social conflict. This requires a crackdown on corruption and criminal activity. Furthermore, when reforms are introduced, the government must ensure that these are not used as a vehicle for a few people to extract more rents from the system. A more careful accounting of the rents from natural resources and for allocating them to the highest value uses in a transparent way would be beneficial. If these actions are taken, and complemented by stable macroeconomic policies, there is some hope that the transition will yet be successful in this vast country.
At the same time as reforming the government, it is also desirable to make the government sector smaller. Others, including Aslund (1999) have also noted the need for this. Total state revenues should be reduced, leading to a decline in the value of tax exemptions. This in turn would both reduce rent-seeking and provide incentives to abolish barter. A reduction in the share of barter transaction should lead to increased incentives for investment in an efficient industrial sector and for the restructuring of value-subtracting sectors (Gaddy and Ickes 1998).
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