New Books and Working Papers

Patricio Arrau and Klaus Schmidt-Hebbel, Pension Systems and Reform: Country Experiences and Research Issues, PRWPS no. 1470, June 1995, 27 p. To order: Emily Khine, room N11-061, tel. (202) 473-7471.

Giancarlo Corsetti and Klaus Schmidt-Hebbel, Pension Reform and Growth, PRWPS no. 1471, June 1995, 35 p.

Replacing a pay-as-you-go pension system with a fully funded scheme could eliminate the incentives to informal production and employment. Long-term growth could increase substantially as a result of such reform. Econometric evidence suggests that Chile's pension reform, introduced in 1981, could contribute to a large increase in private savings.

Eduardo Fernandez-Arias and Peter J. Montiel, The Surge in Capital Inflows to Developing Countries: Prospects and Policy Response, PRWPS no. 1473, June 1995, 47 p. To order: Rose Vo, room S8-114, tel. (202) 473-3722.

Dominique van de Walle, Public Spending and the Poor: What We Know, What We Need to Know, PRWPS 1476, June 1995, 49 p. To order: Cynthia Bernardo, room N10-053, tel. (202) 473-7699.

Alain Bertaud and Bertrand Renaud, Cities without Land Markets: Location and Land Use in the Socialist City, PRWPS no. 1477, June 1995, 15 p.

The Soviet city is characterized by rusting factories in prime locations and high-density residential areas in distant suburbs. Such a structure tends to maximize the economic and social inefficiency of the socialist city as well as its environmental ill effects. With market-oriented urban reform, real estate prices are now emerging.

Herbert L. Baer and Cheryl W. Gray, Debt as a Control Device in Transitional Economies: The Experiences of Hungary and Poland, PRWPS no. 1480, June 1995, 47 p.

The authors focus on three fundamental requirements for debt to function as a control device: information, proper incentives for creditors (including banks, suppliers, and government), and an efficient legal framework for debt collection (including collateral, workout, and bankruptcy regimes).

Peter Dittus and Stephen Prowse, Corporate Control in Central Europe and Russia: Should Banks Own Shares? PRWPS no. 1481, June 1995, 39 p.

Changes in the banking system are prerequisites for any large-scale bank involvement in the ownership and governance of firms. Measures required include:

• Sever existing relationships between the state and banks. Privatization is the strongest guarantee that bank investment decisions will not be subject to state influence, but bank privatization has been slow in most counties.

• Dispel the belief that poor lending and investments will eventually be underwritten by the government, with few consequences for managers.

• Strengthen competition in the banking system, in part by encouraging new private banks and the entry of foreign banks.

• Provide effective bank supervision and an effective prudential and regulatory framework.

Robert A. Korajczyk, A Measure of Stock market Integration for Developed and Emerging Markets, PRWPS no. 1482, June 1995, 41 p. To order: Paulina Sintim-Aboagye, room N9-057, tel. (202) 473-8526.

Pham van Thuyet, The Emerging Legal Framework for Private Sector Development in Viet Nam's Transitional Economy, PRWPS no. 1486, July 1995, 48 p.

Viet Nam's legal framework is still not appropriate to foster private investment, especially foreign investment. Laws on real property, intellectual property, domestic and foreign investment, bankruptcy, contracts, and dispute resolution are still influenced by ideology. This causes problems in such areas as private ownership of real property. The private sector is constrained by the lack of an independent judiciary, the absence of private land ownership, and other uncertainties in property law. That limits the development of financial markets and maintains an inherent bias in favor of the state sector and collective ownership.

Caroline L. Freund and Christine I. Wallich, Raising Household Energy Prices in Poland: Who Gains? Who Loses?, WPS no. 1495, August 1995, 50 p.

