POST-COMMUNIST TRANSITION IN A COMPARATIVE PERSPECTIVE Leszek Balcerowicz Public Expenditure...

POST-COMMUNIST TRANSITION IN A COMPARATIVE PERSPECTIVE

Leszek Balcerowicz

Public Expenditure Management Challenges in ECA/PSRP Countries

Warsaw, February 7th, 2005

2

I. Analitical scheme.

External developments

(shocks)

Outcomes (performance)The institutional

system

Other policies

Reforms

Policies

Initial conditions

Socio-political development

s

(1)

(2)

(3) (4)

(5)

(7)

(6)

(10)

(8)

(9)

3

II. Initial conditions in transition countries.

1.Nature of the communist institutional system.

A. The controls exerted by the communist state were exceptionally extensive:

• private entrepreneurship was banned, which, together with the initial nationalizations, resulted in the monopoly of the state sector,

• state-owned enterprises were subject to central planning, which included output commands, rationing of inputs and foreign exchange, price controls and directed foreign trade,

• the range of financial assets available to enterprises and individuals was extremely limited, as a market-type financial system could not have coexisted with central planning,

• the setting up and functioning of non-economic organizations were also heavily controlled; that is, civil society was suppressed and political opposition was banned,

• foreign travel was restricted,

• media were subject to formal censorship, direct party controls and personnel policy – mass media were largely an instrument of communist state propaganda.

4

B. These extensive controls co-existed with an overgrown communist welfare state, which included:

• relatively large transfers in kind (education, health),

• social protection delivered via state-owned enterprises (SOEs),

• artificially low prices for foodstuffs, energy and housing rents,

• social safety net, typical of some market economies, did not exist as the need for it was sharply limited through the curtailment of individuals’ opportunities and risks.

C. The communist state was peculiar with respect to the provision of public goods.

• Defense expenditures were excessive and shaped by the imperial aspiration of the ruling elites.

• Law and order were kept at reasonable level, however, at the cost of practices typical of a police state.

• The legal framework and the juridical system criminalized private economic activity and independent political activity, and were ill suited to the market economy, rule of law and free society.

5

In various other aspects the communist countries differed from one another. However, when taken together and compared to market

economies, especially the developing ones, they showed:

65.8 64.5 64.5

58.4 58.4

53.5 52.749.6 48.8

42.740.7

38.7 38.234.9

32.930.3

28.224.7

47.846.2

18.9

0

10

20

30

40

50

60

70

Russia

'92

Slov

akia

Czech

Rep

.

Ukrai

ne '9

2

Bulga

ria

Hun

gary

'90

Uzbek

ista

n '91

Tajik

ista

n '91

Pola

nd

Roman

ia

Azer

baija

n '91

Lith

uania

'91

Turk

men

ista

n '91

Eston

ia '9

2

Kazak

hsta

n '91

Kyrgy

z Rep

. '91

Latv

ia '9

2

Moldo

va '9

1

Euroz

one

Gre

ece

Korea

Source: EBRD Transition Reports, OECD Economic Outlook 73.

General government expenditure, 1989 (% of GDP).

• much higher ratio of general government expenditure to GDP,

6

87

91 91 91 91

94 9596

98 98 98 9899 100

114*

105*105*

111*111*109*108*

70

80

90

100

110

120

Kazakh

stan

Lithu

ania

Tajikis

tan

RomaniaTur

kmen

istan

Latv

iaHung

ary

Czech

Rep

.Bulg

aria

Slovakia

Poland

Slovenia

Russia

Estonia

Kyrgy

z Rep

.Gre

ece

Thaila

nd

ChileEur

ozone

Korea

Mex

ico

Primary school enrollment, the ratio of total enrollment to the population of age that officially corresponds to the level of primary education*, 1990.

Source: World Bank, World Development Indicators 2003.

The communist countries achieved high enrollment ratios.

