
analysis of retirement plans; Spatial
30
March-April 1996
Transition
analysis; Emergingconsumermarkets;
Internet resources; GIS technology;
Trainingneeds;Populationestimatesand
projections;Demonstrationofsoftware.
Mergingtraditional and nontraditional
data sources; Immigration (legal and
illegal); Health care reform and minority health; Demographic studies and
research in HBCUs;Agingpopulations;
Mortality, Morbidity issues; Demographic analysis for human resource
management;Demographicsand credit
institutes.
Information: K V Rao, Conference
Director Department of Sociology,
Bowling Green State University,Bowling Green, Ohio 43403, UnitedStates,
tel. (419) 372-7240, fax (419) 3728306, (Email: adconj96fa,bgsu
vax.bgsu.edu).
The Role of Business and Innovation Centres as Catalysts for Regional Development and Small and
Medium Enterprise Promotion
October9-12, 1996,KierkznearPoznan,
Poland
nancial Centre, PO. Box 1373, Sofia
1000, Bulgaria, fax (3592) 63994689,
(Email:
mkoparanova
@sf cit.bg).
International Economic Outlook
Conference
October 28-31, Philadelphia, Pennsylvania, United States
Organizedby the WEFA Group.
Information: Ginny Jones, tel. (610)
490-2550, fax (610) 490-2557.
4th Annual Conference on Marketing Strategies for Central and Eastern Europe
December 4-6, 1996,Vienna, Austria
Organized by the Wirtschaftsuni
versitaetWien,DePaul University,Chicago. Topics include: Comparative
analysis of conditionsof market entry in
Eastern European countries; Market
entry through exports versus market
entry via capital investment; Acquisitions as opposed to joint ventures in
Eastern Europe; Cultural conflictsand/
or harmonyofjoint ventures;Marketing
strategies to reach Eastern European
consumers: Consumer behavior; Promotion/advertising;Distributionand logistical strategies; Financial strategies
for opening EasternEuropeanmarkets;
Legal and tax issues; Eastern Europe's
role and its future in the EU; Case studies of Eastern European experiences
by Western firms.
Information: Reiner Springer, Institzit
Betriebswirtschaftslehre und Aussenhandel, Wirtschaftsuniversitaet Wien,
Althanstr. 51, A-1090 Vienna, Austria, tel. (431) 3133-64371,fax (431)
3133-6751, (Email: springergisis.
wu-wien.ac.at).
We appreciate the contributions of
the Cooperation Bureaufor Economic
Research on Eastern Europe, (Email:
diw334trao)db0diwll.diw-berlin.de).
Down-sizing
Organizedby the Polish Business and
Innovation Centres Association
(PBICA).Topicsinclude:Entrepreneurship developmentin rural areas; Transfer of technology in small businesses;
Problemsfacingsmallandmediumfirms.
Information: Polish Business and
Innovation Centres Association, ul.
Polanka 3, 61-131 Poznan, Poland.
tel. (4861) 771-751, ext. 43, f/ax
(4861) 771-751, ext. 43.
Restructuring Transitional Economies in the 90's: Enterprise Behavior and Financial IntermediariesAdjustments in Emerging Markets
Environment
October 10-14, 1996,Sofia, Bulgaria
Organizedby the East-West Economiic
and Financial Centre.
Information: Malinka Koparanova,
Director, East-West Economic and FiFrom the Polish magazine Zycie Gospodiarcze
Volume 7, Number34
3
The World Bank/PRDTE
New Books and Working Papers
The PRDTE unit of the WorldBank regrets that it is uinableto
supply the publicationsL-hlsed
World Bank Publications
To receive ordering and price information for publications of the World
Bank, write: World Bank, P.O. Box
7247-8619, Philadelphia. PA 19170,
United States, tel. (202) 473-1155,
fax (202) 676-0581, or visit the World
Bank bookstores, in the United States,
701-18th Street, N. W, Washington,
D.C. or in France, 66 avenue dI'ena,
75116, Paris, (Email: books@world
bank.org) (Internet: http./Jwww.world
bank.org).
World Debt Tables 1996: External
Finance for Developing Countries,
(16thedition),volumes 1 and 2, March
1996, 250 p. (Also available on
CD-ROM)
VolumeI analyzesrecent developments
in debt andnondebtfinancial flows, and
summarizesstatisticaltables forselected
regionaland analytical groups. Volume
2 provides statistical tables for the 136
countriesthat report public andpublicly
guaranteed debt under the Bank's
Debtor Reporting System.
Foreigndirect investmentin developing
countries in 1995 rose by 13 percent,
reaching$90billion,to becomethesingle
largest source of developmentfinancing. In East Asia, China was by far the
largestrecipientof FDI in 1995,attracting $38 billion. In Eastern Europe and
Central Asia, FDI increased by almost
50 percent to $12 billion, while FDI in
Sub-SaharanAfrica,fell by one-thirdin
19957to$2 billion.Thegrowthofprivate
capital flows continuedto dominatetotal net flows to developingcountries at
$167billion,or72percent oftotal flows.