Programs that subsidize household energy prices in the transition economies help the rich more than they help the poor. Not only do the wealthy consume more energy in absolute terms than the poor, but they also spend a larger portion of their income on energy. To solve this problem, the first-best response would be to raise energy prices while targeting cash relief to the poor through a social assistance program. This is far more efficient than the present go-slow price adjustment policies, which imply energy subsidies that provide across-the-board relief to all consumers. But if governments want to provide some relief for consumers to ease the adjustment, in-kind transfers to the poor, vouchers, cash transfers, and lifeline pricing for a minimum amount of electricity, combined with significant price increases, are the possible options.

Michael Bruno and Boris Pleskovic (eds.), Proceedings of the World Bank Annual Conference on Development Economics 1994, March 1995, 464 p.

Constantine Michalopoulos and David Tarr, Trade in the New Independent States, Studies of Economies in Transformation no. 13, 1995, 274 p.

The authors analyze the causes of the steep output and trade decline in the 15 new states of the former Soviet Union and identify policy options to cure the economic ills and to promote international trade in these countries. The volume includes eight country studies, analysis of the obstacles to expanding exports to OECD markets, and an enterprise survey of Ukraine.

Setsuya Sato and David Burras Humphrey, Transforming Payment Systems: Meeting the Needs of Emerging Market Economies, Discussion Paper no. 291, 1995, 52 p.

Understanding Poverty in Poland, a World Bank Country Study, 1995, 236 p.

Aerdt C. F. J. Houben, Commercial Bank Debt Restructuring: The Experience of Bulgaria, IMF WP no. 95/6, April 1995, 25 p.

On July 28, 1994, after more than two years of intense negotiations with a steering committee representing creditor banks (the "London Club"), Bulgaria completed a market-based Debt and Debt Service Reduction (DDSR) operation. Over 300 commercial banks participated in the deal on a voluntary basis. The DDSR package was in line with the basic tenets of the so-called Brady Plan and was the first with an Eastern European country. About $8.3 billion of outstanding bank debt was restructured, resulting in substantial debt relief and a repayment schedule spread over a 30-year period.

Under the Bulgarian debt deal, the gross debt and debt service reduction was about 46 percent in present value terms (about 38 percent net of the resources used to complete the deal), which will significantly alleviate the balance of payments. However, even after the deal, the external debt stock remains high.

Owing to rising obligations on the restructured bonds and in part to a smaller than-targeted allocation to the buyback option, sustained policy efforts will be required over the medium term to bring the remaining debt stock to a more manageable level. Looking ahead, upfront fiscal action is needed not only to break the adverse debt dynamics, but also to reduce uncertainty by sending an early signal that debt problems have been resolved in a lasting manner.

Restoring credibility to monetary and exchange rate policies will, in turn, help stem capital flight, avoid an unduly weak exchange rate (thus lessening the domestic costs of external debt service), and allow a lowering of domestic interest rates (thereby reducing the internal debt burden). Accelerated structural reforms will be vital to bolster productivity—especially foreign exchange earning potential—before heavy repayments start to fall due after the turn of the century.

Anthony Richards and Gunnar Tersman, Growth, Nontradables, and Price Convergence in the Baltics, IMF WP no. 95/45, April 1995, 26 p.

Continued real appreciation of the Baltic currencies is to be expected as part of the transition process toward higher income levels, due in part to differential productivity growth rates in the tradable and nontradable sectors. In the absence of an appreciation of the nominal exchange rate, this real appreciation will occur through inflation rates that are higher than in industrial countries. Provided that the current prudent economic policies are continued, such higher inflation will not threaten macroeconomic objectives and may indeed be viewed as an indication that the transition process is progressing as expected.

1995 World Economic Outlook, IMF, Washington, D.C., 400 p.

IER Working Papers, Ljubljana, Slovenia

Emil Erjavec, Miroslav Rednak, and Jernej Turk, Main Issues of Slovene Agriculture, no. 11, 1994, 16 p.

Stanka Kukar, Hidden Economy and Labor Market in Slovenia, no. 12, 1994, 16 p.

