Transition: the necessary changes and what has been reached in the CIS
Category: Bank Management
In a market economy, banks fulfil a number of important functions: they collect savings and allocate them to the most efficient firms; they facilitate payments and thus reduce transaction costs; and they impose financial discipline on firms and households. In CPE’s banks did not have this function, but were acting as agents for the Central Bank that was allocating subsidies according to the political will of the SU’s nomenclature. Due to this past, most banks in the CIS are not prepared for banking tasks in a market economy. Moreover, they must fight for their own survival. The process of learning and adaptation is further complicated by the high degree of macroeconomic and political uncertainty.
The main aim of transition is to rectify structural deficiencies of centrally planned economies such as:
the lack of incentives for workers and managers to work hard;
the poor co-ordination of economic activity due to the absence of markets;
wide-spread corruption, and the dominance of economic activity by a party nomenclature.
These deficiencies resulted in low, and often negative growth rates, decreasing welfare of large parts of the population, and increasing isolation from the world economy. Moving from a centrally planned system towards a market economy involves a broad systemic change of the rules according to which an economy functions. As a result of this transformation, higher growth, higher welfare, and integration in the global economy are expected. The following subsection discuss the main requirements of this systemic transformation and how far the CIS countries have got in the transformation of their economies.