{
  "title": "Challenges Facing the Transition Economies of Central Asia--Address by Michel Camdessus",
  "publication": "IMF News, May 27, 1998",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp052798",
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  "summary": "Address given at a conference on Challenges to Economies in Transition, Bishkek, Kyrgyz Republic",
  "publishDate": "1998-05-27",
  "sections": [
    {
      "heading": "Context and purpose",
      "content": "- Address given at a conference on \"Challenges to Economies in Transition\", Bishkek, Kyrgyz Republic - May 27, 1998.\n- Speaker: Michel Camdessus, Managing Director of the International Monetary Fund.\n- Purpose: Review the Kyrgyz Republic’s five-year experience with the som, assess opportunities and risks from the global economy, and draw lessons for Central Asian transition economies from broader IMF membership experience."
    },
    {
      "heading": "Globalization — opportunities and risks",
      "content": "- Opportunities:\n  - Over fifty years of increasing integration in trade and capital flows; telecommunication and information technology have expanded markets.\n  - 1996 private capital flows to developing and transition economies reached $235 billion, of which nearly half went to Asia.\n  - Examples of human development gains associated with integration:\n    - Malaysia: share of population below the poverty line declined from almost 50 percent in 1970 to less than 10 percent in 1995.\n    - Korea: literacy rate increased from around 30 percent in the mid–1950s to over 95 percent today.\n  - Vietnam example: went from being a net importer of about half a million tons of food annually in 1986–88 to being the world’s third largest rice exporter in 1989 following sweeping agricultural reforms.\n- Risks:\n  - Sudden reversals of investor confidence can turn large capital inflows into massive outflows (illustrated by crises in Thailand, Korea, and Indonesia).\n  - Countries unable to participate in trade or attract capital risk marginalization, stagnation, and increasing poverty.\n  - Commodity price weakening and less favorable international capital market conditions can transmit shocks across regions."
    },
    {
      "heading": "Ingredients of economic success (three key requirements)",
      "content": "- Allow market forces to set prices and allocate resources:\n  - Cited uneven progress in Central Asia, especially in agriculture, leading to lower private investment, labor productivity, output, and rural incomes.\n  - Need to open the economy to foreign trade, unify exchange rate, and remove restrictions on current transactions to benefit from international price signals and competition.\n- Stable macroeconomic environment:\n  - Low single-digit inflation is presented as a necessary condition for sustained and equitable growth.\n  - Necessary policies include disciplined fiscal policy aligned with revenues, satisfactory public investment in infrastructure and human capital, and well-targeted social safety nets.\n  - Scope for strengthening fiscal management: improving tax systems and tax administration, establishing effective treasury systems, prioritizing public expenditure, and putting pension systems on a sustainable footing.\n  - Manage external debt wisely; excessive or inappropriately timed borrowing can compromise financial stability and growth.\n- Suitable institutional framework for the private sector:\n  - Need for simple and transparent regulatory systems to reduce compliance costs and encourage market entry and foreign investment.\n  - Effective legal and judiciary systems to protect property rights, enforce contracts, and provide law, order, and personal security.\n  - Tax systems that are simple and broad-based, with limited exemptions and reasonable and uniform rates to improve compliance and revenue collection.\n- Importance of coherent, sufficiently deep reform to convince investors that reforms are irreversible; partial reform may not elicit significant private-sector response.\n- Redefined role of the State: disengage from market functions the private sector can perform; concentrate on rule of law, reliable public services, prudent macroeconomic policies, and fair regulatory frameworks; stamp out corruption as part of \"good governance.\""
    },
    {
      "heading": "Lessons from East Asia and implications for Central Asia",
      "content": "- Root causes of recent East Asian crises:\n  - Domestic institutions not strong enough; policies not flexible enough to handle demands of rapid economic success.\n  - Specific manifestations:\n    - Failure to address overheating pressures and insufficient exchange rate flexibility; implicit guarantees leading to excessive external borrowing and short-maturity exchange rate exposure.\n    - Inappropriate government intervention including lending based on personal connections and government directive, causing inefficient investment and deteriorating bank balance sheets; lax prudential rules and weak banking supervision.\n    - Lack of data and transparency concealing problems, leading to complacency and later market panic.\n- Three points highlighted for Central Asia and other countries entering international capital markets:\n  - Maintain sound macroeconomic policies, correct macroeconomic imbalances promptly, and continue necessary structural changes.\n  - Strengthen domestic financial systems; delaying banking-sector reforms is costly. Historical examples:\n    - Cost of the banking crisis in Chile, with indirect costs, exceeded 30 percent of GDP.\n    - The one in Venezuela, certainly more than 20 percent of GDP.\n  - Promote transparency: regular, full information for the public reduces incentive for policy mistakes and lowers spillover risk; reliable data helps markets distinguish policy soundness and reduces opportunities for corruption.\n- Caution against \"crony capitalism\" style relationships among enterprises, banks, and government; lack of transparent ownership, uneven regulation, ad hoc decisions, and impeded market discipline can build serious imbalances that provoke abrupt market corrections.\n- Positive note: a strong and stable currency is beneficial only when underpinned by quality macroeconomic and structural policies; hope expressed that future anniversaries will celebrate Central Asia’s successes—what other countries can learn from the \"snow leopards\" of Central Asia."