* The value of this indicator exceeds 100% when the number of primary school pupils is higher than the total population of age that officially corresponds to the level of primary education.

2. Human capital.

7

-7.7 -7.1 -7.1

12 13.616.8 18

25.7 25.7

-10

0

10

20

30

Hungar

y

Czech

Rep

.

Slovakia

Slovenia

Poland

Romania

Bulgar

ia

CIS co

untrie

s

Baltic

state

s

The communist countries differed a lot with respect to the macroeconomic imbalances.

Source: IMF World Economic Outlook, October 2000, EBRD Transition Reports.

Inflation, 1989 (% of annual average).

“Repressed” inflation* in 1987-1990.

* difference between increase in real wages and real GDP from 1987 to 1990

251.1

107.0

17.0 6.4 6.1 4.7 4.2 4.2 4.0 3.0 2.3 2.3 2.2 2.1 2.1 2.0 1.1 0.720.0 17.0 13.7 5.7 5.4 3.8

0

50

100

150

200

250

3. Macroeconomic imbalances.

8

A few countries, i.e. Hungary, Poland, and Bulgaria inherited a huge debt burden from the communist times.

Foreign debt in the pre-transition year (1989-1991), for non-transition countries 1989 (% of GDP).

Source: Orlowski L., Transition and Growth in Post-Communist Countries, 2001, World Bank, World Development Indicators, 2003.

64.0 63.4

50.6

12.2 12.18.6 6.8

2.90.2

65.5

32.5

14.9

000000000

42.1

0

15

30

45

60

75

Hungar

y

Poland

Bulgar

ia

Czech

Rep

.

Russia

Tajik

istan

Slovak

ia

Roman

ia

Lithu

ania

Estonia

Kazak

hsta

n

Kyrgy

zsta

n

Latv

ia

Mold

ova

Turk

men

istan

Ukrain

e

Uzbek

istan

Azerb

aijan

Chile

Mex

ico

Thaila

nd

Korea

4. Foreign debt.

9

Source: Maddison A., The World Economy A Millennial Perspective, OECD, Paris 2001.

Countries under communism lost a lot of distance to Western European economies.

Per-capita GDP (in 1990 international dollars) in 1950 and 1990: Poland vs. Spain, Hungary vs. Austria.

12210

2447

5115

23972000

6000

10000

14000

1950 1990Poland Spain

2480

6471

16881

3706

2000

6000

10000

14000

18000

1950 1990

Hungary Austria

5. Some performance variables.

10

4.4 8.1 9.6 12.7 14.7 14.8 15.6 16.3 19.425.1

4.69.7

28.7

44.2

66.0

0

10

20

30

40

50

60

70

Uzbek

istan

'92

Tajikis

tan '9

2

Poland

'90

Latvia

'92

Mol

dova

'92

Bulgar

ia '90

Estoni

a '91

Russia

'91

Slovak

ia '91

Hunga

ry '9

0

Thaila

nd

Mex

ico '9

1Chil

e

Korea

Greece

5.3 5.5 5.89.1 10.2

12.714.8 15.9 16.0 17.6 18.7 20.7

23.7

39.0

48.7

0

10

20

30

40

50

The communist countries trailed with respect to productivity.


Agriculture value added per worker, 1989 (Eurozone=100)

Industry value added per worker, 1989 (Eurozone=100)

11

115120

41 4151

6271

7783 84 84

89 92 94102 105 108

114

135

20

60

100

140

Real GDP, 2003 (1989=100).

Source: EBRD Transition Report 2004.

III. Some dozen years following the collapse of communism, countries in the former Soviet bloc achieved

enormously diverse outcomes in terms of:

• economic growth,

12

Inflation, 2004 (annual average, %).

Source: IMF.