Some twelve mainly middle-income
countries account for more than
three-quarters of total private capital
32
flowsto developingcountries.East Asia
attracted 59 percent of all private flows,
while Latin America's share declinedto
20 percent.
Official development assistance in
1995-$33 billionin grants (excluding
technicalcooperation)and $14 billionin
concessional loans-was much the
same as in 1994. Sub-Saharan Africa
continued to be the largest recipient of
concessionalflows, with 36 percent of
the total compared to 16 percent for
Europe and Central Asia, and 13 percent each for SouthAsia, East Asia, and
the Middle East and North Africa.
Global Economic Prospects and the
Developing Countries 1995, 1996,
lOOp.
This sixth annual study focuses on the
effects of globalization on developing
countries and the growing divide between fast- and slow-integratingeconomies. The ratio of trade to GDP fell in
some 44 out of 93 developingcountries
in the past ten years. Two-thirdsoftotal
FDI went to just eight developingcountries; about 50 countries received little
or none. The link between growth and
integration is clear. Opennessto external trade and investment is often the
necessaryfirst stepto solid, sustainable
economicdevelopment.The book concludesthat countriesembarkingontrade
liberalizationinthecurrentenvironment
are likely to be rewarded despite the
adjustmentcosts involved.Commodityreliant countries should enhance productivityanddevelopnontraditionalcommodity exports, while maintaining
economicstability.
Social Indicators of Development
1996, Johns Hopkins University Press
(published for the World Bank), 1996,
412 p.
The book providesthe latest social data
for 191economies.It includesestimates
offertility,mortality,illiteracy,accessto
health care, and shares of GDP for
selected social expenditures.This edition has beenorganizedto highlightstatisticson poverty.Priority PovertyIndicators (PPIs) are presented on the first
page of each country table. Other indicators coveringhuman resources, natural resources, and expendituresand investmentin human capitalare presented
on the second page of each country
table. The PPIs are used for monitoring
levels ofpoverty and relatedtrends and,
with the other indicators, provide a
framework for assessing human welfare in low- and middle-incomecountries.
Comparativedata for countriesare presentedforthreeperiods: 1970-75,198085, and the most recentestimatesavailable, generallybetween 1989and 1994.
The comprehensiveindividual country
reviews are completed by a concise
table of selected indicators for quick
cross-nationalandregionalcomparisons.
Michael Bruno and Boris Pleskovic,
Annual Bank Conference on Development Economics, 1995, 1996,
383 p.
Dominique van de Walle, Infrastructure and Poverty in Viet Nam, Living
Standards MeasurementSurveyWorking Paper no. 121, 1996,64p.
Michael M. Cemea, Social Organization and Development Anthropology, EnvironmentallySustainable DevelopmentStudies and Monographsno.
6, 1996,46p.
March-April 1996
Tr-ansition
The World Bank began incorporating
anthropologicalandsociologicalknowledgeintothe designof some ofits development projects. The author argues
against three biased developmentmodels-the "technocentric," "econo-centric," and "commodocentric"-and examines the academic origin of such
biases. Theorvand appliedresearch can
be linkedby drawingon a social science
perspectivein formulatingdevelopment
policies and actual development programs, the study concludes.
World Bank Participation Source
Book, 1996, 276 p.
Andrew Sheng (ed.), Bank Restructuring: Lessons from the 1980s,
1996, 192p.
Statistical Handbook 1995: States
of the FormerUSSR [in Russian], no.
19, 1996,627 p.
Misha V Belkindasand Olga V Ivanova
(eds.), Foreign Trade Statistics in
the USSR and Successor States [in
Russian]. no. 18, 1996,225 p.
(202)522-1152, (Email: crollison@
worldbank. org).
Witold M. Orlowski, Price Support at
Any Price? Costs and Benefits of
Alternative Agricultural Policies for
Poland, WP no. 1584,March 1996,
41 p.
Rapid growth in Poland's nonagricultural sectors, combinedwith real appreciation of domestic currency (caused
either by large current account surplus
orsignificantcapitalinflows),mayjeopardize farmers' relative income position. ButPolandshouldavoidpricesupports until it joins the EU's Common
AgriculturalPolicy;rather,efficiencyin
agricultureshouldbeincreased,andfarm
employment reduced. Older farmers
shouldbe encouragedto retire, andnonagriculturaljobsinmrralareaspromoted.
The paper proposes feasible scenarios
forintegratingPolishagricultureintothe
European Union between 2005 and
2010.
To order: WitoldOrlowski,Room HI]093, tel. (202) 473-7270, fax
(202)477-1692, (Email: worlowski@
worldbank. org).
Policy Research Working Papers
Marek Dabrowski, Different Strategies of Transition to a Market
Economy: How Do They Work in
Practice?,WP no. 1579, March 1996,
47 p.
Governments should not be afraid of
aimingtoo high in embarkingon a stabilization program or any other component of transformation. Most
postcommunistgovernmentsdo the opposite: dilute the program so much it
becomes ineffective. Granting concessions to, and bargaining with, various
pressure groups does not produce the
expected political results or increase
social acceptance of reform, warns the
author. Toorder: Chris Rollison, Room
N9-054, tel. (202) 458-4768, fax
Volume7, Number 3-4
Luca Barbone and Hana Polackova,
PublicFinances and EconomicTransition,WPno. 1585,March 1996,33p.
