ABSTRACT
The main argument of this paper consists of three connected parts: First, there is a deep comparative (and absolute) disadvantage of transition economies (TEs) in the provision of financial services, including banking services, caused by the heritage of central planning and the particular roles of banks in that system. Second, in TEs there is a particularly large need for financial and banking services, both for short and long-term operations. This emanates from two related sources: first, the highly developed, ‘modem’ and complex production sector inherited from the old regime in most TEs, and the high level of urbanization; and second, the great need for restructuring and privatization, and for the adaptation of the economy to the new conditions of an open market economy. The third part of the main argument is that foreign banks are much better equipped to provide the needed services than domestic banks and that the recent development of global, multinational banking services, provides a great opportunity for TEs, by bringing them in to expedite the transition and to encourage higher levels of economic growth.
