THERE WAS NO policy issue facing the leaders of former Communist countries in the 1990s more important than inflation. As the previous chapters have shown, the politics of inflation—with all its budgetary implications, distributional consequences and financial ramifications—occupies center stage during the transition. In turn, the alliances forged and the choices made during the struggle that all these countries have waged against inflation have imprinted themselves on the political systems of the region. From starting points that were more remarkable for their similarities than for their differences, the postCommunist countries have developed into democracies, authoritarian dictatorships, and numerous chimerical hybrids that are not quite either. In some countries economic crisis has helped to consolidate strong democratic institutions, and in others it has undermined them. The former Communist countries have become prosperous, rapidly growing success stories, and shambling, stagnating backwaters. In the end, everyone managed to control inflation. In the meantime, some of the post-Communist states reduced their populations to poverty and opened vast gulfs between the newly wealthy and the newly impoverished, while others laid the groundwork for rapid growth, raised their peoples' living standards, and maintained much greater parity between rich and poor.
This book maintains that an international institution, the International Monetary Fund, played a key role in shaping these fateful choices. Fund staff made tactical errors at times, but the overall thrust of IMF advice was sound: Prioritize the fight against inflation. The countries that did so suffered smaller declines in output, resumed growing sooner, attracted more foreign investment, improved living standards, and maintained more equal distributions of income. The result was more stable and civil political systems and the consolidation of democracy. One has only to compare Russia to Poland, or Ukraine to Russia, to see the costs of deferring the struggle to reduce inflation.
Inflation arises primarily because policymakers succumb to the temptation to defer hard choices. International capital markets punish inflationary policies, so there are long-term incentives to avoid them. However, the pressure