Table Of ContentINTEGRATING EASTERN EUROPE INTO THE GLOBAL ECONOMY
International Studies in Economics and Econometrics
VOLUME 25
The titles published in this series are listed at the end of this volume.
Integrating
Eastern Europe into
the Global Economy:
Convertibility through
a Payments Union
by
Jozef M. van Brabant
SPRINGER SCIENCE+BUSINESS MEDIA, BV
ISBN 978-94-010-5586-4 ISBN 978-94-011-3578-8 (eBook)
DOI 10.10071978-94-011-3578-8
Printed on acid-frw paper
AII Rights Reserved
(CI 1991 Springer Science+Business Media Don:lreetll
Orlglnally publlstled byKluwer Academic Publishers In 1991
Softcover reprint of the hardcover 1s1 edition 1991
No part of Ihe material protected by Ihls copyright nolic9 may ba reproduced or
utilized in any form or by any means, electronic or mechanicaJ,
including photocopying, recording or by any Infomlalion slorage and
rebieval syslem, wilhout writlen permlssion from Ihe ctlpyrighl owner.
To Miyuki - for her alone
Preface
This book is designed as a modest contribution to the ongoing deliberations
about how to ease the fairly tight constraints on the external payments of many
countries of the eastern part of Europe. In the fIrst instance, this inquiry is
addressed to those that have embarked on wide-ranging systemwide reforms.
External constraints have been markedly hampering the introduction of market
oriented economic mutations, thereby raising the cost of transition far above
levels expected at the outset of the present wave of uniquely restructuring the
countries involved.
I explore here several angles of this discussion. But three stand out. One is
the disintegration of the postwar framework for economic cooperation in that
part of the world. Another is the disarray brought about by incisive economic
transformations in the area. Finally, various national, regional, and international
interest groups are at work there, hoping to mold somehow the drift of the
reform, or at least key components thereof, in their own "image." In the process
it is often forgotten, as Ralf Dahrendorf (1990, p. 41) so pointedly remarked
that "[ a]ll systems mean serfdom, including the . natural' system of a total
. market order' in which no one tries to do anything other than guard certain
rules of the game discovered by a mysterious sect of economic advisers."
It is my fIrm belief that the reforming countries should be able to profIt
from restructuring their intragroup trade in line with prevailing (but only
partially utilized) comparative advantages and foster dynamic comparative
advantages as well. To make such process a coherent part of the drive to open
up these long-protected economies to constructive international competition,
restrictions on economic intercourse among the reforming countries themselves
need to be removed as expeditiously as possible too. This was the motivation
behind an earlier attempt (Brabant 199Oc) to examine the political economy of
the transition in a broader framework, but one set specifIcally against the back
drop of western assistance efforts. This study is a logical sequel thereto, but it
is far narrower in scope and, in some respects, more technical.
The debate on the reconstruction of intragroup facilities, after the demise
of the postwar economic order in the east, heated up considerably in 1991. The
renewed interest in the reforming countries, on the part of regional and inter
national organizations, academics, banks, transnational corporations, and others
created an atmosphere that was conducive to the convening of numerous
meetings at various levels of sophistication on one aspect or another of the
transition. Needless to say that none of them has produced much by way of
clarifying the bulk of the critical down-to-earth daily issues confronting those
managing the reforms. In fact, many have simply resulted in more muddle on
viii Preface
a number of transition issues. Certainly one of these forms the core topic of
this book.
On many an occasion in 1991, I was invited to present my views on union
formation among the reforming countries. In the process, my stance elicited
countless comments and suggestions, some formal but most rather informal,
that in one way or another have shaped my present conviction on the matters
at hand. My debt to critics, friends, detractors, and the phalanx of would-be
specialists is, I hope, carefully interwoven with the arguments defended in this
volume. I say "hope" with circumspection for, as many others in the field, I have
been chasing a rapidly moving target. Writing a book under the circumstances
was not easy. I trust that putting my ideas down in their full context may help
to clarify matters. Although it would be churlish on my part not to acknowledge
with gratitude my undeniable debt to the brainstorming and doubts that all
these contacts have afforded over the past year or so, I hasten to add that no
single individual or institution should be held responsible for any of the opin
ions expressed here.
Finally, although this monograph was written in my "spare" time, while em
ployed by the United Nations, I wish to emphasize most emphatically that the
opinions expressed here are mine and do not necessarily reflect those that may
be held by the United Nations at large or its Secretariat in New York in
particular.
