Issues in socialist economy reform

This paper examines issues involving the design and sequence of economic reform in formerly socialist economies that have made the political decision to move to a private market economy. They also examine the potential role of foreign countries in providing aid, technical assistance, and market access. In economies that are actually or potentially unstable macroeconomically, the first priority is macroeconomic stabilization and measures to harden budget constraints and create an emergency social safety net. At the center of the reform process are price reform, trade liberalization, enterprise restructuring, and privatization. Banking reform, training, and the development of other financial markets must begin immediately, but the ability of the financial system to allocate resources efficiently will remain limited until enterprise and price reform are sufficiently advanced. In systemwide reform, the notice of sequencing should be replaced by that of packaging. A large number of interrelated reforms - including those needed to create an appropriate legal structure and develop the skills needed in a market economy - has to be put in place very early, although the speed of implementation will differ. However rapidly the reforms are initiated, their completion - especially privatization - is bound to take many years.