• combating inflation,

11.811.510.710.3

8.37.7

7.2 6.9 6.86.3

5.8 5.85.3 5.0

4.53.7 3.7

3.2 3.0 3.0

0.6

4.43.8

3.3

1.1

0

2

4

6

8

10

12

14

Uzbek

istan

Romania

Mold

ova

Russia

Ukrain

e

Slovakia

Tajikis

tan

Hungar

y

Kazakh

stan

Bulgar

ia

Latvi

a

Georg

ia

Azerb

aijan

Turkm

enist

an

Kyrgy

z Rep

.

Poland

Slovenia

Czech

Rep

.

Estonia

Armen

ia

Lithu

ania

Mex

icoKor

ea

Greec

eChile

13

• attracting Foreign Direct Investment,


Cumulative FDI inflows, 1989-2003 (b US$).

Cumulative per-capita FDI inflows, 1989-2003, (US$).

34 35 85 128 210 269 272 277 486795 873 1067

1355 1454 16471894

2402

3364 3710

6041017

2472

7651003

0

1 000

2 000

3 000

4 000

Tajik

istan

Uzbek

istan

Kyrgy

z Rep

.

Ukrai

ne

Mol

dova

Turk

men

istan

Georg

ia

Armen

ia

Roman

ia

Bulgaria

Azerb

aija

n

Lith

uania

Pola

nd

Latv

ia

Slov

enia

Slov

akia

Eston

ia

Hunga

ry

Czech

Rep

.

Thai

land

*

Korea

*

Mex

ico *

Greec

e *

Chile

*

0.2 0.4 0.9 0.9 0.9 1.3 1.6 3.2 3.3 3.4 3.7 6.2 6.2 7.2 10.2 10.5

33.638.2

51.9

10.7

37.6

98.2

36.736.2

0

20

40

60

80

100

Tajik

istan

Kyrgy

z Rep

.

Armen

ia

Mol

dova

Uzbek

istan

Georg

ia

Turk

men

istan

Eston

ia

Slov

enia

Latv

ia

Lith

uania

Ukrai

ne

Bulgaria

Azerb

aija

n

Slov

akia

Roman

ia

Hunga

ry

Czech

Rep

.

Pola

nd

Greec

e *

Korea

*

Thai

land

*

Chile

*

Mex

ico *

* Data for 1989-2002* Data for 1989-2002

14

98

41

78

69

55

27

2118 16 14

18 16 17 15 1410

3734

18

10 8 8

90

76

70

52

19 18 16 1714

10 8 8 8 84

24 24

105 5 4

55

0

10

20

30

40

50

60

70

80

90

100

1990 2002

Infant mortality per 1000 life births, 1990 and 2002.


• improving the health indicators,

15

Life expectancy at birth (1990, 2002).

Source: World Bank, World Development Indicators 2003, EBRD Transition Reports.

7271

70

71

70

72

70 69 70 7069 69 69

68

66

68 69

7170

74

7776

7574

73 7372 72

7170 70

6867 67

6665 65

62

69

74 74

76

78 78

60

65

70

75

80

1990 2002

16

23 2321

2324 24

22

28

19

23

30

23

2728

24

2826

21

2928

26 26

4140

39 38 38

3331 31

27

35

31

34

49 49 50 5052

4547

4645

39

15

25

35

45

55

1987-1990 2000-2001

Gini Coefficient of Income Per Capita, 1987-90 and 2000-01 (in %).

Source: World Bank, Transition: The First Ten Years, 2002; World Development Report 2005;

UNICEF TransMONEE, 2003.

• income distribution.

17

• ecological efficiency.

GDP unit of energy use, 1989 and 2001 (PPP $ per kg of oil equivalent).


