Lessons from Economic Transformation and the Road Forward

Abstract

Unusually large output declines during the initial phase of transition are probably the socially gravest and the most politically dangerous economic phenomenon. The critics of radical reforms have tended to associate these declines with, in their view, excessively restrictive macroeconomic policies. However, it is now clear, and this is possibly the key lesson from the cumulative experience of transition countries during the last four years, that the output declines have little to do with the conduct of macroeconomic policy. It would appear that, given the large weight and commonality of inherited economic problems (and the fast speed with which the transition has taken place), the recessions inevitably have to be deep and fairly long everywhere.