Milan Lapornik and Peter Stanovnik, Industrial and Enterprise Restructuring in Slovenia, no. 13, 1995, 24 p.

IER Annual Report 1994, 1995, 43 p.

Leuven Institute Working Papers, Belgium

George C. Petrakos, Small Enterprise Development and Regional Policy: Comparative Analysis and Implications for Eastern and Central European Countries, no. 39, 1995, 37 p.

George C. Petrakos, The Regional Dimension of Transition in Eastern and Central European Countries: An Assessment, no. 40, 1995, 29 p.

Karoly Fazekas, Types of Micro Regions Dispersion of Unemployment and Local Employment Development in Hungary, no. 41, 1995, 64 p.

Stefan Bojnec, Company Management and Privatization in Slovenia, no. 42, 1995, 38 p.

CERGE-EI Working Papers, Prague

Jacek A. Cukrowski, An Economic Analysis of Numerical Data Processing in the Firm, WP no. 79, February 1995.

Radek Laptovipka, Restructuring of Firms under Transition: The Czech Case, WP no. 80, April 1995.

Jacek A Cukrowski, The Hierarchical Organization of Management in the Firm: Economic Reasons and Efficient Structures, WP no. 81, April 1995.

Radek Laptovipka, Privatization and Restructuring under Transition, WP no. 82, April 1994.

Anton Marcinpin and Dmitri Shemetilo, Performance of the Shares in the Investment Funds Portfolios and Their Strategies, WP no. 83, July 1995.

Companies managed by funds outperform the ones with dispersed ownership, and the market's preference—evident in longer-term trends of share prices—is for funds that behave as strategic investors.

Jan Hanousek and Eugene A. Kroch, The Two Waves of Voucher Privatization in the Czech Republic: A Model of Learning in Sequential Bidding, WP no. 84, June 1995.

Alexis Derviz, Transition Economies: Dynamic Bargaining in New Markets, WP no. 85, July 1995.

Raj M Desai, Financial-Market Reform in the Czech Republic, 1991-1994: The Revival of Repression? WP no. 86, July 1995.

In the former CSFR and in the Czech Republic between 1991 and 1994, some of the institutions that were set up to oversee the industrial-financial reform have been converted into instruments of indirect, selective credit allocation. Government authorities have provided favored enterprises with loans at below-market interest rates, under pressure both of the economically nonviable firms and their large bank creditors struggling with bad debt. Reformers—fearing that bankruptcies of the largest firms will send unemployment figures soaring and thus strengthen the hand of the opposition—have been unwilling to make drastic changes in the economic bureaucracy. Instead, they have designed institutional structures that allocate credit to vital industries, swap bank debt for equity, and generally enable government discretion in corporate finance.

Review of Industry and Industrial Policy in Hungary, 1995, 183 p.

Review of the Labor Market in the Czech Republic, 1995, 143 p.

Riccardo Faini and Richard Portes, European Union Trade with Eastern Europe: Adjustment and Opportunities, Center for Economic Policy Research, London, 1995, 278 p.

Peter Havlik and others, Wachstum in Osteuropa, Weiterer Ruckgang in der GUS, WIIW no. 159, May 1995.

Elena Leontjeva, The Law on Litas Credibility: Was It Really the Event of the Year? The Free Market newsletter of the Lithuanian Free Market Institute, no. 4, June 1995, 12 p.

Klaus E. Meyer, Business Operations of British and German Companies with the Economies in Transition: First Results of a Questionnaire Survey, Discussion Paper Series no. 19, London Business School, July 1995, 78 p.

Top Management Service in Central Government: Introducing a System for the Higher Civil Service in Central and Eastern European Countries, Sigma Papers no. 1, 1995, 29 p.

Jan S. Prybyla, Modernization and Modernity in the Process of Economic Growth and Development, Issues and Studies vol. 31, no. 4, April 1995, 28 p.

