Table Of ContentHYPERINFLATION AND STABILIZATION IN POSTSOCIALIST ECONOMIES
International Studies in Economics and Econometrics
VOLUME 26
The titles published in this series are listed at the end of this volume.
Hyperinflation and
Stabilization in
Postsocialist
Economies
w.
Grzegorz Kolodko
Danuta Gotz-Kozierkiewicz
Elzbieta Skrzeszewska-Paczek
.,
~
SPRINGER SCIENCE+BUSINESS MEDIA, LLC
Library of Congress Cataloging-in-Publlcation Data
Kolodko, Grzegorz W.
Hyperinflation and stabilization in postsocialist economies /
Grzegorz W. Kolodko, Danuta Gotz-Kozierkiewicz, Elzbieta
Skrzeszewska-Paczek.
p. cm. - (International studies in economics and
econometrics : v. 26)
Includes bibliographical references.
ISBN 978-94-010-5734-9 ISBN 978-94-011-3894-9 (eBook)
DOI 10.1007/978-94-011-3894-9
1. Inflation (Finance)-Case studies. 2. Economic stabilization
-Case studies. 3. Monetary policy-Case studies. 1. Gotz
-Kozierkiewicz, Danuta. II. Skrzeszewska-Paczek, Elzbieta.
III. Title. IV. Series.
HG229.KS89 1992
332.4' 1 '0947-dc20 91-32047
CIP
CoPyrilht © 1992 by Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers, New York in 1992
AII rights reserved. No part of this publication may be reproduced, stored in a retrieval
system or transmitted in any form or by any means, mechanical, photo-copying, recording,
or otherwise, without the prior written permission of the publisher,
Springer Science+Business Media, LLC.
Printed an acid-free paper.
D. T.P. by Maciej Szewczuk, Po/and.
Contents
List of figures xi
List of tables xii
Hyperinflation and stabilization in post socialist economies
(Summary) xiii
Introduction 1
Chapter 1
Stabilization programs· assumptions, background, implementation 5
1. Sources and nature of inflation and adjustment strategy options 5
2. Objectives and assumptions of the IMF adjustment programs 9
3. Orthodox and heterodox programs 13
3.1. Orthodox programs 13
3.2. Heterodox programs 17
Chapter 1
Postsocialist economy and stabilization policy 21
1. Special stabilization aspects 21
1.1. Specificity of inflation in the socialist economy 21
1.2. Internal versus external equilibrium 23
1.3. Internal convertibility 25
2. Postsocialist economy and the IMF adjustment programs 31
2.1. Structural barriers 31
2.2. Stabilization and economic growth 32
2.3. Conditions inherent in the tranformation period 33
Chapter 3
Stabilization in Yugoslavia 40
1. Sources of hyperinflation in Yugoslavia 41
1.1. Background and development of inflationary processes till 1982 41
1.2. From high inflation to hyperinflation 44
1.3. The "shock"-and-adjustment mechanism 48
1.4. Loss-bearing enterprises 49
1.5. Adjustment-oriented monetary policy 51
1.6. Budget deficit 51
2. Stabilization program in 1990 52
2.1. Economic situation at the departure point 52
2.2. Program assumptions 54
2.2.1. State budget 54
2.2.2. Monetary policy 5S
2.2.3. Prices S6
viii
2.2.4. Wages 56
2.2.5. Exchange rate 57
2.2.6. Social policy 58
3. Implementation of the program 58
3.1. The first stage 58
3.2. The second stage 61
4. Evaluation attempt 67
Chapter 4
Polish hyperinflation and stabilization 1989-1991 70
1. Sources of inflation in Poland 71
1.1. Inflationary processes in the 80ties 71
1.2. Failed stabilization attempts 71
1.3. The shortageflation syndrome 73
1.4. Induced hyperinflation 76
2. Economic disequilibrium 78
3. The shock of January 1990 79
3.1. New environment 79
3.2. Aims of the stabilization program 80
3.2.1. State budget 80
3.2.2. Prices 81
3.2.3. Monetary policy 82
3.2.4. Wage restrictions 83
3.2.5. Exchange rate 83
3.3. Social dimension of the stabilization 84
4. Implementation of the program 85
4.1. Budget 85
4.2. Prices 90
4.3. Interest rate 92
4.4. Wages 98
4.5. Exchange rate 102
5. Evaluation attempt 104
6. Elements of the "second gear" of the stabilization 110
Chapter 5
Stabilization in Viet Nam 114
1. Background and development of inflation in the 80ties 114
2. Stabilization program 116
2.1. Budgetary policy 119
2.2. Monetary policy 123
2.3. The gold and exchange rate policy 132
2.3.1. Policy with respect to gold 132
2.3.2. Exchange rate policy 134
2.4. Price and wage policy 138
2.4.1. Price policy 138
ix
2.4.2. Wage policy 138
3. Program results in the real sphere in 1989 and in 1990 140
4. Evaluation of the program 142
Chapter 6
StabUization, transformation and growth. Comparative analysis 147
1. Stabilization versus systemic transformation 147