0.7

1.7 1.6 1.5

0.9 0.91.3

2.01.7

2.52.7

1.6

2.5 2.6 2.5 2.5

4.3

3.6

4.3

3.63.9

4.5 4.6 4.8

5.3

1.3 1.4 1.6 1.7 1.7 1.7

2.52.8

3.1 3.2 3.2 3.43.7

3.9 4.1

4.7 4.7 4.8

5.8

0.7

4.5

3.5

5.3

5.8 5.6

0

1

2

3

4

5

6

7

Uzbek

ista

n '92

Turk

men

istan

'92

Ukraine

'92

Russia '9

2

Tajik

istan

'92

Kazak

hsta

n '92

Moldo

va '9

2

Bulgar

ia

Eston

ia '9

2

Slov

akia

Czech

Rep

. '90

Kyrgy

z Rep

. '92

Roman

ia

Lith

uania '9

2

Poland

'90

Latvia '9

2

Slov

enia '9

2

Hungar

y

Croat

ia '9

2

Korea

Mex

ico

Eurozo

neChile

Thaila

nd

Greec

e

1989 2001

18

CO2 emission, 1989 and 2000 (kg per 1995 US$ of GDP).


3.73.5

1.7

2.4 2.4

1.4

2.6

1.41.2

1.4 1.4

1.0

0.6 0.60.8 0.8

0.70.5

2.11.9

0.40.5 0.5

1.4

1.7

0.6

0.40.6 0.7

1.31.31.5

0.9 0.9 0.9 0.90.7 0.7

0.5 0.5 0.4

2.0

3.5

0.50.5

0.60.60.4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Uzbek

ista

n '92

Turk

men

ista

n '92

Kazak

hsta

n '92

Ukrai

ne '9

2

Russia

'92

Eston

ia '9

2

Moldo

va '9

2

Bulga

ria

Tajik

ista

n '92

Pola

nd '9

0

Czech

Rep

. '92

Roman

ia

Kyrgy

z Rep

. '92

Slov

akia

'92

Hun

gary

Slov

enia '9

2

Lith

uania

'92

Latv

ia '9

2

Korea

Thai

land

Gre

ece

Mex

ico

Chile

Euroz

one

1989 2000

19

IV. Explaining the differences in outcomes.

Main factors explaining the differences in the growth rates:

• initial conditions,

• external developments (e.g. the Russian crisis) including:

- access to markets,

• location,

• extent of market reforms and the nature of macroeconomic policies.

20

GDP level (1989=100) and average value of EBRD liberalization index (1991 – 2003).

Countries which introduced reforms faster, achieved better economic results.

Armenia

Azerbaijan

Bulgaria

Croatia

Czech Rep.

Estonia

Georgia

Hungary

KazakhstanKyrgyz Rep.

LatviaLithuania

Moldova

Poland

Ukraine

RomaniaRussia

Slovakia

Slovenia

TajikistanUzbekistan

Belarus

Turkmenistan

1

1.5

2

2.5

3

3.5

40 50 60 70 80 90 100 110 120 130

Real GDP in 2003 (1989=100)

Ave

rage

valu

e of

EB

RD

lib

eraliza

tion

in

dex

(1991-2

003)

Countries excluded from the regression due to the questionable quality of statistical data.

The index level is the level of a composite index calculated as an arithmetic average of the 8 EBRD liberalization indices published in the EBRD Transition Reports (index of price liberalization, index of forex and trade liberalization, index of small-scale privatization, index of large-scale privatization, index of enterprise reform, index of competition policy, index of banking sector reform, index of reform of non-banking financial institutions).

EBRD Index: value 1 (minimum) – very little (or no) progress since the fall of communism; value 4.3 – standards and performance typical of advanced industrial economies. Source: EBRD Transition Reports.

21

GINI coefficient (2000-2001) and average value of EBRD liberalization index (1991 – 2003).

Source: World Development Report 2005; EBRD Transition Reports; UNICEF TransMONEE 2003.

Countries which liberalized faster, experienced smaller increases in earnings inequality.

Ukraine

Turkmenistan

Tajikistan

Slovenia

RussiaRomania

Poland

Moldova

LithuaniaLatvia Kyrgyz Rep.

