{
  "title": "Convergence, Crisis, and Capacity Building in Emerging Europe",
  "publication": "IMF Blog, July 27, 2012",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2012/07/27/convergence-crisis-and-capacity-building-in-emerging-europe",
  "canonical": "https://www.imf.org/en/blogs/articles/2012/07/27/convergence-crisis-and-capacity-building-in-emerging-europe",
  "overlayPath": "/en/blogs/articles/2012/07/27/convergence-crisis-and-capacity-building-in-emerging-europe/index.md",
  "summary": "Central, Eastern and Southeastern Europe moved from a communist planned system to a market economy in \"two short decades\".",
  "sections": [
    {
      "heading": "Overview and historical context",
      "content": "- Central, Eastern and Southeastern Europe moved from a communist planned system to a market economy in \"two short decades\".\n- Living standards in the region \"have converged towards those in the West.\"\n- The region experienced major crises: \"the break-up of the old Soviet system in the early 1990s,\" \"the Russian financial crisis in 1998,\" and \"the recent global economic crisis.\""
    },
    {
      "heading": "Building blocks for stable economies",
      "content": "- IMF engagement in the early 1990s focused on \"stable economies, price and trade liberalization, and privatization.\"\n- IMF provided technical assistance and training that many countries \"regarded ... as even more valuable than its lending and broader policy advice.\"\n- Capacity building emphasized:\n  - Creating new legal and regulatory tools.\n  - Training qualified staff to \"formulate policies and to execute them.\"\n  - Developing skilled civil servants, many alumni of the Joint Vienna Institute, \"a training center sponsored by the IMF, Austria, and other international institutions.\""
    },
    {
      "heading": "Lessons from the crisis",
      "content": "- The investment in human capital \"paid off handsomely\" when the global economic crisis hit in 2008.\n- Effects of the 2008 shock: \"growth, trade and employment collapsed and default threatened some governments and financial institutions.\"\n- The region avoided meltdown due to \"quick and well-executed policies supported by unprecedented international financial support.\"\n- The \"ongoing crisis in the eurozone\" is identified as \"the main threat to recovery\" because of close ties to Western Europe.\n- Countries with persistent vulnerabilities included those with:\n  - \"substantial financing needs,\"\n  - \"widespread foreign-currency lending,\"\n  - \"banks saddled with high non-performing loans.\"\n- Key lessons highlighted:\n  - \"Every boom—no matter how unsustainable—has a good story at the time.\" Imbalances such as \"huge current account deficits and double-digit credit growth\" were misinterpreted as benign convergence.\n  - \"Counter-cyclical policies may be insufficient to fully prevent a bust, but they can dampen it.\" Examples:\n    - Estonia’s \"conservative pre-crisis fiscal policy\" that kept its budget under control and allowed it \"to join the euro in 2011.\"\n    - The National Bank of Poland’s \"far-sighted prudential policies that discouraged foreign exchange denominated borrowing,\" reducing vulnerability.\n  - \"A decisive and well-designed policy response can help overcome the crisis quickly.\" Illustrations:\n    - IMF support for \"Latvia’s ambitious consolidation based on maintaining its currency peg.\"\n    - IMF support for \"the more conventional adjustments in Hungary, Romania or Ukraine.\"\n    - Poland \"managed to avert a recession altogether, thanks to a flexible exchange rate and apt policy response, supported by a financial backstop from the IMF.\"\n  - \"Two decades of capacity building bore fruit\"—strong institutions and skilled policymakers are \"key to sustaining the success.\"\n  - \"Well-coordinated international support and close cooperation between the public and private sectors make a difference.\" Examples:\n    - \"joint IMF-EU financial support programs in the region,\"\n    - the \"Vienna Initiative\" that \"brought together governments, regionally active banks and international institutions to maintain lending levels to the private sector in the region.\""
    },
    {
      "heading": "The look ahead — policy implications and recommended actions",
