ABSTRACT
It has been nearly four years since the countries of Central and Eastern Europe began the unique and historic process of transformation from a command to a predominantly competitive market-based economic system. Two years ago the former Soviet Union made initial steps in the same direction. While real achievements have been made by most of the countries involved, the process has not yet delivered the hoped-for significant reorientation and restructuring of industrial structures and major improvements in economic performance and overall growth. In fact, the initial euphoria that characterized the early days of transformation has given way to guarded optimism and realization of the daunting challenges that are still to be met. While few experts and observers in the region would argue that the trend toward democracy and market-oriented economies is reversible in Central and Eastern Europe, most would admit that the process is going to be much more difficult, far more complex, and take far longer than they expected. And, recent events in the Russian Federation and the republics of the former Soviet Union have pointed out that the process of reform there is far from assured.
The first stage of the transformation prices—the macroeconomic reforms, comprising particularly early price liberalization and stabilization reforms—in many of the countries of the region appear 240to have been successful. But in all, this first stage of the transformation process has been accompanied by sharp drops in output, persistent medium level (the range of 20 percent) inflation, the emergence of budget deficits, and large increases in unemployment. And, the hoped-for overall regeneration of industry and achievement of industrial competitiveness has not yet taken place.
It is now clear that the success of the transformation of the region will depend on more than macroeconomic reforms. The regeneration of the industrial base, an essential element of a country’s development, will require the development of an integrated macro-micro policy framework with concerted, enterprise-targeted policy measures and institutional and other support. Clearly too much was expected too soon of macroeconomic reforms across the region. There now must be a second phase of the transformation in which focus has to incorporate the removal of the rigidities at the micro level and greater integration of the macroeconomic framework with the microeconomic measures to induce an appropriate supply response. Key elements of this second phase of the transformation process will be privatization and private sector development and industrial restructuring. For this second phase to be successful, large-scale but targeted support from the international community will be required. So far, adequate support from the international community has not been forthcoming. This paper addresses the issues concerning the technical assistance needs of the region and the development of an appropriate international response.