The authors analyze general government spendingand revenues in twentysix former socialist economies for the
period 1989-94.Rather than uniformly
convertingtoaWesternEuropeannorm,
these reforming economies have followed a variety of patterns. Whether a
countrydriftstowardheavygovernment
spendingor is able to check fiscal expenditureswill depend on its success at
general economicreform and especially
at dealing with the pressures for social
protection. After having investigated
spendingpatterns,andthe sustainability
of revenues required to cover current
govermmentspending,the authors con-
cludethat in the foreseeablefuture, fiscal accounts will remain underpressure
in most transition economies.The private sector should get involvedin rationalizing and providing social services,
the paper suggests. To order: Cielito
Pelegrin, Room H11-123, tel. (202)
458-5057, fax (202) 477-1642,
(Email: cpelegrin@worldbank. org).
Constantine Michalopoulos,Payments
and Finance Problems in the Commonwealth of Independent States,
WP no. 1587,April 1996,49 p.
Paymentsproblemsstill constraininterstate trade among the CIS countries.
Effective stabilization measures could
improve the prospects of currency convertibilityamongCIScountries,andsolid
institutionalarrangementswouldpermit
payments and settlementsthrough correspondent bank accounts. Stronger
commercial banks, liberalized foreign
exchange markets, extendeduse of letters of credit, and other mechanismsto
increase the security of trade transactions could definitelyhelp.
As considerableprogress has beenmade
toward convertibility,schemesfor multilateral clearing arrangementsor a payments union fade away. Trade deficits
are likelyto persist in such countriesas
Belarus and Ukraine. If surplus countries such as Russia and Turkmenistan
developtransparent means of trade financing, recipient countries' ability to
pay can be taken into account. To order: Maria Luisa de la Puente, Room
H3-063, tel. (202) 473-1206, fax
(202) 477-3274, (Email: mdelapuente
@worldbank.org).
Deborah Mabbett, Social Insurance
in the Transition to a Market
Economy: Theoretical Issues with
Applicationto Moldova,WPno. 1588,
April 1996,35 p. To order:Louis Biely,
Room H5-145, tel. (202) 473-6280,
33
The World Bank/PRDTE
fax
(202) 477-3378,
lbiely@worldbank. org).
(Email:
Economic Incentives Really Help?,
TP no. 308, 1996,6 7 p.
Cheryl W. Gray, In Search of Owners: Lessons of Experience with
Privatizationand Corporate Governance in TransitionEconomies, WP
no. 1595.April 1996,31p.
Leila Webster, Randall Riopelle, and
Anne-Marie Chidzero, World Bank
Lending for Small Enterprises 19891993, TP no. 311, 1996, 144 p.
Experiments in privatization abound,
from extensiveefforts at sales to strategic owners(as inEstoniaandHungary),
to programs based primarily on insider
buyouts (as in Russia and Slovenia),to
innovativemass privatizationprograms
involvingthe creation of large and powerful new financialintermediaries(as in
the Czech and Slovak republics and
Poland). Each approach has inherent
advantages and risks. But if the objectives are to sever the links between the
state and the enterprise, to school the
populationin market basics, and to foster further ownershipchange,the initial
weight of evidenceseems to favor significant relianceon voucher privatization, especiallygiventhe difficultymost
countries have findingwilling cash investors. This is the period of "primitive
capitalaccumulation"inthepostsocialist
world,asoneHungarianobservernoted.
Formal programs may lay important
ground rules, but uncertainties of every
type overwhelmmost formal efforts at
privatization.Toorder:Michael Geller,
Room N7-078, tel. (202) 473-1393,
fax (202) 522-0056, (Email: mgeller
@worldbank. org).
Discussion Papers, Technical Papers
AlexanderS. Preker and Richard G. A.
Feachem, Market Mechanisms and
the Health Sector in CEE, TP no.
293, 1995,48p.
Seabron Adamson, Robin Bates, Robert Laslett, and Alberto Pototschnig,
Energy Use, Air Pollution, and EnvironmentalPolicy in Krakow: Can
34
Philippe Benoit, Project Finance at
the World Bank: An Overview of
Policies and Instruments,TP no. 312,
1996, 124p.
Michael S. Borish and Michel Noel,
Private Sector Development during Transition: The Visegrad Countries, DP no. 318, 1996, 188 p.
Country Studies
Fiscal Managementin Russia, World
BankCountry Study,April 1996, 198p.
Russian Federation: Toward Medium-Term Viability, World Bank
Country Study,April 1996, 150 p.
the fragility of financial systems and
magnifythe costs of bank restructuring
in coning years. Sustained capital inflowscouldalsoboostthevolumeofbad
loans, giventhe poor financial situation
and limited management capacity of
mostbanksintheregionandweakbank
supervision.
JorgeRoldos and KennethKletzer, The
Role of Credit Markets in a Transition Economy with Incomplete Public Information, IMF WP no. 96/18,
1996.
