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[1990]: 8/9/90, ( 11 a.m.), Interagency Meeting of IMF led study, Soviet Union (Chaired by Mr. Boskin)
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[1990]: 8/9/90, ( 11 a.m.), Interagency Meeting of IMF led study, Soviet Union (Chaired by Mr. Boskin)
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These records pertain to United States-Soviet trade.
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Records of the Council of Economic Advisors (George H. W. Bush Administration)
Michael J. Boskin Meeting Files
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Originally Processed With FOIA(s):
FOIA Number:
2000-1332-F; 2001-1853-F
2001-1853-F
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
Library Staff.
Record Group/Collection: George H.W. Bush Presidential Records
Collection/Office of Origin: Economic Advisers, Council of
Series:
Boskin, Michael,
Subseries:
Files NSC Meeting Files
OA/ID Number:
CF01113
Folder ID Number:
CF01113-024
Folder Title:
[1990]: 8/9/90, (11 a.m.), Interagency Meeting of IMF led study, Soviet Union (Chaired by Mr. Boskin)
Stack:
Row:
Section:
Shelf:
Position:
V
3
6
3
8/90
SECRET
Technical Cooperation Proposals for USSR
Issue for Consideration: Should the U.S. focus its technical
assistance efforts for the USSR on a limited set of high priority
problem areas?
--
The purpose would be to focus U.S. and Soviet attention on
high payoff projects while providing visible signs of U.S.
support for Soviet economic reform.
The following project criteria could be used to identify priority
areas:
--
a high USSR economic priority, with high visibility benefits
for the U.S. if success can be attained;
-- an area in which the United States is a world leader;
-- a sector/project in which we could generate strong private
sector interest and involvement and face minimal USG
budgetary outlay.
A list of possibilities, with benefits and drawbacks to each
sector noted, is presented below. It should be realized,
however, that the success of a number of these efforts depends
critically on continued Soviet economic reforms, including
movement toward decentralized free markets and convertibility of
the ruble.
1. Food Processing/Product Distribution
-- This is probably the Soviet's most pressing need. (Of
course market pricing is needed to induce farmers to provide
goods to market and not hold or sell on black market.)
-- U.S. excels at food processing and product distribution over
a large land area. U.S. has excellent transportation system
needed to move products to consumers, which though not
transferrable to the Soviet Union, could offer important
lessons. Our private sector also demonstrates good
inventory control.
-- U.S. private sector knows how to run railroad and
trucking lines.
-- As Soviets scale back military production, truck
production becomes an attractive and badly needed
alternative output.
DECLASSIFIED
SECRET
PER E.O. 12958,
Declassify on: OADR
AS AMENDED
2000 1332-F
1/13/06 blc
SECRET
2
--
This is a sector in which it would be relatively easier to
combine our efforts with those of the American private
sector.
Drawbacks:
--
U.S. technical assistance in this area would reveal all the
infrastructure problems of the USSR. This would immediately
make clear the need for massive inflows of foreign
investment, and cash, to build or repair roads, railroads,
harbors, and storage facilities. Some of these projects are
less amenable to private foreign investment, so the Soviets
will be looking for foreign official financing, which we are
not ready to provide.
2.
Financial Sector
This is one of the highest Soviet priorities. Without a
functioning banking system, it will be virtually impossible
for the productive sectors to recover and the economy to
function.
U.S. has high degree of expertise in financial markets -
stocks, bonds, money markets. This is one area in which we
could provide Soviets the most market-oriented technical
advice -- how to set up a banking system, stock and bond
markets, various savings instruments.
-- We could probably generate substantial private sector
interest in this area, helping to minimize USG
budgetary costs. Some large U.S. banks may be
interested in eventually setting up commercial banking
in the Soviet Union, even if they are not prepared to
lend on a large scale to the Soviet government.
:
U.S. has an effectively functioning central banking system
based on regional federal reserve banks plus central board
of governors. This could be the most appropriate structure
for USSR as well.
--
Technical assistance in this area could be coordinated
by the Federal Reserve out of its ordinary budget.
Regional Federal Reserve Banks would also probably be
quite interested.
Drawbacks:
--
This is a somewhat amorphous project in that a physical
entity such as a highway or port will not result. Thus it
may not generate a highly visible link to U.S. assistance
effort.
