Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe


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Description Table of contents Reviews. The main question posed is whether the CEE economies require thinking regarding public finances different from that used in the rest of the developed world. Benczes and his contributors demonstrate that this is not the case at all This book is well worth reading.

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This term mainly means that the different legal or illegal crony structures channelled sound assets e. The public entity was financed by the budget, and ultimately covered by the money supply, insofar far as the Central Bank was directly subordinated to the government through the Ministry of Finance. Budget deficits increased substantially. Conversely, the banking system and the Central Bank became a logical transmission mechanism.

Losses were generated not only in the public sector and in state-owned banks, but also in the newly-created private-sector and crony banks, which accumulated significant amounts of non-collectible claims. Inevitably, this process eventually reached the Central Bank, which socialised the losses and theft by monetising them, i. Overall, the bandit privatisation logically led to an accumulation of public debt because the losses were transferred to the public sector, whereas the benefits went to the newly-created private one.

While the redistribution took place at full speed, the disorganisation and declines in production were impressive see macroeconomic indicators in Appendix 1.


  • Willem H. Buiter : publications!
  • ARTICLES IN REFEREED PROFESSIONAL JOURNALS?
  • Macroeconomic stability as the condition for Bulgaria to join the euro area.

Public finances deteriorated rapidly, and the money supply and inflation exploded. Non-performing loans surged to historically unprecedented levels. The public witnessed numerous theoretical disputes with policymakers and politicians, who tried to convince public opinion. But in fact these disputes, or discourses, were a disguise for group interests.

Entirely in the Marxist logic and contrary to the views of Keynes , the ideas and theoretical models of reforms were subordinated to private and group interests. Although the economic literature argued about the sequencing of different stages of reforms liberalisation, restructuring, labour market flexibility, institutional building, etc.

For example, the financial crisis in Yugoslavia and Montenegro concerned the processes of their political collapse Mladenovic and Petrovic, , Fabris et al. In Albania, the crisis was related to the incredible surge, then later crash, of financial pyramids.

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It led to a demonstrative and radical change in the monetary regime and to a de facto refusal of active monetary policy. This was symbolised by the introduction of a Currency Board, where by definition no monetary policy is permitted Berlemann and Nenovsky, Right-wing politicians came to power, supported by the international financial organisations and foreign capitals Nenovsky et al. This was seen as a way to break with the past and to mimic Germany and the other core EU countries.

For instance, when analysing the new geography of money and especially the subordination of monetary sovereignty, B. Cohen cites Estonia as an example:. Cohen, , Interestingly, this refusal of liberal ideas came not from realising the complexity institutional understanding of the transition, but was instead inspired by retrograde Soviet-style Marxism, which deliberately or naively defended its ideas and theoretical concepts.

Balcerowicz, 7 L. Bokros, V. Klaus, M. Laar, and others , the Balkans missed such opportunities. During that period, the external, foreign actors still had a subordinate impact. Such discretion consisted of having complex and opaque fiscal policy, privatisation methods, exchange rate determination, refinancing by Central Banks, etc. As an illustration, during the period , a high-level management group was formed at the Bulgarian National Bank. This group was in charge of monetary policy instruments mainly bank refinancing, daily exchange rate intervention, etc. Some members of this management group accumulated and transferred abroad large amounts of funds.

European Financial and Accounting Journal

Economic discourse consists of mixing certain economic theories, models, ways of reasoning, etc. During this period, the range of theories and ideas claiming an active state role a mixture of Marxism and Keynesianism were leading. Discretionary government policy was justified by Keynesian theories and textbooks.

Government was seen as the main driver of privatisation. Liberal and market ideas in a classical form had a place only where they were advocated by foreign intellectuals or those scholars linked intellectually to the Western community or financed by Western academic foundations.

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Asset-Stripping the State

The periods differ slightly for the groups of countries analysed, depending on when crisis occurred in each country. In the first transitional period, which began after the end of the planned economy, huge public debts were accumulated especially in Bulgaria, Albania and Serbia , dominated by domestic public debt. Due to a lack of structural reforms, delays in privatisation, disorganisation and high redistribution of wealth, there was negative economic growth.

Public finances were also on a poor footing due to high expenditure and huge public debts. The majority of individuals and groups desired a stable monetary system as in Western Europe , with understandable and visible policy rules. This meant a lack of policy discretion. In fact, discretion had been compromised in the initial transitional period.