No one knows what enterprises or industries may be viable in the new market environment or what their returns
will be. Activities with negative value
may be kept alive until they proveto be
losers, owingto an optionvalue to shutting them down in the future. Further,
some viableactivitieswill be shut down
because of poor returns in an earlytrial
period. These inefficienciesare due to
incompletepublic infornation, and this
type ofuncertaintydistinguishesgrowth
in transition economies from that in
market-oriented economies.
IMF Working Papers
To order IMF publications: IMF
Publication Services, 700-19th Street,
N. W, Washington, D.C. 20431,
United States, tel. (202) 623-7430,
fax (202) 623-7201..
Alain Ize, Capital Inflows in the Baltic Countries, Russia, and Other
Countries of the Former Soviet
Union: Monetary and Prudential
Issues, IMF WP no. 96/22, 1996.
Some FSU countries faced significant
capital inflows during the first half of
1995.But most centralbanks were concerned about the potential impact of
exchangerate appreciationon competitiveness.The inflowsthus had a significantinflationaryimpact.Largesustained
capital inflows,however,couldincrease
Peter K. Cornelius and Beatrice S.
Weder, Economic Transformation
and Income Distribution: Some
Evidence from the Baltic Countries,
IMFWP no. 96/14,.1996
Intheprereformperiod,theBalticstates
enjoyednot only livingstandardshigher
than those inthe countries ofthe former
Soviet Union (FSU) but alsothe lowest
degree of income inequality,relativeto
those countries. The present widening
of income differentials is largely explained by a significant increase in the
dispersion of earnings owing to more
pronounced wage differentials, increased unemployment,and lower participation rates. The redistributive effectsofsocialassistanceandtaxpolicies
have been only marginal.
March-April1996
Transition
Mark De Broeck, Paula De Masi, and
VincentKoen. Inflation Dynamics in
Kazakstan,IMFWP no. 95/140,1995,
25 p.
Somemajorcharacteristicsof the price
liberalizationand convergenceprocess
in Kazakstan:
*Decontrol of prices was piecemeal,
with an initial period of rapid progress
followed by phases of stagnation and
even reversal.
*Sporadicprice liberalizationand price
convergence,which progressed only in
periods of tight fiscal and monetary
policyandmacroeconomicstabilization.
*Incompletepriceliberalizationand
convergence. Prices of energy products
and of many mainly energy-based services are still belowthe levelsin comparable market economies,notwithstanding sharp increases in relativedomestic
terms.
Jonas Cicinskas, Peter K. Cornelius,
and Dalia Treigien,TradePolicies and
Lithuania's Reintegration into the
GlobalEconomy,IMFWPno. 95/138,
1995,46p.
Se-Jik Kim and Goohoon Kwon, A
General Equilibrium Approach to
Interenterprise Arrears in Transition Economies with Application to
Russia, IMF WP no. 95/145, 1995,
22 p.
OECD-CCET Publications, Paris
To order: OECD/CCET 2, rue AndrePascal, 75775 Paris Cedex 16,
France, tel. (331) 4524-9689, fax
(331) 4524-9177, (Internet:http://
www. oecd. org/sge/ccet/pub_pres
.htm).
Investment Guide for Estonia, 1996
166 p.
Volume7, Number 34
Investment Guide for the Russian
Federation, 1996 200 p.
EnvironmentalFunds in Economies
in Transition,December 1995, 150 p.
Geographical Distribution of Financial Flows to Aid Recipients: Disbursements, Commitments, Country Indicators 1990-1994, 1996,
254 p.
Agricultural Policies, Markets and
Trade in the Central and Eastern
European Countries, Selected New
Independent States, Mongolia and
China, May 1995, 236 p.
Trends and Policies in Privatisation
[atwice yearlypublication]vol.2, no.2,
special feature: CorporateInsolvency
Procedures as a Tool for Privatisation andRestructuring[bilingual],
1996,314p.
Promoting Cleanerand Safer Industrial Productionin Centraland Eastern Europe, September 1995, 148 p.
As to the privatization of small enterprises, 90 percent or more have been
privatizedin Albania, the Czech Republic,Estonia,Hungary,Lithuania,Poland,
andthe Slovak Republic;andmore than
70 percent have been sold or leased in
Latvia andRussia. The Czech Republic
has privatized or liquidated 81 percent
of large state-owned enterprises; the
correspondingdata for other transition
economiesare as follows: Hungary 75
percent, Estonia 74, Lithuania 57, Russia55,Latvia46,Slovakia44,Mongolia
41,Poland32,Moldova27,Romanial3,
Belarns 11,Bulgaria 10,and Georgia2.
The former East Germanyhas virtually
completedits program of privatization
or liquidationof inviable enterprises.
SustainableTransportin Centraland
Eastern European Cities, March
1996,429p.
This volume is a collection of papers
presented at a workshop on Transport
and Environmentin Centraland Eastern
European Cities, held in Bucharest in
June 1995. Policy suggestions include
the need for closer integration between
land-use and transport policies so that
land-usedevelopmentis compatiblewith
existingpublic transport systems. Considerationis alsogivento stable sources
of financing for cities facing severe
budget constraints.
