External Finance, Policy Conditionalities, and Transition from Central Planning
With the end of the Cold War and the collapse of central planning, the former Council for Mutual Economic Assistance (CMEA) region has become the focus of assistance effort designed to support transition to market-based democracies. In fact, they have become the major source of external finance and policy advice for many transition countries. This chapter is about links between transition and IMF/World Bank assistance as captured by cross-country comparisons. Due to the importance of International Monetary Fund (IMF) and technical assistance in the transition process, the aggregate net resource flows used here are different from normal definition and include the IMF credits and technical cooperation grants. All programs financed by the IMF/World Bank programs involve policy conditionalities that is, disbursements depend on meeting objectives mutually agreed upon with respective governments. The implementation of any reform policy package hinges on the IMF/World Bank ability to support its policy advice with financing and the recipient governments' willingness to adopt adjustment measures.