Financial Stability Report No1 20 December 2010 - Banka Qendrore ...

Number 1Financial Stability Reporteconomies. Third chapter presents the macroeconomic developments in the region pointingout the similarities of their developments despite different monetary and exchange rateregimes that countries implemented to stabilize their economies. Financial sectordevelopment in the region is presented in chapter four. It is shown that financial crisis didaffect the SEE countries although they still experience relative abundance of financialsources to support the economic growth. Potential sources of economic catch-up of theregion are presented in chapter five. Chapter six concludes.8.2 What have we learned in the last twenty years of transition?At the time the transition began, there was little experience with the processes of economictransformation. Guidance and western expertise were drawn on general principles andexperiences from structural reforms in developing countries. The Latin American countriesserved as a starting point in designing the programs of macroeconomic stabilizationalthough starting points in those countries were substantially different from the emergingproblems in transition economies. However, the facts on distinguishable characteristics oftransition economies were mainly learned while the transformation had already begun andwell before the evidence could be gathered.What economists knew a priori about restructuring and transformation was that theinflation stabilization was necessary for the resumption of growth. However, the strikingproblem at the beginning of transition was the enormous fall in output ranging from 30 to50 % accompanied by a high inflationary environment. Although the transitionencompasses a wide horizon of institutional and political changes, macroeconomicstabilization and restructuring of the ill-designed economies, it was the inflation and outputperformance in the first days of transition that occupied economists across the world. Anextension of the problem and lack of experience of economic transformation from centrallyplanned to market-oriented economies generated surprise on a great scale. All advise andhelp to design the reforms had to be drawn on general economic principles or - somehow toa lesser extent - lessons from structural reforms in developing countries.While countries started the transition with different sets of starting positions eitherregarding political environment or unfavourable macroeconomic conditions, they all haveexperienced the common challenge of transforming their economies from a centrallyplanned system to a market-oriented framework. This has transformed a rather differentassessment of structural changes across the region to a uniform process of transition thathas taken place during the last decade. Experiences with the transition process weredifferent from country to country in the region, however, all tried to focus on the mostpending problem in their economies, namely, how to curb the inflation rates which weremitigating the success of all other reforms.Although the Central and Eastern European countries have adopted different exchangerate regimes, they have all experienced real appreciation as well as large inflows of capitalin a relatively short time span . Although capital inflows were not the most important issueat the beginning of the transition, the relevance of the presence of foreign capital intransition economies have become substantial just after the first shock of political andeconomic transformation had slowly started to die out. Those economies that were fast inrestructuring and privatization of state and social entities where among the first to enjoythe positive effects of fresh foreign capital. It is true that surge in foreign capital inflowswas associated with new problems in terms of pressures on external competitiveness;60 |