The Economic Transformation of Eastern Europe: Views from Within

By Bernard S. Katz; Libby Rittenberg | Go to book overview

rectly from the standard Keynesian analysis, but it was to some extent overlooked by Polish economists and politicians. Thus, the governments of other Eastern European countries attempting to reform their economies should take into consideration the repercussions of tight monetary and fiscal policy for internal equilibrium (drop of industrial production and rise of unemployment) and for the trade surplus. Because of this, the social and political support for economic reforms is a crucial element.

Second, the monetary authorities introducing convertibility should take care not to undervalue the domestic currency. But even if the mistake is made, the central bank should not hesitate to revalue the local currency when the trade surplus becomes pronounced. Otherwise, it will be difficult to curb inflation, and domestic social tensions may provoke serious political problems, damaging the reform.

Third, only radical reforms may change the economic situation in a visible manner. Long-lasting attempts to gradually enhance Polish foreign trade yielded only very limited success. Thus, the introduction of convertibility (not only internal but, in some views, external) is a crucial element for market-oriented reforms designed for the opening up of the economy.


NOTES
1.
See, for example, IMF ( 1990: 57-62).
2.
For a classical treatment, see Bornstein ( 1979b), which gives not only a description but also the logic behind the process.
3.
All data are from the Polish Central Statistical Office (CSO), unless stated otherwise.
4.
In 1987, the combined value of exports and imports per capita was $612, that is, three times less than in Hungary and six times less than in Bulgaria or East Germany. In 1988, it grew to $692, falling back to $639 in 1989. See, for example, Foreign Trade Research Institute ( 1990: 10).
5.
See Fischer and Easterly ( 1990).
6.
In the following text, our goal is to shed light on the foreign trade issues first. The foreign exchange problems are taken up only insofar as they are connected with the former.
7.
For a sketch of analysis, see Pitzner-Joergensen ( 1990: 6-13).
8.
A license is necessary to trade radioactive materials, military equipment, and to render agency or representative services for foreign partners ( "Ruling by the Polish Minister for Foreign Economic Relations" 1989).
9.
See Piotrowski ( 1990: Annex 3, 42). These products can be exported only by Polish-owned enterprises.
10.
Effective January 1, 1990. See, for example, "Polish Customs Duty Law" ( 1989).

-122-

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