Risks, privatization and interenterprise arrears in transition economies

Abstract

The rapid accumulation and persistence of interenterprise credits and arrears is a fairly common phenomenon in transition economies, posing serious policy concerns. A general equilibrium model of production chains is presented to analyze this phenomenon and provide policy implications. The model shows that high business risks inherent in transition economies and massive privatization could well explain the phenomenon, and that the government's efforts to eliminate the arrears are most likely to fail.