Review of Agricultural Policies:
Czech Republic, November 1995,
300 p.
Reviews of National Science and
Technology Policy: Poland, December 1995, 171 p.
WIIW Publications,Vienna
To order: The Vienna Institute for
Comparative Economic Studies
(WIIW), Oppolzergasse 6, A-1010
Vienna,Austria, tel. (431) 533-6610,
fax (431) 533-6610 50.
Gabor Hunya, Foreign Direct Investment in Hungary:A Key Elementof
Economic Modernization,WIIWno.
226, February 1996,38 p.
Strong foreign penetration of the Hungarianeconomybroughtaboutaserious
dichotomybetweenthe foreign and the
domestic sectors. Foreign capital concentrates on specific industries, is located in a few privileged regions, and
attracts mainly the younger and more
educated part of the workforce. Areas
withalongindustrialtraditionlocatedin
the west of the country benefit more
than eastern regions. Education policy
is focusingontraining eliteswith foreign
language skills, while general public
education suffers from organizational
and financial shortcomings.Therefore,
35
TheWorldBank/PRDTE
closer integration of the foreign sector
into the domestic economy should receive priority in policymaking.The dichotomy will be overcome partly by
spillover effects in the wake of economic growth. In addition, infrastructure investmentand regional policy instrumentsshouldbeimplemented.Labor
toward more affluent regions should be
encouraged. The budgetary means for
such expenditures,however, seemto be
neither adequate nor well-placed.
Czeslaw Bywalec, Einkommen und
Konsum
im
Prozess
der
Wirtschafts-Transformation der
Visegrad-Lander (mit besonderer
BerucksichtigungPolens), WIIW no.
224, Januarv 1996,25 p.
KazimierzLaski and LeonPodkaminer,
Issues in Fiscal Policy, Inflation and
Public Debt, WIlW no. 223, December 1995,66 p.
Rumen Dobrinsky, Microeconomic
Adjustment in the Transition to
Market Economy: An Overview of
Enterprise Behavior in Central and
Eastern Europe, WIIW no. 221, August 1995,33 p.
Raimund Dietz, and Peter Havlik,
Auswirkungen der Eu-Ost-Integration auf den osterreichischen und
den EU-Osthandel, WIIW no. 161,
November 1995, 40 p.
ZdenekLukas,DieLandwirtschaftder
Oststaaten im Jahr 1994, WIIW no.
160,August 1995, 12p..
ku, Tokyo, 162, Japan, tel. (03) 33534231, fax (03) 3226-8475.
The Automotive Industry in Asia:
The Great Leap Forward?, October
1995,38 p.
Dynamic Viet Nam, June 1995, 30 p.
Investment Risk in Post-Deng
China, March 1995, 42 p.
Leuven Institute for Central and
East European Studies Publications,
Leuven
To order: The Leuven Institute for
Central and East European Studies,
Deberiotstraat 34, B-3000 Leuven,
Belgium, tel. (0032) 1632-6583, fax
(0032) 1632-6599, (Email: valentijn.
[email protected]).
WouterBiesbrouckandValentijnBilsen,
The Importance of Small and Medium Sized Enterprises in Restructuring, with an Application to Poland, WorkingPaperno. 54,1996,30p.
Stefan Bojnec and Jo Swinnen, The
Pattern of Agricultural Protection
in Central Europe, Working Paper
no. 55, 1996,24p.
Jozef Konings,Foreign Direct Investment in Transition Economies,
WorkingPaper no. 56, 1996,21 p.
SalomejaJasinskaite,Mortgage Model
in Transition Countries, Working
Paper no. 57, 1996, 33 p.
Institute of Developing Economies
Publications, Tokyo
To order: Institute of Developing
Economies, IDE Spot Survey, 42
Ichigaya-Hommura-cho, Shinjuku-
36
Center for Economic Development
Publications, Bratislava
To order: Center for Economic Development, Bajkalska 25, 827 18
Bratislava, Slovak Republic, tel./fax
(427) 5233-487.
Freight Transportation in the Slovak Republic, Seminar Bulletin no. 6,
1995,22p.
Bankruptcy Regulation in the Slovak Republic, Seminar Bulletinno. 7,
1995, 14p.
Goskomstat Rossii (Russian Statistical State Agency) Publications,
Moscow
To order: Computing Center Goskomstat Rossii, 39 Myasnitskaya Street,
Moscow 103450, Russia, tel. (7095)
207-4971, fax (7095) 200-2288,
(Email: stat@,infocentermsk.sv).
Construction in Russia: Statistical
Handbook, 1995, 149p.
Protection of Natural Resources in
the Russian Federation 1994, 1995,
197 p.
Russian Statistical Yearbook, 1995,
976 p.
The Social Sphere in Russia: Statistical Handbook, 1995, 236 p.
Social-Economic Situation in Russia: 1995, 1995, 514 p.
Sources of Income of the Population of Russia: Based on Data from
the 1994 Population Microcensus,
1995,
34 7p.