Kazakhstan

Hungary

Georgia

EstoniaCzech Rep.

Croatia

Bulgaria

1

1.5

2

2.5

3

3.5

25 30 35 40 45 50 55

GINI coefficient of income per capita (2000-2001)

Ave

rage

valu

e of

EB

RD

lib

eraliza

tion

in

dex

(1991-2

003)

22

These findings are strongly supported by substantial empirical literature reviewing experiences of transition

countries.

Berg, Borensztein, Sahay, Zettelmeyer, (1999)

‘The role of initial conditions in explaining cross-sectional variation in growth is surprisingly minor; in particular, the difference in performance between the CEE and the Baltics, Russia, and other countries of the former Soviet Union is mostly explained by differences in structural reforms (even at the beginning of transition), rather than initial conditions.’

Fischer, Sahay, (2000)

‘The experience accumulated in the past decade, whether viewed informally or with the help of data, charts, and regressions, provides support for the view that the most successful transition economies are those that have both stabilised and undertaken comprehensive reforms, and that more and faster reform is better than less and slower reform.’

Havrylyshyn, van Rooden, (2000)

‘(…) progress in achieving macroeconomic stabilization and implementing broad-based economic reforms remain the key determinants of growth in transition countries.’

Havrylyshyn, Oleh, Wolf, Thomas [2001]

‘Unfavourable initial conditions should not become an excuse for inaction.(...) First, their negative effects decline over time. Second, the empirical studies clearly suggest that these effects can be compensated by modestly faster progress on reforms. Third, perhaps the main fact is indirect; that is, unfavourable initial conditions result in less political will and capacity for reform, and less reform means less growth.’

23

Why better economic results go hand in hand with better non-economic outcomes (health, environment, etc.)?

Some crucial factors conducive to longer-run economic growth are also conducive to ecological improvement and to favourable health development, e.g.

• economic reforms

less waste

less environmental degradation and less damage to health

healthier foodstuffs become more available and relatively cheaper

• privatization (separation of companies from the state)

ecological regulations are more strictly observed

• stronger rule of law

24

1. For the last 5 years some former USSR countries have been developing faster than Central European countries.

Real GDP in 2003 (1998=100).


112.1115.1 116.9

119.2121.2

116.9

122.8126.0

132.8

138.2

153.5 154.7

164.4

141.8

100

120

140

160

180

Czech

Rep

.

Poland

Slovak

ia

Sloven

ia

Hunga

ry

aver

age

Kyrgy

z Rep

.

Georg

ia

Ukraine

Russia

n Fed

.

Kazak

hstan

Armen

ia

Azerb

aijan

aver

age

V. Some other observations on economic transition.

25

• During last few years Armenia achieved good economic results.

Real GDP in 2003 (1996=100).

103.3110.8 114.5

121.4

133.0

150.2

171.1

100

120

140

160

180

1997 1998 1999 2000 2001 2002 2003

-4

0

4

8

12

16

20

1996 1997 1998 1999 2000 2001 2002 2003

Consumer price index (in %).

28.9

8.96.5

16.620.8

25.0

-9.7-10

-5

0

5

10

15

20

25

30

1997 1998 1999 2000 2001 2002 2003

Real change in exports of good and services (in %).


Armenia – a case study.

26

• Armenia is an example of a post-communist country with a limited state.

Average general government expenditures (as % of GDP).

26.1 25.5 25.6

30.1

25.9

20.819.5

20.6

15

20

25

30

35

1996 1997 1998 1999 2000 2001 2002 2003

Tax revenues (as % GDP).

12.9

16.316.9

19.3

17.717.1

14.6 14.3

10

12

14

16

18

20

1996 1997 1998 1999 2000 2001 2002 2003

-8.5

-5.8

-4.9

-7.2-6.3

-3.8

-0.6-1.2

-10

-8

-6

-4

-2

0

1996 1997 1998 1999 2000 2001 2002 2003

Average general government balance (as % GDP).

