1992-806-36-Moskoff.pdf

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THE NATIONAL COUNCIL FOR SOVIET AND EAST EUROPEAN RESEARC H E ECONMISTABLZONIH : TILE FORMER SOVIET UNION : Lessons from Argentina and Brazi l AUTHOR : William Moskoff Nader Nazim CONTRACTOR : Lake Forest Colleg e PRINCIPAL INVESTI
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  THE N TION L COUNCIL FOR SOVIET ND E ST EUROPE N RESE RCH TITL  CONOMIC ST BILIZ TION IN TH FORMER SOVIET UNION   Lessons from Argentina and Brazi l  UTHOR   William Moskof fNader Nazi m CONTR CTOR   Lake Forest Colleg e PRINCIP L INVESTIG TOR   William Moskof f COUNCIL CONTR CT NUMBER : 806-3   D TE : July 9 199   The work leading to this report was supported by contract funds provided by the National Council for Soviet an d East European Research  The analysis and interpretations contained in the report are those of the author    COPYRIGHT INFORMATIO N Individual researchers retain the copyright on work products derived from research funded by Council Contract . The Council and the U .S . Government have the right to duplicate written reports and other materials submitte d under Council Contract and to distribute such copies within the Council and U.S. Government for their own use   and to draw upon such reports and materials for their own studies ; but the Council and U .S . Government do no   have the right to distribute or make such reports and materials available outside the Council or U .S . Government without the written consent of the authors except as may be required under the provisions of th e Freedom of Information Act 5 U .S . C . 552 or other applicable law      Executive Summar y As the successor nations of the former Soviet Union move unsteadily toward s economic reform they face major decisions on how to achieve stabilization and mov e successfully from central planning to a market economy . In some quarters the successo r nations are regarded as groping in the dark without a road map to guide them . But in fact   there are recent stabilization experiences elsewhere that are very useful to understanding th e options and the potential outcomes faced by the former Soviet Union . We draw upon th e experiences of two Latin American countries Argentina and Brazil as exemplars of wha t may lie ahead for the former Soviet Union   In the Latin American examples heterodox policies were never meant to offe r anything but a temporary solution to the problem of economic instability . In this they wer e mostly successful . But the Argentine and Brazilian experiences show that if such transitor y solutions are not accompanied by orthodox monetary and fiscal policies stabilization canno t be achieved in the long run. The former Soviet Union has most of the same underlyin g imb l nces . Heterodox policies do not provide a cure for the substantial difficulties faced b y reformers . The pathology of inflation and huge deficits can only be treated by balancing th e budget and reining in the money supply . But this will likely lead to an even further drop i n output and a rise in unemployment in the short run outcomes that have significant politica   li bilities . A much needed dose of pure orthodoxy in the form of tight monetary and fisca   constraints will not gain acceptance in the Russian environment where the standard of livin g has fallen so rapidly and where an entire population has experienced so much deprivatio n for so long      The patience required to endure the implications of orthodoxy does not exist in th e former Soviet Union   Another important lesson from the Latin American experience is that shoc k approaches to stabilization in the former Soviet Union are likely to fail . And even if the y succeed their success will come only with potentially great economic and political costs   Given the shaky status of the successor nations this seems like a high risk prescription ; wha   is called for is a gradualist approach to economic stabilization that builds faith in th e government . Achieving stability is further complicated by the lack of well-develope   markets in virtually every part of the economy   Unfortunately there are many reasons to be pessimistic about the probability o f success of stabilization programs in Russia and the other successor states based on th e experiences of Argentina and Brazil and on the multitude of problems inherited by the forme r Soviet Union . Overcoming such obstacles requires time . The stakes are so high in thes e nations that to threaten their existence at this early stage with shock treatment seems risky   there are no quick fixes . The former Soviet Union and the rest of the world should be in th e game for the long haul  

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