SECRET
SECRET
3
--
Soviet Republics are involved in efforts to set up their own
banking systems, which is leading to considerable chaos, and
it may be difficult to create a functioning and coherent
program.
3. Energy
--
Highly visible sector for which Soviets are seeking foreign
expertise. Soviets need to increase oil and gas output for
domestic needs and for export of hard currency.
--
There is substantial scope for improved energy efficiency
throughout Soviet economy; U.S. companies are world leaders
in improved energy use. High payback for relatively low
investment.
--
Technical assistance on nuclear safety would help Soviet
nuclear industry.
--
This is easy sector in which to generate private sector
interest, with output sold on world markets, easier to do
profit sharing.
-- U.S. oil companies have worked around the world, are
experienced and desirous of working in Soviet Union to keep
up with their competitors (French, Germans).
Drawbacks:
--
Soviets have used oil trade as economic weapon against
Lithuania. Extensive U.S. involvement in this sector might
generate adverse publicity should the situation in the
Baltics deteriorate.
4.
Economic Training/Statistics/Management
--
U.S. technical assistance in this area could provide rapid
results in terms of teaching Soviets how to gather
information about their economy, training future economic
analysts, and educating the Soviets on how to macro-manage
the economy. Budgetary/tax help would be particularly
useful.
-- We could do this through extensive technical assistance
projects including experts from CEA, Commerce - BEA,
Federal Reserve, Treasury, OMB, CBO etc. - this could
be funded out of existing budgets.
--
Publication of statistics, ability to produce economic
forecasts could be very visible outcomes.
--
We have already begun a few projects in this area.
SECRET
SECRET
4
Drawbacks:
Its effects are more long-term rather than contributing to
immediate improvements in production and distribution.
5.
Health
--
Antiquated Soviet health system needs modernization and
improvement of technical skills.
--
U.S. has ability to provide such assistance. Private
voluntary organizations (PVOs) could be expected to
have a high interest in participating in this --
especially arranging exchange and other educational
programs.
--
These PVOs have a good track record of providing
excellent instruction and services to Third World
countries which have many of the problems found in
Soviet health care.
Drawbacks:
--
While private sector interest in some aspects would emerge,
private sector as a foreign investor would look for profit,
which is less likely in this area.
--
Once again, needs for foreign capital would become evident
and we would be unable to provide financing needed to pay
for hospital modernization and new equipment.
--
PVOs would seek U.S. funding to cover additional programs.
Secondary Priority Areas
The following areas should also be considered, and, in fact,
Secretary Baker included some in his list presented to
Shevardnadze. However, they do not appear to have the potential
for success/visibility as do those listed above.
6.
Privatization
This has been a successful U.S. effort in Poland, which
could be applied to USSR and give U.S. firms a leg up on
foreign investment in the USSR. Would help absorb ruble
overhang.
--
Could play well into link with development of
stock market.
--
Would not necessarily entail emergence of foreign
official financing need.
SECRET
SECRET
5
Drawbacks:
--
Capital market non-existent in USSR and foreign investment
may be slow to materialize. Thus, process could be quite
lengthy and could generate massive unemployment which could
then be blamed on adoption of U.S. capitalistic system.
(Soviets never have had much experience with private
markets.)
7.
Housing
--
Strong sector in U.S., with heavy emphasis on smaller scale
business, a locally based industry.
--
Thus U.S. expertise in this area could help Soviets in
learning how to decentralize. Housing would be easiest
sector in which to do this.
--
Gorbachev has identified this as a priority area and is
interested in foreign help.
Drawbacks:
--
Private sector interest in this idea may be hard to
generate, since private companies helping Soviets build
houses would look for profit in foreign exchange. Housing
production would not generate foreign exchange.
SECRET
MEETING August 9, 1990 at 11:00 a.m.
Subject: Interagency Coordination meeting of IMF-Led Study of
the Soviet Union and other issues.
Invitees: Bob Zoellick, State Dept.
Condi Rice, NSC
Charles Dallara, Treasury
Thomas Dawson, IMF
Tim Deal NSC
8/90
TERMS OF REFERENCE
summary
1.
Macroeconomic Stability
money supply and ruble overhang
government finance (budget, revenues, deficit)
balance of payments
inflation
2.
Development of Competitive Enterprises
planning system
supply system
monopolies and monopsonies
enterprises
bankruptcy (and issue of subsidies)
agriculture
3.