      "content": "- Country-level priorities:\n  - \"address vulnerabilities head-on\" by:\n    - \"improving competitiveness,\"\n    - \"reducing fiscal financing needs,\"\n    - \"dealing with non-performing loans.\"\n- International-level actions:\n  - \"reactivate the successful international cooperation of the recent past,\" including:\n    - \"the revival of the Vienna Initiative, taking into account the new circumstances for parent banks,\"\n    - potential financial support, \"possibly precautionary, from the international community.\"\n- The IMF commitment: \"The IMF has stood by this region since the end of communism. We will continue to help whenever asked, with financing, policy advice, and capacity building.\"\n- Confidence grounded in institutional capacity: \"Given its institutional capacities, I am confident that the region will yet again be able to design and implement the policies necessary to meet these challenges.\"\n\nSource: Nemat Shafik, July 27, 2012 — Convergence, Crisis, and Capacity Building in Emerging Europe\n\n---\n\n\n References\n\n- https://www.imf.org/wp-content/uploads/2011/10/nemat-shafik-thumbnail.jpg\n- region’s resilience and flexibility\n- https://www.imf.org/wp-content/uploads/2012/07/minouche-blog-chart-july271.jpg\n- technical assistance\n- crisis in the eurozone\n- non-performing loans\n- Vienna Initiative\n- new circumstances for parent banks\n\nSource: https://www.imf.org/en/blogs/articles/2012/07/27/convergence-crisis-and-capacity-building-in-emerging-europe"
    }
  ],
  "bullets": [
    "[Markdown version](/en/blogs/articles/2012/07/27/convergence-crisis-and-capacity-building-in-emerging-europe/index.md)",
    "[Structured JSON version](/en/blogs/articles/2012/07/27/convergence-crisis-and-capacity-building-in-emerging-europe/index.json)",
    "[Bundle manifest](/en/blogs/articles/2012/07/27/convergence-crisis-and-capacity-building-in-emerging-europe/bundle-manifest.json)",
    "Authors: Nemat Shafik",
    "Published: July 27, 2012",
    "Central, Eastern and Southeastern Europe moved from a communist planned system to a market economy in \"two short decades\".",
    "Living standards in the region \"have converged towards those in the West.\"",
    "The region experienced major crises: \"the break-up of the old Soviet system in the early 1990s,\" \"the Russian financial crisis in 1998,\" and \"the recent global economic crisis.\"",
    "IMF engagement in the early 1990s focused on \"stable economies, price and trade liberalization, and privatization.\"",
    "IMF provided technical assistance and training that many countries \"regarded ... as even more valuable than its lending and broader policy advice.\"",
    "Capacity building emphasized:",
    "The investment in human capital \"paid off handsomely\" when the global economic crisis hit in 2008.",
    "Effects of the 2008 shock: \"growth, trade and employment collapsed and default threatened some governments and financial institutions.\"",
    "The region avoided meltdown due to \"quick and well-executed policies supported by unprecedented international financial support.\"",
    "The \"ongoing crisis in the eurozone\" is identified as \"the main threat to recovery\" because of close ties to Western Europe.",
    "Countries with persistent vulnerabilities included those with:",
    "Key lessons highlighted:",
    "Country-level priorities:",
    "International-level actions:",
    "The IMF commitment: \"The IMF has stood by this region since the end of communism. We will continue to help whenever asked, with financing, policy advice, and capacity building.\"",
    "Confidence grounded in institutional capacity: \"Given its institutional capacities, I am confident that the region will yet again be able to design and implement the policies necessary to meet these challenges.\"",
    "[https://www.imf.org/wp-content/uploads/2011/10/nemat-shafik-thumbnail.jpg](https://www.imf.org/wp-content/uploads/2011/10/nemat-shafik-thumbnail.jpg)",
    "[region’s resilience and flexibility](http://www.imf.org/external/pubs/ft/survey/so/2012/CAR071912A.htm)",
    "[https://www.imf.org/wp-content/uploads/2012/07/minouche-blog-chart-july271.jpg](https://www.imf.org/wp-content/uploads/2012/07/minouche-blog-chart-july271.jpg)",
    "[technical assistance](http://www.imf.org/external/np/exr/facts/tech.htm)",
    "[crisis in the eurozone](http://www.imf.org/external/pubs/ft/survey/so/2012/INT071812A.htm)",
    "[non-performing loans](http://blogs.imf.org/2012/03/29/debt-hangover-nonperforming-loans-in-europes-emerging-economies/)",
    "[Vienna Initiative](http://www.imf.org/external/np/sec/pr/2012/pr12265.htm)",
    "[new circumstances for parent banks](http://www.imf.org/external/mmedia/view.aspx?vid=1686177862001)"
  ],
  "alternates": {
    "markdown": "/en/blogs/articles/2012/07/27/convergence-crisis-and-capacity-building-in-emerging-europe/index.md",
    "json": "/en/blogs/articles/2012/07/27/convergence-crisis-and-capacity-building-in-emerging-europe/index.json",
    "bundleManifest": "/en/blogs/articles/2012/07/27/convergence-crisis-and-capacity-building-in-emerging-europe/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-08-28T03:02:32.885Z"
}