2. Stabilization background and effects -similarities and differences 149
3. Orthodoxy or heterodoxy? 153
4. Stabilization and the real sphere 154
Annexe
StabUization in Israel 157
1. Inflationary processes in Israel before 1985 157
2. Assumptions of the stabilization program 158
3. Initial results of the program 160
4. Evaluation of the first stage of the program 164
5. Sources of economic recession 170
6. Causes of the limited scale of inflation suppression 171
7. The costs of stabilization "anchored" on exchange rate 172
8. Attempt at program evaluation 175
References 179
List of figures
Chapter 3. Stabilization in Yugoslavia
Figure 1 Inflation rate (CPI) 40
Figure 2 Trade balance and current account balance in 1982-1989 45
Figure 3 Domestic product, investments and real wages in 1983-1988 46
Figure 4 Foreign debt in convertible currencies in 1982-1989 47
Figure 5 Debt service in 1982-1989 47
Figure 6 Monthly retail price indices in 1990 59
Chapter 4. Polish hyperinflation and stabilization 1989-1991
Figure 7 Inflation, economic growth and real wages in 1981-1990 72
Figure 8 Shortageflation syndrome 75
Figure 9 State budget deficit (in percent of expenditure) 86
Figure 10 A. Industrial production 1989-1991 (private sector included) 89
B. Unemployment and vacancies 89
Figure 11 Unemployment in Poland 90
Figure 12 Price and wage inflation 91
Figure 13 Price and wage inflation (August 1989 = 1(0) 91
Figure 14 Monthly nominal interest rates 93
Figure 15 Real interest rate by average and point-to-point indices 94
Figure 16 Real wages and money balances of households
(July 1989 = 1(0) 99
Figure 17 Official and parallel exchange rate (current prices) 103
Figure 18 Official and parallel exchange rate (July 1989 prices) 103
Figure 19 Hyperinflation and recession (July 1989 = 1(0) 105
Figure 20 Recession in Poland in 1990 (rates of growth) 107
Figure 21 Share of private sector in Poland (1989-1990) 107
Figure 22 Shift from shortageflation to stagflation 109
Figure23 Inflation rate (CPI) in 1981-1990 117
Chapter 5. Stabilization in Viet Nam
Figure 24 Monthly inflation rates in 1988-1990 118
Figure 25 Budget structure in 1984-1989 120
Figure 26 Structure of budget expenditure in 1984-1989 121
Figure 27 Financing of budget deficit in 1984-1989 122
Figure 28 Dynamics of households' deposits 126
Figure 29 Structure of households' bank deposits 126
Figure 30 US dollar exchange rate and gold prices 133
Annexe Stabilization in Israel
Figure 31 Inflation rate in 1976-1990 (December to December) 157
Figure 32 Real wages in 1985-1990 (1984 = 1(0) 162
Figure 33 Employment and unemployment in 1985-1990 163
Figure 34 Industrial production in 1985-1990 (1985 = 1(0) 164
Figure 35 Foreign trade in 1985-1990 165
Figure 36 Public sector deficit (financed from domestic sources) 167
Figure 37 Foreign debt to GNP ratio 167
List of tables
Chapter 3. Stabilization in Yugoslavia
Table 1 Average inflation rate (CPI) 41
Table 2 Retail price growth in 1981-1989 (0/0) 41
Table 3 Selected economic indicators for 1972-1982 42
Table 4 Selected data on the GDP and imports structure
(at constant prices) 43
Table 5 State budget balance in 1979-1987 52
Table 6 Current account balance in 1989 and 1990
(in million of US dol.) 65
Chapter 4. Polish hyperinflation and stabilization 1989-1991
Table 7 Price structure in Poland in 1989 81
Table 8 Polish stabilization program: goals and results 87
Table 9 Nominal and real interest rates in January -December 1990 96
Table 10 Normative and actual rates of wage rise in five basic
sectors of national economy in 1990 100
Table 11 Normative and actual wages in five basic sectors
of national economy in 1990
(in thousand of zlotys monthly per employee) 100
Cbllpter S. Stllbilizlltion in Viet Nllm
Table 12 Inflation rate in Viet Nam in 1957-1989 (0/0) 117
Table 13 Monthly growth of retail prices of consumer goods
and services (%) 118
Table 14 State budget revenue and expenditure in 1984-1989
(in million of dongs) 120
Table 15 Interest rates on households' bank deposits 124
Table 16 Households' savings deposits 125
Table 17 Value increment of a three-months time deposit of D 100
after one year (from March 16th 1989 till March 15th 1990) 129
Table 18 Interest rates on loans granted to enterprises 130
Table 19 US dollar exchange rate and gold prices 133
Annexe. Stabilization in Israel
Table 20 Basic economic indicators in 1983-1990 166