Property and Contract Rights
property rights and legal guarantees
privatization
contract rights
4.
Social Safety Net
direct social benefits
indirect social benefits
delinking social welfare from enterprises
5.
Financial Intervention
banking system (central bank and other banks)
financial markets
commodities exchanges
6.
Convertibility
defining convertibility
defining ruble value
foreign exchange allocation
positioning convertibility in the reform process
7.
Effective Price Decontrol
existing price system
moving to market prices
assessing the impact
8. Sequencing
TERMS OF REFERENCE
1. Macroeconomic Stability
Money Supply
Assess the role of money; the money supply, how is it
measured, its components, its rate of change, who
controls it (and the printing of money) and by what
means. How does Soviet interest rate policy relate to
the money supply?
--
Assess the "ruble overhang" problem? What are the
short and longer-term options for addressing it and
making the ruble sounder (e.g., currency changeover,
parallel currency, sales of public assets, savings
bonds, etc.)
--
Assess the implications of republic efforts to develop
separate currencies.
-- What would be the negative effects of improving money
supply policy and/or addressing the "ruble overhang"
and how can these effects be ameliorated?
Government Finance
--
Assess the all-union government budget (revenues and
spending), including how it is measured, developed and
approved; how money is expended; the control
mechanisms on expenditures by all-union, republic and
local government agencies, enterprises and
state-supported social organizations; the subsidies
bill (and how it is measured) and the extent of hidden
subsidies (and how they are measured).
Assess enterprise payments to (confiscations by)
ministries, turnover taxes, payroll taxes, other
sources of revenue. Assess tax reform legislaton
adopted and under consideration and its likely impact
on the behavior of governments, enterprises (state,
cooperative, other) and individuals.
--
Assess the deficit, its components, how it is measured
and how it is financed.
--
What is relationship between all-union, republic and
local taxing and spending authorities? By what means
do tax revenues and funds for spending flow from level
to level?
Develop options and recommendations for reform of
tax/revenue collection policy, spending policy and
deficit financing.
- 2 -
Balance of Payments
-- Assess the balance of payments; how it is measured
(especially ruble/transferable ruble and clearing
account "payments" versus convertible currency
payments); the size of convertible and non-convertible
currency debt; and what is owed to the USSR in
convertible and non-convertible currencies.
-- What are Soviet gold reserves? What is Soviet gold
production?
-- What mechanisms exist for central government control
of payments abroad and to control borrowing by
government entities and enterprises (state,
cooperative, other)?
-- Assess the balance of trade with convertible currency
and non-convertible currency trading partners, plans
to develop a modern tariff system, and the likely
impact of such a system on the balance of trade and
payments.
-- What will happen on January 1 when CMEA trade should
convert to world prices and convertible currency
payments? What kinds of clearing account and
negotiated price/exchange rate arrangements will
continue and for how long?
-- Assess options for increasing convertible currency
export earnings, obtaining import financing
(especially for consumer goods), and transforming
non-convertible debt owed to the USSR into assets.
-- Develop and recommend policy options to improve the
balance of payments and trade, to reform/modernize
payments and hard currency policy and practice, and to
ease the transition of CMEA trade to world prices and
convertible currency payments.
Inflation
--
Assess open and repressed inflation, its measurement
and rate of change.
-- Assess the size, role and importance of the black
market and the reasons for its recent growth.
-- Develop policies that could address the causes of
inflation, dampen its effects and/or keep it from
accelerating as the economy restructures.
Assistance
Identify terms and criteria of Western involvement in
helping to stabilize, modernize and improve Soviet
macroeconomic policy.
- 3 -
2. Development of Competitive Enterprises
O
Planning
--
Assess the annual and five-year planning process at
the enterprise level; the characteristics of
enterprise plans, especially regarding output,
production processes and supplies; the role of state
orders in determining production, allocating supplies
and directing internal enterprise behavior, and the
rewards/penalties for their fulfillment or
non-fulfillment; and the role of other planning norms
and guidelines issued by central government agencies.
--
Develop options for dismantling the planning system
and identify priorities. How can the state ameliorate
the disruptive effects of abandoning planning?
Supply
--
Assess the state supply allocation system, both
technically and in actual practice; the non-market
limits enterprises face in obtaining and using
supplies; and the operations at the all-union,
republic and local levels of the State Committee for
Material-Technical Supply (Gossnab). What role do
Gossnab wholesale trading houses play?
