Stabilization and Reform in Eastern Europe: A Preliminary Evaluation

Abstract

The transformation of Eastern Europe from centrally planned to market econo-mies provides an unprecedented challenge for policymakers in these countries as well as for the international community involved in financing and monitor-ing their economic programs. It also poses an unusual challenge for the eco-nomics profession because there is little prior experience on which to draw for lessons that could be applied to the present context.' According to the customary classification, the East European countries be-long to the group of middle-income countries. Their relative income levels (with suitable correction of relative prices), past growth rates, levels of educa-tion, and health all put them in this class. Their political and economic crisis came in the wake of increasing maladjustment of the whole ex-Soviet bloc to the changing world growth and trade environment. In that superficial respect, the adjustment and structural reform problems of Eastern Europe would seem to be akin to those of other middle-income countries, such as Brazil, Mexico, or Israel; these countries had enjoyed long periods of growth and relative price stability in the past, but in the course of the 1970s and 1980s they underwent severe structural crises that were either exacerbated or caused by poor response to external shocks such as the oil and debt crises. The delayed effects of some Reprinted with permission from IMF StaffPapem 39:4 (December 1992), 0 1992 International Monetary Fund.