Russian Regions Today—Atlas of the Russian Federation, Russian Info and Business Center, Washington, D.C., 1995, 500 p.

The Case for Russia's Pacific Far East: Investing, Trading, and Partnering, Geonomics, Vermont, 1995, 50 p.

A new Geonomics report summarizing the Institute's May Business Development Forum. Featured topics include:

• Outlook for project development in Russia's new frontier.

• Distribution and the retail market in the Russian far east.

• Natural resource exploitation.

• Financing project developments.

• Supporting new businesses.

• Developments on the securities and direct investment front.

The Russian Far East: A Pocket Business Reference Guide, 2nd edition [forthcoming], October 1995, 150 p.

World Economic and Social Survey 1995: Current Trends and Policies in the World Economy, United Nations, New York, 1995, 345 p.

[The Pattern of Transformation and Its Microeconomic Dimension, pp. 95-109] For transition to succeed it has to take root at the microeconomic level. The general expectation was that enterprises, once permitted to do business as they saw fit, freshly motivated by a desire for profit and impelled by competition, would introduce innovations in their product lines, seek new suppliers that would be a better business fit than those prescribed earlier by central planning authorities, shed labor to make production more efficient, and aggressively seek new markets. In short, the formerly planned enterprise would become a "firm." In many cases, however, this has not yet happened.

It is important that privatization policies lead to proper corporate governance structures. Some big loss-making state-owned enterprises are simply "unprivatizable." However, postponing the day of reckoning tends to aggravate the negative effects of the loss-making giants. Restructuring such enterprises, if indeed it is at all possible, requires a closer involvement of the authorities; but in the end, many of them will have to be liquidated.

European Economy, newsletter by the European Commission, Directorate-General for Economic and Financial Affairs. July issue features "Savings and Investment in Transition Countries: Recent Trends, Prospects, and Policy Issues," (Supplement A), issue no. 7, 1995.

The study focuses on the sharp decline of saving and investment ratios in the transition countries of Central and Eastern Europe and the former Soviet Union since 1989. It also looks at the issue of whether transition countries' external financing needs will exert additional pressures on international capital markets in the future. It is argued that, although external capital will continue to play an important role in the transition process, the future recovery of investment rates in these countries is likely to be financed mostly by an increase in domestic saving, particularly corporate saving. This is consistent with the high correlations between national saving and investment rates generally found by the empirical literature, and with the fact that the recent recovery of corporate investment in the most advanced Central European countries is being largely self-financed through an improvement in enterprise profitability.

The Supplement concludes with some policy recommendations:

• Pursue policies conducive to a stable macroeconomic environment and sustainable growth.

•Increase public saving.

•Reform the pay-as-you-go public pension systems while developing complementary private schemes based on the principle of full funding.

•Proceed with the restructuring of the banking systems.

•Develop the capital markets.

Transition countries should think twice before adopting any tax reform aimed at encouraging household saving. As the experience of other countries suggests, while the impact of tax incentives on household saving is at best moderate and of medium-term duration, the fiscal costs can be high.

Review of Central and East European Law, a bimonthly journal dealing with various aspects of law in Central and Eastern Europe published in cooperation with the Institute of East European Law and Russian Studies of Leiden University. Kluwer Academic Publishers Group, P.O. Box 322, 3300 AH Dordrecht, Netherlands; or P.O. Box 358, Accord Station, Hingham, Massachusetts, United States, Leiden Institute: tel. (31)71-277814, fax (31) 71-277732, (Email: jfoerv@ruljur.leidenuniv.nl.)

Russia and Commonwealth Business Law Report, a biweekly newsletter from the former Soviet republics and the Baltics.

The Slovak Economic Sheet, a monthly periodical containing briefs on recent developments in Slovak economic policy.

To order: Center for Economic Development (CPHR), Bajkalská, 827 18 Bratislava, Slovakia, tel. (427) 212-749, fax (427) 2015-487, (Email: eugen@pusr.sanet.sk.)