--
What is the role of real, market wholesale trade? How
does it work (e.g., by what mechanisms do enterprises
trade directly among themselves and effect payment)
What factors interfere with market wholesale trade and
its spread?
Develop options and recommendations for expanding free
market wholesale trade. What will be the negative
short-term effects of abandoning/diminishing the
central supply allocation system and how can they be
ameliorated?
Monopolies
--
Assess the problem of monopolistic and monopsonistic
behavior/conditions. What role do branch ministries,
single-industry trusts and multi-industry
amalgamations play in the monopoly/monopsony structure?
--
Assess draft anti-trust legislation, its goals and
likely effectiveness, and its implications for state
and enterprise monopsonies.
- 4 -
-- Develop a demonopolization strategy. In what sectors,
industries and enterprises should priority be given to
the break-up of monopolies/monopsonies; by what
mechanisms and according to what schedule; what will
the negative effects be; and how, especially during
the transition period, can they be ameliorated? What
are options for the breakup of multi-industry
amalgamations to facilitate competition?
-- Develop options for regulating monopolies where they
persist temporarily or permanently.
Enterprises
-- Assess the characteristics of Soviet enterprises,
management's internal control over factories and
production lines, firms' legal and real status
vis-a-vis branch and functional ministries, prospects
for enterprises existing outside of the branch
ministry structure and the role of amalgamations.
-- Assess the 1987 Law on State Enterprises and planned
amendments/changes to that legislation.
--
What are the characteristics of state and party
interference in enterprise management? What are the
tools for state interference in enterprise management
decisions (taxes, prices, supply allocations,
confiscation of excess profits, annual plans, etc.)
and how are they manipulated in practice? What will
be the characteristics of republic and local
authorities' control over enterprise behavior in
connection with decentralization of power and
authority to the republic level?
-- What are the incentives for enterprise managers,
factory foremen and workers? How can they be improved?
-- Assess legislation on and the actual operations of
joint ventures, joint-stock enterprises, cooperatives,
leased firms, share owning arrangements and private
enterprise where it exists. Assess their potential as
vehicles for enterprise reform.
--
Assess the prospects for privatization, including
republic-level plans for privatization, likely public
reaction and sources of finance.
-- Develop options and recommendations for reform of the
existing enterprise system, especially including
privatization; identify priorities; and assess the
negative effects of such changes and how can they be
ameliorated.
Bankruptcy
- 5 -
--
Assess the laws and regulations governing bankruptcy
and how they are applied in practice; the criteria for
determining bankruptcy; the actions taken towards
creditors, management and workers (including liability
questions) and other characteristics of bankruptcies
which have taken place.
--
What are the laws, regulations and practice regarding
bankruptcy of joint ventures, joint stock enterprises,
share-owned firms, cooperatives, leased enterprises,
private farms and other private economic activity?
--
How many firms are losing money? What criteria are
used to determine losses and what is the extent of the
enterprise subsidy problem? Assess hidden subsidies
to enterprises and their implications.
--
How do parent enterprises, branch ministries or other
government entities assist ailing firms?
--
Evaluate how the transition to market conditions and
world prices will affect the subsidies question and
enterprise losses. Assess the impact for subsidies of
the
transition of CMEA trade to world market prices
and convertible currencies; and
the development of market-based wholesale trade
and the abandonment of centrally-directed
planning and supply allocation.
--
Identify options and recommendations for the
development of modern bankruptcy law and practice,
including how the negative effects can be ameliorated.
Agriculture
--
Assess the state of agriculture; the extent and
characteristics of the monopsony problem .in
agriculture (e.g., the characteristics of wholesale
trade in food, the role of the State Commission for
Food and Food Procurements and that of state agents at
the republic, oblast and rayon levels); and the
private plot system and its viability as a model for
expansion as a free farming sector.
--
Assess the successes, failures and problems of lease
arrangements and of private farming where they exist.
--
Identify the agricultural sector's short and long-term
bottlenecks (transport, supply, labor, etc.) and
assess their importance.
--
Identify options, recommendations, priorities and a
timetable for:
- 6 -
O
the development of incentives and farmers'
independence, including private family farming,
more developed leasing arrangements, and genuine
farmers' cooperatives;
o
changing the state's role in agriculture; and
o
addressing infrastructure and other technical
issues (transport and supply bottlenecks,
insufficient and inappropriate equipment, labor
shortages, etc.).
