Financial Sector Reforms and Exchange Arrangements in Eastern Europe

Occasional Papers, February 15, 1993

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Bibliographic details

• Authors: Guillermo Calvo, Eduardo Borensztein, Paul R Masson, Manmohan S. Kumar
• Published: February 15, 1993
• Series: Occasional Papers
• DOI: https://doi.org/10.5089/9781557752796.084

Overview

• Two papers draw from the brief yet radical reform experiences of five countries: Bulgaria, former Czechoslovakia, Hungary, Poland, and Romania.
• Paper objectives:
  • Describe financial sector reforms undertaken since the 1980s and the problems encountered.
  • Discuss roles of privatization, stabilization policies, and prudential supervision in financial sector development.
  • Analyze different exchange arrangements as they apply to previously centrally planned economies.
  • Examine general arguments for convertability and consider the desirable degree of exchange rate flexibility.

Part I — Financial Markets and Intermediation (Guillermo A Calvo and Manmohan S Kumar)

• Focus:
  • Financial sector reforms implemented by Bulgaria, former Czechoslovakia, Hungary, Poland, and Romania since the 1980s.
  • Problems encountered in the reform processes.
• Key analytical points:
  • Roles of privatization in transforming ownership and market structure.
  • Importance of stabilization policies for macroeconomic environment conducive to financial development.
  • Need for prudential supervision to support safe intermediation and market confidence.

Part II — Exchange Arrangements of Previously Centrally Planned Economies (Eduardo Borensztein and Paul R Masson)

• Focus:
  • Application of different exchange arrangements to previously centrally planned economies.
  • Examination of general arguments for convertability in these countries.
  • Consideration of the desirable degree of exchange rate flexibility for transition economies.

Cross-cutting themes and policy implications

• Reform sequencing and coordination:
  • Privatization, stabilization, and prudential supervision are interrelated and influence financial sector development outcomes.
• Convertability and exchange rate policy:
  • Policy choice should weigh arguments for current account convertability against macroeconomic stability risks.
  • Degree of exchange rate flexibility should be assessed in light of each country’s transition dynamics and institutional capacity.
• Institutional development:
  • Strengthening prudential supervision and regulatory frameworks is central to successful financial sector reform and market development.

Source: Financial Sector Reforms and Exchange Arrangements in Eastern Europe, By Guillermo Calvo, Eduardo Borensztein, Paul R Masson, Manmohan S. Kumar