On the Sequencing of Reforms in Eastern Europe

IMF Working Papers, February 1, 1991

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The paper discusses issues related to the sequencing of the reforms that are necessary to transform the economies in Eastern Europe into market economies.
It is first argued that the transition path of these economies will be smoother and less costly if a clear statement of the ultimate goals of the reforms is made at the outset.
Interdependence between different aspects of the reforms implies that an appropriate strategy is to move on a broad front from the very beginning of the transformation process dealing simultaneously with macroeconomic stabilization, price reforms and convertibility, and privatization of state enterprises.
It is also argued that a rapid reform process is preferable to a gradual one.

Clear articulation of ultimate reform goals at the outset reduces transition costs and smooths the transition path.
Reforms are interdependent, requiring simultaneous action on multiple fronts:
- Macroeconomic stabilization
- Price reforms and convertibility
- Privatization of state enterprises
A rapid reform process is preferable to a gradual one.

Adopt a strategy that moves on a broad front from the very beginning of the transformation process.
Implement macroeconomic stabilization, price reforms and convertibility, and privatization of state enterprises simultaneously rather than sequentially.
Favor rapid reform implementation over gradual approaches to reduce transition costs and achieve smoother outcomes.

Subject: Economic sectors, Income distribution, National accounts, Price structures, Prices, Privatization, Public enterprises, Public sector
Keywords: decentralized enterprise control, Eastern Europe, economic system, enterprise management, enterprise reform, excess demand, Income distribution, Price structures, Privatization, privatized firm, Public enterprises, Public sector, WP