--
Evaluate the problems of decollectivizing agriculture
and how they can be addressed.
--
Develop options for reform/decontrol of farm purchase
prices and retail food prices so as to promote
economic efficiency and competition.
--
What is the relationship of agricultural reform to the
broader development of competition and economic reform
generally?
O
Assistance
Identify terms and criteria of Western involvement in
helping to foster competition, ending monopoly and
monopsony domination of the economy, modernizing
arrangements for bankruptcy and addressing the underlying
ills of Soviet agriculture.
3. Property and Contract Rights
O
Property Rights and Legal Guarantees
-- Assess property rights as they currently exist for
individuals, organizations and enterprises (including
the extent to which arbitrary confiscation of
enterprise property and profits by the state
continues). Assess new elements introduced by recent
laws on land, leasing and property and their
implementation (especially regarding the effective
transfer of the means of production to new ownership,
transfer of the land, control over financial assets,
control over profits, etc.) Do the new laws resolve
definitional questions of private, state and
collective property? How are decisions regarding the
sale, lease or long-term use of land and other assets
made?
-- What is the status of republic implementing
legislation regarding property rights? How is
property divided between all-union, republic and local
authorities' control?
-- Assess the mechanisms for enforcing property rights.
- 7 -
--
Develop recommendations for strengthening property
rights, including private property rights.
Privatization
--
What new forms of ownership are foreseen? Assess
draft legislation on property, joint stock enterprises
and foreign investment. What limitations exist on
foreign and joint stock ownership? Assess their tax
treatment and its implications.
-- What are the prospects for fully private ownership of
the means of production -- both small scale and large
scale? What limitations exist on private businesses?
Assess the tax regime private businesses face.
-- Develop options, recommendations, priorities and a
timetable for privatizing, including proposals on who
should be allowed to sell and to buy state assets,
what criteria should be applied, and to whose budget
privatization proceeds should go (e.g., all-union,
republic, local coffers, etc.) Develop guidelines and
a methodology to inventory state assets.
Which privatization option best fits with other
economic objectives such as absorbing the ruble
overhang, financing the budget deficit, creating
competition, breaking up monopolies, etc.?
Contract Rights
--
Assess the rights and responsibilities of individuals
and firms under existing contract laws; the penalties
which result for producing and consuming ministries,
enterprises and individuals from the non-fulfillment
of contracts; and the liabilities which state organs
bear when their actions result in the non-fulfillment
of a contract by a firm.
Develop guidelines to strengthen contract. law.
O
Assistance
Identify the terms and criteria of Western involvement to
support diversified forms of ownership, including
especially private property, and the development of modern
property and contract law.
4. Social Safety Net
--
Assess current retirement, pension, unemployment and
other direct welfare benefits, their cost and their
role in the economy. Assess indirect social benefits
(e.g., retail price subsidies, free health care and
education, transportation subsidies, etc.) and their
cost, role in the economy and importance to the public.
- 8 -
--
What agencies distribute direct benefits? What
criteria do they use to determine who are recipients
and how much should be provided? Assess mechanisms
for distributing indirect benefits and their
effectiveness in reaching the needy. Detail the
extent to which direct and indirect social benefits
are channeled through enterprises and official trade
unions, and assess the costs this imposes on
enterprises in terms of effectiveness and efficiency.
--
Are workers in cooperatives, leaseholders and private
farmers covered by different social welfare guarantees
and, if so, how do these arrangements differ? How
would they be expanded as the non-state sector grows?
-- Assess social welfare legislation recently passed
(e.g., pension law, law on employment and
unemployment, law on paid vacations, etc.) and its
implications at the macro level and for the public.
--
What will be the employment, consumption and other
effects of stabilization and other reforms (from
factory closings, price increases, etc.) Assess
government plans to address these effects and their
budgetary implications.
-- Develop options in each area of social security
(employment, consumption, health care, education,
etc.) to continue providing support to those who need
it and to support those adversely effected by reforms,
including the viability of compensation and indexing
schemes. Indicate priorities, assess costs and
benefits of options, and evaluate different mechanisms
for financing.
-- Develop options and mechanisms for delinking social
welfare from the enterprise/trade union system.
