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The Polish transition programme at mid-1991: Stabilisation under threat

  • Winiecki, Jan
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    Monetary restraint in Poland does not operate in the expected manner under the conditions of predominant state ownership of both banks and industrial enterprises. With effective owners' control being prohibitively costly in the state-owned firms, "nobody's" banks continue their old lending pattern to large state-owned enterprises regardless of the latters' creditworthiness and profitability. "Nobody's" enterprises accustomed to soft budget constraint are not deterred by high interest rate levels. Under these circumstances macroeconomic restraint does not select the best enterprises but in fact does the reverse: Least efficient large enterprises survive, while smaller but more efficient ones starved of credits are threatened with bankruptcy. Inability to cope effectively with the legacy of the Soviet-type economy is compounded by autonomous policy errors. Apart from too nervous reactions to monthly changes in the inflation rate, the major mistake has been the timing and scale of tightening monetary policy. The sharp increases in the interest rate were effected almost weeks before the major demand reduction for Polish products resulting from the expected changes in trade with the Soviet Union. As a result the economy received a strong recessionary blow from monetary policy that preceded another major blow from the fall in foreign demand. Inevitably the economy went into a recession that did not end by June 1991 while inflation continued.

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    Paper provided by Kiel Institute for the World Economy (IfW) in its series Kiel Discussion Papers with number 174.

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    Date of creation: 1991
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    Handle: RePEc:zbw:ifwkdp:174
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    1. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    2. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
    3. Furubotn, Eirik G & Pejovich, Svetozar, 1972. "Property Rights and Economic Theory: A Survey of Recent Literature," Journal of Economic Literature, American Economic Association, vol. 10(4), pages 1137-62, December.
    4. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
    5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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