    },
    {
      "heading": "Specific Kyrgyz Republic observations",
      "content": "- The som, introduced five years earlier, contributed to economic progress under President Akayev’s leadership.\n- Reversal of dramatic decline in output: \"for two years in a row growth of output has been around 7 percent.\"\n- Inflation reduction: from \"the destructive hyperinflation level of 1,259 percent, where it was in 1992, to the single digit level where it stands now.\"\n- Government’s new program aims to consolidate achievements, reverse trends toward increased poverty, and ensure the poorest benefit from future expansion.\n- IMF expresses full determination to support the program and to mobilize international community assistance.\n\nChallenges Facing the Transition Economies of Central Asia--Address by Michel Camdessus, May 27, 1998.\n\n---\n\n\n References\n\n- Indonesia and the IMF\n- Kyrgyz Republic and the IMF\n- Republic of Korea and the IMF\n- Thailand and the IMF\n- Vietnam and the IMF\n- Speeches\n- PRESS CENTER\n- Challenges to Economies in Transition\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp052798"
    }
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    "Published: May 27, 1998",
    "Address given at a conference on \"Challenges to Economies in Transition\", Bishkek, Kyrgyz Republic - May 27, 1998.",
    "Speaker: Michel Camdessus, Managing Director of the International Monetary Fund.",
    "Purpose: Review the Kyrgyz Republic’s five-year experience with the som, assess opportunities and risks from the global economy, and draw lessons for Central Asian transition economies from broader IMF membership experience.",
    "Opportunities:",
    "Risks:",
    "Allow market forces to set prices and allocate resources:",
    "Stable macroeconomic environment:",
    "Suitable institutional framework for the private sector:",
    "Importance of coherent, sufficiently deep reform to convince investors that reforms are irreversible; partial reform may not elicit significant private-sector response.",
    "Redefined role of the State: disengage from market functions the private sector can perform; concentrate on rule of law, reliable public services, prudent macroeconomic policies, and fair regulatory frameworks; stamp out corruption as part of \"good governance.\"",
    "Root causes of recent East Asian crises:",
    "Three points highlighted for Central Asia and other countries entering international capital markets:",
    "Caution against \"crony capitalism\" style relationships among enterprises, banks, and government; lack of transparent ownership, uneven regulation, ad hoc decisions, and impeded market discipline can build serious imbalances that provoke abrupt market corrections.",
    "Positive note: a strong and stable currency is beneficial only when underpinned by quality macroeconomic and structural policies; hope expressed that future anniversaries will celebrate Central Asia’s successes—what other countries can learn from the \"snow leopards\" of Central Asia.",
    "The som, introduced five years earlier, contributed to economic progress under President Akayev’s leadership.",
    "Reversal of dramatic decline in output: \"for two years in a row growth of output has been around 7 percent.\"",
    "Inflation reduction: from \"the destructive hyperinflation level of 1,259 percent, where it was in 1992, to the single digit level where it stands now.\"",
    "Government’s new program aims to consolidate achievements, reverse trends toward increased poverty, and ensure the poorest benefit from future expansion.",
    "IMF expresses full determination to support the program and to mobilize international community assistance.",
    "[Indonesia and the IMF](http://www.imf.org/external/country/IDN/index.htm)",
    "[Kyrgyz Republic and the IMF](http://www.imf.org/external/country/KGZ/index.htm)",
    "[Republic of Korea and the IMF](http://www.imf.org/external/country/KOR/index.htm)",
    "[Thailand and the IMF](http://www.imf.org/external/country/THA/index.htm)",
    "[Vietnam and the IMF](http://www.imf.org/external/country/VNM/index.htm)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[Challenges to Economies in Transition](https://www.imf.org/external/np/eu2/kyrgyz/index.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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