Transport and Communications in
Russia: Statistical Handbook, 1995,
240 p.
March-April1996
Transition
Interstate Statistical Committee of
CIS Publications, Moscow
To order: Interstate Statistical Committee of the CIS, 39, Myasnitskaya
Street, Moscow 103450, Russia, tel.
(095) 207-4237, fax (095) 20745092, (Email: [email protected]).
The CIS in 1994: Statistical Yearbook, 1995,551 p.
External Economic Activities of the
CIS Countries in 1994: Statistical
Handbook, 1995, 370 p.
Financeand Prices in the CIS States
during 1994 and the First Half of
1995: Statistical Handbook. 1995,
94 p.
Ltd., Houndsmills, Basingstoke,
Hampshire RG21 2XS, United Kingdom.
*Clearprocedurestodrawupandimplement legislation, with accountabilityto
the public.
ZoranAnusic,ZelikoRohatinski,Velimir
Sonje, and others, A Road to Low Inflation: Croatia 1993-1994, The
Government of the Republic of
Croatia, May 1995, 173 p. To order:
National Bank of Croatia, Trg Burze
3, 100000 Zagreb, Croatia, tel. (3851)
4564-652, fax (3851) 441-684.
Cuba in Transition,volume 3 of the
Proceedings of the Third Annual
Meetings of the Association for the
Study of the Cuban Economy, 1993,
340 p. To order: Association for the
Study of the Cuban Economy (ASCE),
6321 Walhonding Road, Bethesda,
Maryland 20816, United States, tel.
(301) 229-8921, fax (301) 229-8921.
C. Fred Bergsten,andII SaKong (eds.),
Korea-United States Cooperation
in the New World Order,Institute for
International-GlobalEconomics,Washington,D.C., February 1996, 123 p. To
order: Institute for International Economics, 11 Dupont Circle, N. W,
Washington, D. C. 20036, United
States, tel. (202) 328-9000,fax (202)
328-0900.
Other Publications
Jiri Havel, Changes in Governance
Structure of Czech Enterprises
1989-1994, Reform Round Table WP
no. 20, December 1994, 12 p.
Zbynek Revenda. Reform of the Central Bank of the Czech Republic,
ReformRoundTableWP no. 21. February 1995, 15 p. Sponsored by International Center for Economic GrowthICEG.
To order: Universitas Carolina
Pragensis,Institute of Economic Studies, Faculty of Social sciences,
Charles University Smetanovo nab.
6, CZ-11001 Praha 1, tel. (422) 24810804, fax (422) 248-10987.
Jan Adam, Why Did the Socialist
System Collapse in Central and East
European Countries? The Case of
Poland, the former Czechoslovakia,
and Hungary, Macmillan,London,1996,
245 p. To order: St. Martin's Press,
175 Fifth Avenue, New York 10010,
UnitedStates, or TheMacmillan Press
Volume7, Number 34
Iliana Zloch-Christy (ed.), Bulgaria in
a Time of Change, Economic and
PoliticalDimensions.,Vermont,
1996,221
p. To order:Ashgate Publishing Company, Old Post Road, Brookfield,
Vermont 05036-9704, United States.
Eduardas Vilkas, Institutionsof Public Finance in Lithuania, Institute of
Economics,Vilnius,October 1995,47p.
Natalija Kazlauskiene and William H.
Meyers, Trade and Trade Policy
Development in Lithuania, Baltic
Reportno. 95-BR21, October 1995, 15
p. To order: Center for Agricultural
and Rural Development, Iowa State
University, 578 Heady Hall, Ames,
Iowa 500]1, United States, tel. (515)
294-1183, fax (515) 294-6336.
Andrzej Kondratowicz, Wojciech
Maciejewski, and Leszek Morawski,
Polish SMEs 94: Empirical Research 1993-1994, Adam Smith Research Centre, Warsaw. 1995, 142 p.
The editor suggeststhe followingpolicy
measuresin order to push the Bulgarian
economy out of the present deadlock:
*Boldsupportoftheprivatesector,along Jan Winiecki, Foreign Investment in
with the new legislative framework,
Eastern Europe, Adam Smith Reaggressiveprivatization policy,encour- search Centre, Warsaw, 1996, 14 p.
agement of foreign investment,control
of external debt management,and purTo order: Adam Smith Research Censuit of full membershipin the European
tre, Bednarska St. 16, 00-321 WarUnion.
saw, Poland, tel. (4822) 621-4707,
-Reversal of the bureaucratic inertia fax (4822) 628-0614.
and eliminationof corrupt bureaucratic
structures. Enlargement of the private
Joseph C. Kun, In Search of Guaransector and broadening of the autonomy tees, the Elusive NATO: Is Enlargegranted to state-ownedfirms, to create
ment in Sight? The Potomac Papers,
aself-perpetuatingenvironmentinwhich McLean, November 1995,32 p. To orthe power of the old (communist-style) der: The Potomac Foundation, 1311
bureaucratic structures will be dimin- Dolley Madison Boulevard, Suite 2ished.