I would be remiss if I did not explicitly single out Miyuki, who has been the
involuntary midwife of yet another step-child, for a special word of thanks and
another promise that long-neglected chores will be mended "soon" again. For
that, and much more, I dedicate this volume solely to her.
Jozef M. van Brabant
Ossining, NY, 15 Apri11991
Table of contents
Abbreviations xiii
List of tables xv
Introduction 1
1. Backdrop to the payments constraint 2
2. Consensual transition policies 4
3. Regional cooperation and economic reform 9
4. Backdrop to the proposal to create a payments union 12
5. Toward convertibility through a payments union 14
6. Organization 17
1. The prevailing socioeconomic situation 21
1. Problems of changing Eastern European societies 22
2. The current socioeconomic situation in Eastern Europe 24
3. The drift of the reform debate 35
4. The nature of the payments problem 37
5. Shocks of mutating trade and payment regimes 41
6. Western assistance to combat liquidity shortage 44
2. The collapse and dissolution of the CMEA 48
1. The CMEA's demise 49
2. CMEA reform discussions 54
3. Salient obstacles to buoyant intragroup interactions 62
4. Reforming the trade and payment regimes 66
5. Balance-of-payments constraints and a payments union 71
3. Economic union in Eastern Europe 74
1. The outlook for economic union at this juncture 75
2. The desirability of economic union 77
3. Theoretical merits of a customs union 81
4. Practical problems and economic union 85
5. Linking a payments facility with an economic union 87
6. Key features of a payments union 92
4. Paths to convertibility 98
1. The global economy at Bretton Woods 99
2. On currency convertibility 101
3. Possible roads to convertibility 103
4. Western Europe's return to convertibility 108
x Contents
3. Possible roads to convertibility 103
4. Western Europe's return to convertibility 108
5. Marketization, transition, and convertibility 110
1. The national trade and payment regimes 110
2. The CMEA trade and payment regimes 113
3. Marketization and convertibility 115
4. Exchange rates 116
6. Toward a payments union for Eastern Europe? 122
5. Technical aspects of a payments union 126
1. Overall conceptualization of the CEPU 126
2. Payments problems and a regional payments unions 130
3. Technical issues of a payments union 134
1. The clearing agent 135
2. Techniques of accounting 135
3. Prior imbalances and loans 137
4. Publicity 138
5. The question of asymmetry 138
6. Quotas and access to credits 140
7. Adjustment rules 141
8. Macroeconomic surveillance 141
9. Interest-rate policies 143
10. Capital cost 143
11. Duration 144
4. A hypothetical capital fund 145
5. A payments union with the Soviet Union? 153
6. Macroeconomic surveillance and the transition 155
1. Macroeconomic responses in a payments union 156
2. Adjustment under traditional and modified planning 159
1. Adjustment in the traditional CPE 159
2. Adjustment in an MPE 162
3. Standard adjustment policies and the PETs 166
4. Fund-type adjustment programs and the PETs 168
5. CEPU adjustment, commercial policy, and diplomacy 172
6. Other issues of managing a payments union 176
7. Downside risks of a CEPU 179
1. Backdrop to the debate 180
2. The rump order of priority 183
3. General arguments against payments unions 185
1. Key aspects of a payments union 185
2. The starting conditions of potential participants 189
3. Directions of desirable progress 190
Contents xi
4. Comments on the CEPU and their merits 192
5. An evalution of the criticisms 195
1. Emotional and political objections 195
2. Immediate full convertibility and global integration 196
3. A CEPU is too small and a CEEU wrong 197
4. Inappropriateness of present trade patterns 199
5. Too expensive, undesired, and too slow 201
8. Enlarging the European economic space 203
1. The basic preoccupations of European integration 204
2. What needs to be bridged? 207
3. On the transition to ME status 210
1. Creating markets with genuine prices 211
2. Fostering competition 213
3. Privatization and capital markets 215
4. Trade and foreign-exchange reforms 216
5. Banking infrastructure and capital markets 218
6. Macroeconomic policy 218
7. Labor market 221
8. The social safety net 221
9. Institutions of the market 223
4. On the sequencing of reforms 223
5. Economic transition and east-west assistance 226
Conclusions 230
Bibliography 237
Index 250
