International Monetary Fund. External Relations Dept.
Published Date:
January 1991
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Technical assistance in Eastern Europe

This letter is provoked by “The Challenge of Economic Reforms in Eastern Europe” by Willi Wapenhans, and the box on page 28 on Bank-IMF technical assistance for Eastern Europe, in “Reshaping Technical Assistance” by Laura Wallace (December 1990).

That there is a need for financial flows to the area is not questioned. However, if such flows are to reach the levels necessary to avert economic chaos, the post-independence debt of these countries must be serviced in strict accordance with the terms of the various loan agreements. Any late payment of principal or interest will probably curtail sharply any additional commercial bank lending.

It would seem appropriate for the Bank and IMF to initiate at the earliest possible time technical assistance programs to help these countries in establishing national export credit agencies. This is because increasing exports is probably the most efficient way the countries of East Europe can acquire the foreign exchange needed for debt service. It is normal commercial practice for sellers to extend credit. East Europe produces little that is not available from suppliers in other countries, so unless the exporters of the area have access to export credit, guarantees, and insurance, their exports will not reach the levels needed for economic growth or debt service.

Each of the OECD countries has its own official export credit agency. Most developing countries also have such programs, either in place or in the planning stage. The sooner the new creditors of East Europe appreciate their debtors’ need for export earnings, the brighter the prospects for the growth of market economies in East Europe.

Albert H. Hamilton

First Washington Associates

Arlington, Virginia, USA

An incomplete blueprint for privatization

The article by Helen Nankani (“Lessons of Privatization in Developing Countries,” March 1990) discusses several elements for success of privatization based on the case studies of Chile, Malaysia, and Sri Lanka: Political will (which, in my opinion, precedes the decision to privatize), presence of a quasi-developed capital market, and an unbiased evaluation of the costs and benefits of privatization.

The author, however, neglects to include in the “blueprint” for privatization, the private sale of shares or assets that can target a potential buyer involved in a similar activity. This is the case of the Cameroonian Flour-Milling Company, which has been taken over by a wheat flour importer. Nonetheless, before the private sale of shares, it is necessary to assess the costs and benefits of privatization and the claims to be sold. The government must also carefully choose the macroeconomic and sectoral policies before and after the period of privatization.

With regard to the choice of macroeconomic policies, I do not agree with the author that the sequencing of measures is unnecessary. In choosing between liberalization and privatization, it is preferable to opt for liberalizing first, as it is far easier to privatize after liberalizing, than vice versa.

Isaac Tamba

Yaoundé, Cameroon

New readers who wish to receive Finance & Development regularly should apply in writing to Subscription Services, Finance & Development, International Monetary Fund, Washington, DC 20431, USA, specifying the language edition and briefly stating the reasons for their request. The contents of Finance & Development are indexed in Business Periodicals Index, Public Affairs Information Service (PAIS), and Bibliographie Internationale des Sciences Sociales. An annual index of articles and reviews is carried in the December issue.

One Europe

In his article, “Europe—The Quest for Monetary Integration” (December 1990), Horst Ungerer makes little reference to the implications of a possible monetary union for the EC capital markets (particularly stock markets). I agree that capital controls are important sources of segmentation in financial markets, hence the removal of remaining capital controls in France and Italy should be considered as important events for monetary and financial integration in Europe.

However, the appropriate question that should be raised at this stage is whether the risk premia differentials across the EC markets—say the Benelux, Germany, France, and Denmark—are significant. In other words, what has happened, if anything, to the risk premia as capital controls have been lifted over the EC market is a question to which an answer should be given. If government controls are the only sources of segmentation in the EC capital markets, then I can expect that the markets have become more integrated ever since the capital controls were eliminated. What if there are other reasons that make stock exchanges segmented—such as the inability of a group of investors to trade in a particular market because of difficulties in obtaining information about foreign stocks, and differences in financial reporting.

I believe that the answers to the following questions are important: Does risk for similar or interlisted stocks carry the same price in EC exchanges? Had the interlisted stocks been segmented before the capital controls were lifted and are they now more integrated in the absence of government impediments?

A high degree of price and cost convergence in Germany, France, Denmark, the Netherlands, Belgium, and Luxembourg excludes the price of risk.

Haluk Akdogan

New York, NY, USA

In the absence of our regular Art Editor, Robert Frederick was responsible for the layout and design of this issue. Cover: Eric Westbrook. Inside illustrations: David Wisniewski, pages 2, 12, 19, 28, and 42; Jay Brubaker, page 22; and Richard Stoddard, page 45. Charts: Phil Torsani, IMF Graphics Section. Composition: Betty Maguire, IMF Graphics Section. World Bank photographs: I. Andrews. Photographs of IMF authors and David Wisniewski’s illustrations: Denio Zara and Padraic Hughes-Reid.

International Monetary Fundannounces
German Unification: Economic Issues

(Occasional Paper No. 75)

Edited by Leslie Lipschitz and

Dotiogh McDonald
Written by the staff of the IMF, this comprehensive study is the first detailed analysis of its kind to be released since German economic, monetary, and social union was achieved in July 1990. It will serve as an invaluable guide to economists, policymakers, and all others interested in the process of unification. In 12 separate chapters, it covers such subjects as the economic background to unification in both east and west Germany, investment needs in east Germany, the domestic and international macroeconomic consequences of unification, immigration, saving and investment, and other vital topics.

Available in English. ISBN 1-55775-200-1. xv + 171 pages • 1991
The Impact of the

European Community’s

Internal Market

on the EFTA

(Occasional Paper No. 74)

By Richard K. Abrams et al
This study examines sector by sector the impact of the European Community’s internal market on the member countries of the European Free Trade Association, which are concerned about a weakening of their competitive position vis-â-vis the KG countries. The study also looks at the impact of EC efforts at monetary unification and tax harmonization on the EFTA. Among the paper’s conclusions are that the EC internal market should have a generally positive effect on the EFTA economies, given some concessions by EFTA countries.

Available in English. ISBN 1-55775-174-9. v + 66 pages • 1991
The European

Monetary System:

Developments and


(Occasional Paper No. 73)

By Horst Ungerer, Jouko Hauvonen,

Augusto Lopez-Claros, and Thomas Mayer
This Occasional Paper updates and complements two earlier IMF studies on the European Monetary System. In addition, it surveys financial integration in the European Community and the present debate about monetary integration, with particular attention to the proposals of the Delors Committee on Economic and Monetary Union. The text of the study is supplemented by thirty-two statistical tables and twenty-four charts, plus a complete chronology of key developments in EC monetary and financial integration.

Available in English. ISBN 1-55775-172-2. vi + 99 pages • 1990
The Czech and Slovak

Federal Republic: An

Economy in Transition

(Occasional Paper No. 72)

By Jim Prust and an IMF Staff Team
This paper is based on an internal report prepared by IMF staff in connection with the application of the Czech and Slovak Federal Republic (Czechoslovakia) for membership in the IMF. Staff teams gathered statistical and other information for the report during two rounds of discussions in Prague, in March and April 1990. The paper takes the reader through the evolution of the country’s economic system and its economy; the state of its economy in the late 1980s; and the reform efforts begun in December 1987. The text of the paper is supplemented by complete charts, tables, and appendices.

Available in English. ISBN 1-55775-169-2. vii + 70 pages • 1990

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