TY - JOUR AU - Calvo,Guillermo A. AU - Frenkel,Jacob A. TI - Obstacles to Transforming Centrally-Planned Economies: The Role of Capital Markets JF - National Bureau of Economic Research Working Paper Series VL - No. 3776 PY - 1991 Y2 - July 1991 UR - http://www.nber.org/papers/w3776 L1 - http://www.nber.org/papers/w3776.pdf N1 - Author contact info: Guillermo A. Calvo Columbia University School of International and Public Affairs 420 West 118th St, Room 1303B MC3332 New York, NY 10027 Tel: 212/854-4264 E-Mail: gc2286@columbia.edu Jacob Frenkel Dr. Jacob A. Frenkel Chairman, JPMorgan Chase International 270 Park Ave 46th floor New York, NY 10017 Tel: +1 212 270 2393 Fax: +1 212 270 2397 E-Mail: jacob.frenkel@jpmchase.com AB - This paper identifies obstacles hindering the transformation of centrally-planned economies (CPEs) into well-functioning market economies. The analysis is motivated by the recent experience with economic transformation and restructuring in Eastern Europe and the U.S.S.R. The economic system in CPEs is highly distorted. Prices do not represent real social costs, incentives systems are absent, losses of unprofitable state-owned enterprises are automatically financed, legislations vital for the functioning of markets are not in place, private ownership and property rights are underdeveloped, bankruptcy laws are absent, markets are missing, shortages prevail and, occasionally, inflation is high. The obstacles identified relate to (i) anticipatory dynamics, (ii) monetary overhang and the budget, and (iii) underdeveloped credit markets. It is demonstrated that these obstacles inhibit the effectiveness of price reform, monetary and credit policies, and trade liberalization. The analysis focuses on various ways to remove the obstacles. In this regard, a special examination is made of the implications of cleaning the balance sheets of enterprises and banks from nonperforming loans, as well as ways to enhance credibility. In the absence of such measures, privatization will be difficult since the necessary information about creditworthiness of firms is lacking. The paper concludes with a brief discussion of sequencing, safety nets. and their associated obstacles. ER -