37
The World Bank/PRDTE
A. McLean. Virginia 22101. United
States, tel. (703) 506-1 790, fax (703)
506-8085
Lin Lean Lim, Gyrogy Sziraczki. and
Zhang Xiaojian, Economic Performance, Labor Surplus and Enterprise Responses: Results from the
China Enterprise Survey, Labor
Market Paper no. 13., 1995. 61 p. To
order: International Labor Office, 4,
Route des Morillons,
CH-1211
Geneva 22, Switzerland, tel. (22) 7996111, fax (22) 798-8685.
Xiannuan Lin, China's Energy Strategy: Economic Structure, Technological Choices, and Energy Consumption,
Praeger
Publishers,
Connecticut. January 1996, 224 p. To
order: Greenwood Publishing Group
Inc., 88 Post Road West, PO. Box
i007, Westport, Connecticut 068815007, United States, tel. (203) 2263571, fax (203) 222-1502.
To order: Ashgate Publishing Limited, Gower House, Croft Road,
Aldershot, Hampshire, GU11 3HR,
United Kingdom. tel. (44171) 1252331-551, fax (44171) 1252-317-446.
news of the profession, opportunities
for employment, sources of support for
research, and current scholarly work in
the field. To order: NewsNet Editor
AAASS, 8 Story Street, Cambridge,
MA 02138, United States, tel. (617)
495-0679, fax (617) 495-0680,
(Email: [email protected]).
Newsletters
Croatian International Relations
Review, a quarterly publication of the
Institute for Development and Intemational Relations. To order: IRMO, Ul.
Lj. Farkasa Vukotinovica 2, P0. Box
303, Zagreb, Croatia, tel. (3851)
4554-522, fax (3851) 444-059,
(Email: [email protected]).
Press-Dajdzest, a monthly Russianlanguage publicationthat gives abroad
overview of the Ukrainian papers' coverage of important issues.in JUkraine,
with a focus on politics, economic issues, foreign politics, parties and movements, regional problems, nationalities
and human rights. To order: Ukrainian Information Center, P0. Box
1282, 1200 BG Hilversum, Netherlands, tel. (3135) 683-8727, fax
(3135) 683-3646.
Vladimir Mau, The Political History
of Economic Reform in Russia,
1985-1994, CRCE, United Kingdom,
Monitor-Central European Health
and Environment, a publication of the
Central EuropeanCenterforHealthand
the Environment (CECHE), chairman
Sushma Palmer. [From the latest issue:
Richard Peto, "The Smoking andHealth
Tug of War: Death from Tobacco in
Central Europe." Men in Central and
Eastern Europe have the highest death
rates in the world from tobacco use.
Tobacco-related death rates in women
are also beginning to rise and within a
few decades will account for a substantial proportion of deaths in middle-age
women. Of every ten men age 35 in
Central Europe, five will die before age
70, and 40 percent of these deaths will
be from tobacco. In contrast, in Westem Europe, often men age 35, three will
die before age 70, and a third of these
deaths will be from tobacco.]
1996, 125 p. To order: Centrefor Research into Communist Economies
(CRCE), 2 Lord North Street, London
To order: Mauerstrabe 93. 10117
Berlin, Germany, tel. (4930) 30853440, fax (4930) 308-53443, or in
Russia, tel. (095) 229-5449,fax (095)
203-8816.
SW1P3LB, UnitedKingdom, tel. (071)
799-3745, fax (071) 233-1050.
the United States., 2311 M Street,
N. W, Suite 301, Washington, D.C.
20036, tel. (202) 331-3330, fax (202)
872-9084.
The McKenna Law Letter, a publication covering current developments
in the law. To order: McKenna & Co.,
Mitre House, 160 Aldersgate Street,
London, EC1A 4DD, United Kingdom, tel. (44171) 606-9000, fax
(44171) 606-9100.
Jorge Martinez-Vazques
and L.F.
Jameson Boex, An Overview of Intergovernmental Fiscal Relations in
the Baltic States, Policy Research
Center Working Paper no. 56, Atlanta,
1996. To order: Policy Research Center Georgia State University College
of Business, 35 Broad Street, Suite
600, Atlanta, Georgia 30303, United
States, tel. (404) 651-3990.
Zhen Quan Wang, Foreign Investment and Economic Development
in Hungary and China, Centre for
Central and East European Studies,
United Kingdom, October 1995, 371 p.
38
NewsNet, a newsletter of the American Association for the Advancement
of Slavic Studies (AAASS), provides
Russian and Euro-Asian Economics Bulletin, a monthly publication by
the Centre for Russian and Euro-Asian
Studies, University of Melbourne. To
order:
CRE-AS,
University
of
Melbourne, 135 Barry Street, Carlton
VIC 3053, Australia, tel. (613) 93445956, fax (613) 9344-5590, (Email:
email%soviet@pc. unimelb. edu.au)
(Internet: http.//www.arts.unimelb
.edu. au/dept/russcent/welcome. htm).
