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Reforming finance in transitional socialist economies : avoiding the path from shell money to shell games
TLDR
In this paper, the authors argue that rapid, successful economic reform requires putting the shell game to an end, and they review several contentious issues of financial reform in the TSEs, especially issues involving macrofinance, corporate finance, internal debt problems, and the need to build efficient banks.Abstract:
In the late 1980s, transitional socialist economies (TSEs) in Central and Eastern Europe were only somewhat more sophisticated than shell money systems: savings books or currency had to be used for most transactions and there was no risk assessment, information monitoring and acquisition, or portfolio management. The TSEs have moved toward a two-tiered banking system but they lag in the development of competitive, market-based financial systems. In several TSEs the financial system seems to be part of a shell game to hide the losses of the real economy. The authors argue that rapid, successful economic reform requires putting the shell game to an end. They review several contentious issues of financial reform in the TSEs, especially issues involving macrofinance, corporate finance, the internal debt problems, and the need to build efficient banks. The authors contend that the banks should be"cleaned up"when they are privatized, to prevent the quick reemergence of debt problems. They believe that either of the proposed alternatives for shaping financial systems in the TSEs - very highly capitalized banking or narrow banking - would minimize the need for future support. Either alternative would reduce leverage in the TSEs and provide more financial stability. But taking concerns about moral hazard to an extreme - prohibiting debt finance - could starve new firms for credit and limit economic growth.read more
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Book ChapterDOI
Finance and its reform : beyond laissez-faire
TL;DR: In this paper, the authors argue that market-oriented financial systems appear to do a better job than systems with extensive government involvement, but contend that the assumption that perfect competition will solve all problems in finance - especially in banking - can be dangerous.
Journal ArticleDOI
Old debts and new beginnings : a policy choice in transitional socialist economies
Ross Levine,David J. Scott +1 more
TL;DR: In this paper, the authors examine the decisions policy-makers in transitional socialist economies must make: how to define the asset liability structure of state owned enterprises and banks as they are privatized.
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TL;DR: The case for gradual reforms is not one for inaction, as the conclusions of this study suggest that financial reform is worth the effort and that, with due attention to the institutional environment, the lessons can be applied elsewhere as discussed by the authors.
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Establishing incentive structures and planning agencies that support market-oriented transformations
TL;DR: In this paper, the authors argue that the enormous challenge of restructuring large industrial enterprises or reabsorbing their workers, while appropriately based on market signals, cannot be accomplished by the market alone.
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Posted Content
Financial reform in socialist economies in transition
TL;DR: In this paper, the authors consider the link between financial structure and the productive sector, and raise some of the important issues that emerge in the process of financial reform and venture some tentative suggestions.
Journal Article
Establishing incentive structures and planning agencies that support market-oriented transformations
TL;DR: In this paper, the authors argue that the enormous challenge of restructuring large industrial enterprises or reabsorbing their workers, while appropriately based on market signals, cannot be accomplished by the market alone.