Source: EBRD Transition Report 2004, IMF Country Reports.

27

2.50

2.75

3.00

3.25

3.50

3.75

4.00

1997 1998 1999 2000 2001 2002 2003 2004

20

40

60

80

100

120

Economic Freedom Index (left scale) Rank by Economic Freedom Index (right scale)

• Reforms in Armenia resulted in an increase in the extent of economic freedom.

Economic Freedom Index*

(The lower the value of the index and rank, the wider the extent of economic freedom).

* The index level is based on a composite index calculated as an arithmetic average of the 10 subindices concerning: (1) Trade, (2) Fiscal Burden, (3) Government Intervention, (4) Monetary Policy, (5) Foreign Investment, (6) Banking Finance, (7) Wages/Prices, (8) Property Rights, (9) Regulation, (10) Informal Market.

The ranking included about 150 countries.

Source: Heritage Foundation.

28

2. Price liberalization.

2.7

3.7 3.7

4.0 4.0 4.0 4.0 4.0

4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3

2.5

3

3.5

4

4.5

Turkm

enist

an

Mold

ova

Tajikis

tan

Azerb

aijan

Kazak

hsta

n

Russia

Slove

nia

Ukrain

e

Armen

ia

Bulgar

ia

Czech

Rep

.

Estonia

Geo

rgia

Hunga

ry

Kyrgiz

Rep

.

Latvi

a

Lithu

ania

Poland

Roman

ia

Slova

kia

EBRD Index of price liberalization*, 2004.


EBRD Index: value 1 (minimum) – very little (or no) progress since the fall of communism; value 4.3 – standards and performance typical of advanced industrial economies.

29

3. Strictly limited state with limited social transfers and simple tax system.

65.8 64.5 64.5

58.453.5 52.7

49.6 48.8

42.740.7 38.7 38.2

34.932.9

30.3

46.2

18.9

38.4 39.935.4

30.2

47.8

58.4

28.224.7

48.2 46.8

25.3

35.540.9

44.1

37.4

47.4

16.3

44.8

32.330.0

31.5

26.3

36.0

24.027.1

10

20

30

40

50

60

70

1989 2003

Source: EBRD Transition Reports, OECD Economic Outlook 73.

General government expenditure in 1989 and 2003 (% of GDP).

Models of fiscal transition varied substantially by country ranging from the Irish model to the collapse-of-state model.

30

4. Fast privatization.

25

50 50

6065 65 65 65

70 70 7075 75 75 75 75

80 80 80 80

0

10

20

30

40

50

60

70

80

90

Turkm

enista

n

Mold

ova

Tajikist

an

Azerb

aijan

Geo

rgia

Kazakh

stan

Slove

nia

Ukrain

e

Latvia

Romani

a

Russia

Armeni

a

Bulga

ria

Kyrgiz

Rep.

Lithuan

ia

Polan

d

Czech

Rep.

Estonia

Hungary

Slova

kia

Private sector share in GDP in 2004 (in %).


31

5. Banking sector open to foreign investors.

1.0

2.0 2.0

2.3 2.3 2.3 2.3

2.7 2.7

3.0 3.0 3.0

3.3 3.3

3.7 3.7 3.7 3.7

4.0 4.0

0

1

2

3

4

5

Turkm

enist

an

Russia

Tajikis

tan

Armen

ia

Azerb

aijan

Kyrgiz

Rep

.

Ukrain

e

Georg

ia

Mold

ova

Kazak

hsta

n

Lithu

ania

Roman

ia

Poland

Sloven

ia

Bulgar

ia

Czech

Rep

.

Latvi

a

Slovak

ia

Estonia

Hunga

ry

EBRD Index of banking sector reform, 2004.


EBRD Index: value 1 (minimum) – very little (or no) progress since the fall of communism; value 4.3 – standards and performance typical of advanced industrial economies.

