The Road from Crony Capitalism

BRATISLAVA: In the ten years of postcommunist transition, political reform has often been reduced to the issue of holding free elections. Economic reform was often simplistically understood as only (or at least above all) encompassing macroeconomic stabilisation as promoted by the so-called 'Washington consensus,' now being condemned by demonstrators in the streets of Washington. It is no surprise that the results of so simplistic a policy prescription were often illiberal democracy and crony capitalism.

The transition in my country, Slovakia B and, indeed, across Central and Eastern Europe B has turned out to be a more complicated, complex, and longer process than originally expected. The basic problem lies in the fact that the heritage of communism is a much greater burden than the majority of people, including experts, ever imagined, and was much more about the inheritance in people's heads than the inherited economic structure.

At a recent conference in Moscow, however, IMF Deputy Managing Director Stanley Fisher continued to stress the importance of the 'Washington consensus' - ie, macroeconomic stabilisation based on liberalizing prices and trade, currency convertibility, tight budgetary and monetary policy and rapid privatisation B for the success of reform. That consensus remains important, but it is insufficient for success. Building effective institutions is equally important.