Russian Economic Developments,
a monthly overview published by the
Institute for the Economy in Transition,
Moscow, 1995, 8 p. To order: Institute
for the Economy in Transition (IET),
5 Gazetny Pereulok, Moscow 103918,
March-April1996
Transition
Bibliography of Selected Articles
Postsocialist Economies
Barrett, C. B. Market Analysis Methods: Are Our Enriched Toolkits
Well-Suited to Enlivened Markets?
[forthcoming] American Journal of
Agricultural Economics, (United
States), August 1996, 14p.
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Nations (International) 19:1-3. February29, 1996.
Czech Finance and Investment: A
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Times(UnitedKingdom),April26,1996.
Beneria. L. Toward a Greater Integration of Gender in Economics.
WorldDevelopment (UnitedKingdom)
23(11):1839-50,1995.
Environmental Issues Affect Foreign Investment Decisions in Eastern Europe. Environment Bulletin
(United States), 1995, p. 7.
Holland, D. International: Taxation
and Foreign Direct InvestmentThe Experience of the Economies
in Transition. Bulletin for International Fiscal Documentation (Netherlands) 50:46-66, February 1996.
Fisher, S. Turning Away from
Slovakia. Open Media Research Institute Transition (Czech Republic)
2(3):38-41,February 1996.
Kiguel,M., and S.A. O'Connell.Parallel Exchange Rates in Developing
Countries. World Bank Research
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February 1995.
Pautola, N. East-West Integration.
Review of Economies in Transition
(Finland)9:5-36, December 1995.
Postcommunism: A Search for
Meaning. Transition-OMRI (Czech
Republic)2(6):6-41,1996.
Spechler, M. C. Privatization Is Not
the Key to Successful Transition.
Challenge (United States) 39:48-51,
January-February 1996.
Central and Eastern Europe
Adam, J. Transition to a Market
Economy in Hungary. Europe-Asia
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Central and Eastern Europe: Environmental Issues Are Critical FacVolume7,Number34
Slovenia Introduces Value-Added
Tax as Partof SystemReform.OECD
TransitionBrief (France) 2:11, 1996.
Slovenian Economic Monitor.
PlanEconReport(UnitedStates)11(4344):1-27, December 1995,
Szilagyi, Z. Hungary Seeks to
Strengthen Bilateral Relations.
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February 1996.
Wood, B. Tatra Czech-Up.The International Economy (United States)
10(1):52-54,January-February 1996.
CIS and the Baltics
German Unification and Its Aftermath: Integration Outcomes [special issue]. MOCT-MOST: Economic
Policy in Transitional Economies
(Italy)5(4):1-171, 1996.
Birol, F., and N. Guerer. Long-term
Oil Outlook of Eight CIS Members.
Revue de l'Energie (France) 47:16-24,
January 1996.
Gray,J. Why PrivatizationJust Might
Work [in Poland]. Institutional Investor-International Edition (United
States) 21:143-46,February 1996.
Developments in the Re-insurance
Market for Russia. Russian Far East
Update (United States) 5(11): 7, November 1995.
The Improvement in the External
Position of Central and Eastern
European Countries. European
Economy (Germany)2:1-16, February
1996.
Epstein, G. Don't Believe All You
Read about Russia's Economy:
They're Doing Better Than They
Say. Barrons Weekly (United States),
December 18, 1995.
Kalmi, P. Insider-led Privatizationin
Poland, Russia, and Lithuania: A
Comparison. Review of Economies
in Transition (Finland) 9:37-52. December 1995.
Korhonen, I. Equity Marketsin Russia. Review of Economies in Transition (Finland)9:53-66,December1995.
Nell, J. Croatia Stabilizes the Kuna.
Central Banking (United Kingdom)
6(3):46-51,1996.
Poland: A Financial Times Survey.
Financial Times (United Kingdom)
March 27,1996.
Markus U. A New Parliament, Despite the President. Open Media
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Republic)2(1):62-63,January 1996.
Morvant, P. The Changing Face of
Poverty. Open Media Research In-
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Sutela, P. Economies under Socialism: The Russian Case. Review of
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1995,pp.5-22.
Cheung, B. Strategic Issues and Implications of PRC Tax Reform. International Tax Journal (United States)
22:83-100,1996.
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Wolpert, V. Economic Reform in
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TRANSITIONVis a regular publication of the World Bank's Transition Economies Division, Policy Research Department. The
findings, views, and interpretations published in the articles are those of the authors and should not be attributed to the World
Bank or its affiliated organizations. Nor do any of the interpretations or conclusions necessarily represent official policy of the
World Bank or of its Executive Directors or the countries thev represent. Richard Hirschler is the editor and production manager,
Room N9-069, tel. (202) 473-6982, Email: [email protected]. Jennifer Prochnow-Walker is the research assistant,
desktop publisher, and producer of graphs and figures. If you wish to receive Transition, send name and address to Jennifer
Prochnow-Walker,Room N9-100, WorldBank, 1818H Street,NW, Washington,D.C. 20433, or call (202) 473-7466,orfax (202) 522
1152 or Email [email protected]. Information on upcoming conferences on transforming economies,
indication of subjects of special interest to our readers, letters to the editor, and any other reader contributions are appreciated.
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March-April1996