32

Financial sector in the transition economies developed at varied pace.

In the majority of these countries this sector is bank-dominated.

Domestic credit to private sector and market capitalization of listed companies, 2002 (% of GDP).


21

52 5252

74

36382320

36

81598115510

67 103

68 103116

29

39333518

4129

291814198 18

0

20

40

60

80

100

120

140

160

Roman

ia

Bulgaria

Kazak

hsta

n '01

Lith

uania

Ukraine

Latvia

Poland

Slovak

ia

Russia

Hungar

y

Czech

Rep

.

Sloven

ia

Eston

ia

Greec

e

Thailand

Chile

Euroz

one

Korea

Stock market capitalization Domestic credit to private sector

33

The differences in these developments were due to the less different initial conditions and more due to

the difference in the quality of general (horizontal) and sectoral policies.

GENERAL (HORIZONTAL) POLICIES:• FISCAL AND EXCHANGE RATE POLICIES;• ENFORCING THE RULE OF LAW;• LIBERALISATION.

FINANCIAL SECTOR

ENTERPRISE SECTOR

INITIAL CONDITION

S

• PRIVATISATION;• PRUDENTIAL REGULATION AND SUPERVISION;• PROTECTION OF CREDITORS’ AND MINORITY SHAREHOLDERS’ RIGHTS;• RESTRUCTURING OF BAD DEBT.

• PRIVATISATION;• SOFT OR HARD BUDGET CONSTRAINTS ON ENTERPRISES.

34

Such crises did not occur in the countries with the lowest number of capital transactions controls.

Index of capital transactions controls*, 1996.

It is too simplistic to assume that financial crises in some transition economies were caused by the liberalization of the capital flows.

Source: IMF, Exchange Arrangements and Exchange Restrictions, 1997, 2003.

10 10

9 9 9

8 8 8 8 8 8

7

5 5

4

2

0

2

4

6

8

10

12

Mold

ova

Kazak

hsta

n

Uzbek

istan

Ukrain

e

Hunga

ry

Tajikis

tan

Sloven

ia

Slovak

ia

Russia

Roman

ia

Poland

Czech

Rep

.

Lithu

ania

Bulgar

ia

Kyrgy

z Rep

.

Latv

ia

* Value of index is equal to the number of areas of capital transactions controls covering 10 distinguished areas: (1) capital market securities, (2) money market instruments, (3) collective investment securities, (4) derivatives and other instruments, (5) commercial credit, (6) financial credit, (7) guaranties, sureties, and financial backup facilities, (8) direct investment, (9) liquidation of direct investment, (10) real estate transactions..

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6. More democratic countries liberalized their economies faster and to a larger extent. Non-democratic regimes have stuck to non-

market economic model.

Average value of the EBRD liberalization index and average rating of political and civil liberties (1991-2004).

Source: Freedom House, EBRD Transition Reports.

* The index level is the level of a composite index calculated as an arithmetic average of the 8 EBRD liberalisation indices published in the EBRD Transition Reports.

Czech Rep.Hungary

Slovenia

Poland

Lithuania

Estonia

Latvia

Slovakia

Bulgaria

Romania

Ukraine

Croatia

Moldova

RussiaKyrgyz Republic

Armenia Georgia AzerbaijanTajikistan

Belarus

Kazakhstan

Uzbekistan

Turkmenistan

1.0

1.5

2.0

2.5

3.0

3.5

1 2 3 4 5 6 7 8

Average rating of political and civil liberties (1990-2004)

Ave

rage

val

ue o

f EB

RD li

bera

lizat

ion

inde

x (1

991-

2003

)

Competitv e democracies Concentrated political regimes War-torn regimes Noncompetitv e political regimes

Competitive democracies

Non-competitive political regimes

POST-COMMUNIST TRANSITION IN A COMPARATIVE PERSPECTIVE Leszek Balcerowicz Public Expenditure...

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