The Challenges of Transition. Analysis for Selected CIS and More Advanced CEECs

Abstract

The transition from a centrally planned economy to a market-based system was a major challenge for Commonwealth of Independent States (CIS) as well as for Central and Eastern European countries (CEECs) in the 1990s. Transition economies were confronted with problems which, taken together, had a powerful impact on their economies. Thus the beginning of the 1990s was marked by macroeconomic imbalances, structural problems, and large changes in external economic relations. In the first stage of transformation all transition economies experienced sharp declines in real GDP. Output declines were caused on one hand by the distortions inherited from the centrally planned system and by the shocks connected with the transition process itself on the other. The transition from centrally planned to market economy was associated with three shocks with which the countries had to cope. The first shock was connected with the breakup of the Council for Mutual Economic Assistance (CMEA); the second with the disintegration of the USSR during 1990–1991; and thirdly the collapse of central planning had a powerful impact on output performance and external developments in the transition economies. Not all transition countries were able to overcome difficulties and to improve their output performance at an equally successful pace. Countries like Hungary and Poland represented some of the most advanced transition economies in 2000, whereas three CIS economies (Russia, Ukraine, and Belarus) are considerably lagging behind in this process. Thus the transition experience of most advanced CEECs is of significant importance for CIS countries, as they have to confront similar problems. We compare the progress in transition and perspectives for further economic growth of these three CIS economies with more advanced transformation economies like Hungary and Poland.