chapter  3
26 Pages

Transition, the World Economy, and Economic Unions

ByJozef M. van Brabant

Transition policies in the beginning counted too much on sizable inflows of foreign direct investment to revive and restructure supply. Successful transition indeed requires laying rapidly the microeconomic foundations for macroeconomic stability. The transformation of the trade and payment systems of the planned economies in transition has been one of the most widely debated topics of designing comprehensive, speedy, and properly sequenced transition policies. The transitions have invariably proceeded with considerable chaos whose amplitude has been reinforced through the propulsion of instability from within the group of former trading or constituent partners. An economic union with a single currency, provided there is a common policy not only in monetary but also in fiscal affairs, may yield significant economic gains. Eastern markets were captive. The switchover to world conditions was from the beginning destined to exert a profound impact on traditional trade and payment relations. The case for trade liberalization has been based on incontestable, if highly theoretical, credentials.