The establishment of new rules was made easier by the fact that the accumulated debts had been cleared by hyperinflation, depreciation of the national currency and financial sector crisis. Firstly, a consensus was built on the need for radical stabilisation in the monetary and financial system. Households, for instance, preferred a stable currency after experiencing huge losses on their savings. External creditors prized Currency Boards for their capacity to guarantee foreign debt payments Currency Boards require considerable amount of foreign reserves.

This was an external stabilising and normalising anchor. This kind of geopolitical fixing is still present in all Balkan countries, albeit to varying extents. Its function is not only to increase social cooperation, to build trust, but also to reduce uncertainty, and as a result, transaction costs. By their very nature, anchors could be internal to certain social communities e.

Anchors could appear spontaneously, as a result of a continuous interaction between the actors, or as a result of powerful imposition or force. The hypothesis that the government dynamics of the Balkan countries and the Eastern European countries as a whole can be attributed to the interaction of the two above-mentioned anchors has been studied before Nenovsky and Ialnazov, , Nenovsky and Villieu, In the beginning of the post-Communist transformation, two groups of post-Communist countries could be outlined.

They opted, respectively, for fixed or floating exchange rates, i.


  • Clinical In Vitro Fertilization.
  • Appendix I. Macroeconomic Indicators (group 1)!
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  • World Economic Situation And Prospects: July 2018 Briefing, No. 116!

Basically, the reforms in the countries with fixed or close to fixed exchange rates turned out successful, and the economies of these countries Poland, the Czech Republic, Hungary and Slovakia managed in one way or the other to minimise the crony processes Balcerowicz, , Nenovsky, , Vucheva, Later, after the s crisis, these countries moved to inflation targeting and more or less floating exchange rates. The exchange rate and inflation became essential mechanisms for redistribution and enrichment.

The s crises put an end to the managed float regime. A conservative, externally-oriented monetary regime was adopted. This regime was dominated mostly by external interests, mainly foreign creditors in fact, the initiators for the monetary regime change. There, after a continuous hyperinflation, Dragoslav Avramovich a former employee of the World Bank and an American citizen introduced a parallel monetary unit — the new dinar interestingly, Avramovich was inspired by the NEP experiment in Soviet Russia, and he discovered the idea reading an old book.

The new dinar was pegged to the D-Mark at , and circulated simultaneously with the old one Rostovsky, , Mladenovic and Petrovic, With the complete refusal to drive monetary policy and to act as a lender of last resort LLR , the presence of foreign banks and attraction of foreign capital was considered to be the inevitable solution. Soon, the penetration of foreign banks had become a notable fact. The presence of foreign banks also had political economy explanations, insofar as the foreign creditors were the main inspirers of the Currency Board introduction.

For instance, after the deep crisis hyperinflation, exchange rate depreciation, banking collapse, and default on foreign debt , Bulgaria was forced to sign an IMF agreement in order to avoid social and political chaos.

Willem H. Buiter : publications

The Currency Board and restrictive fiscal policy were perfect instruments for this purpose. The liberal theories, mostly the Austrian school, monetarism the libraries were filled with translations of F. Hayek, L. Mises, M.

LECTURE # 10: FISCAL POLICY, DEFICIT AND DEBT

Rothbard, A. Rand and M. Friedman , the principles of monetarism and supply side economics the Laffer curve, flat tax, vouchers in education and health sectors , etc. Any deviation from this line of discourse was rejected and ridiculed as retrograde, and as extremely anti-European and anti-Western. Chronologically, the accession started initially for Bulgaria and Romania, later for Croatia, and is an ongoing process in different stages for Macedonia, Albania and Serbia.

In Bulgaria and Romania, EU membership became a general project, a principal national goal. By its nature, the pre-accession process was related to hard budget constraints, including fulfilment of a number of indicators of economic, institutional and legal convergence. It consisted of opening and closing a number of pre-accession chapters on the main membership topics 35 in all. These chapters aimed to develop the institutional framework and generally the practices of good public governance, and to bring them closer to European levels.

Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe
Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe
Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe
Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe
Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe
Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe
Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe
Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe
Deficit and Debt Transition - The Political Economy of Public Finances in Central and Eastern Europe

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