O
Assistance
Identify terms and criteria of Western involvement in
helping to develop an appropriate, modern social safety net
which can help to diminish social tensions resulting from
the reform program and to improve both economic efficiency
and effectiveness.
5. Financial Intervention
O
Banking System
- 9 -
--
Assess the banking system and its main problems; the
role of Gosbank, the influence it exercises over the
money supply, and the legal and real controls or
influence it has over sector, republic, commercial and
cooperative banks; the variety, role and economic
significance of the other banks in the Soviet system;
and the role banks plan in the allocation of credit,
especially vis-a-vis central planners and other
governmental/political entities.
--
How are interest rates set and what role do they play?
--
What control does the official banking system (e.g.,
Gosbank and the Bank for Foreign Economic Relations)
have over convertible currency transactions? Assess
the role, independence and viability of Soviet
offshore banks.
--
Assess banking reform legislation and its ability to
foster market competition and sound financial
management.
--
Assess the implications of republic economic autonomy
and/or autarky on the banking system (e.g., the
development of republic central banks and currencies,
the setting of interest rate and credit policies at
the republic level, etc.).
-- Develop options, priorities and recommendations for
banking reform, including the consolidation of central
bank functions, the development of independent banks,
consumer banking and control over foreign exchange.
Financial Markets
-- Assess the arrangements for sales and marketing of
government deficit financing bonds, warrants, public
savings bonds and shares.
-- What plans exist to allow free trading in these and/or
other financial instruments? On what legal basis will
such trading take place? How will investors assess
the creditworthiness of specific borrowers and/or
backers of bond and share issues? What hurdles must
be overcome before a bond and stock exchange is
feasible?
--
Develop options for opening modern financial markets
and identify the steps that should be taken toward
that end.
Commodities Exchanges
- 10 -
-- What plans exist for developing commodities
exchanges? What property and liability rights will
traders have?
-- Identify how a commodities exchange could support
Soviet economic, and especially agricultural, reform
and development. Develop options and recommendations
for a commodities exchange and identify steps carrying
them out.
o
Assistance
Identify terms and criteria of Western involvement in
helping to develop modern financial intermediaries.
6. Convertibility
o
Defining Convertibility
-- What characteristics of inconvertibility are specific
to the Soviet economic system? What role does
inconvertibility play as a systemic requirement for a
centrally-planned economy? How does it protect the
artificial price system and a taut resource allocation
system? What are the costs and benefits of ruble
inconvertibility?
-- How do the Soviets define ruble convertibility,
including in its existing forms (partial, "soft,"
transferable, internal, external, etc.)
Defining Ruble Value
-- What is the current exchange rate regime? How many
rates exist, how do they change, how are they
determined, and how are they administered?
--
What laws and regulations govern the setting of
exchange rates? Assess the system of currency
coefficients and prospects for its change/abandonment.
-- Assess the viability of exchange rate unification,
devaluation, a parallel currency and currency
conversion schemes. What would each of these steps
do? What are the obstacles to full convertiblility
(e.g., the irrationality of Soviet prices, the lack of
wholesale trade, etc. ) ?
-- What indicators exist to help determine the ruble's
value, including black market rates, hard currency
auctions, off-shore foreign exchange markets, new
retail trading centers, etc.
o
Foreign Exchange Allocation
- 11 -
-- What rules govern access to convertible and
non-convertible foreign exchange? How are they
administered? What is the practice enterprises face
in obtaining and using foreign exchange?
--
Examine the trading system, including foreign trade
organizations, trade subsidies, taxes, differentiated
currency coefficients, tariffs and government
direction of trade policy.
--
Consider ways to liberalize access to foreign exchange
in a pre-convertibility and transitional economy.
Positioning Convertibility in the Reform Process
--
Evaluate the priority and importance of ruble
convertibility in the context of other reform goals.
--
Identify options and steps for achieving the desirable
forms of convertibility and the optimal timing for
implementation of a convertibility program in light of
overall sequencing and priorities.
o
Assistance
Identify the terms and criteria of Western involvement in
supporting steps toward convertibility, including options
tied directly to Western interests (e.g., profit
repatriation on foreign investments).
7. Effective Price Decontrol
Existing Price System
--
Assess the current administrative price setting
system, the role of enterprises and of the market in
influencing price setting and the relationship between
retail and wholesale/farm purchase prices.
O
How irrational are prices in relative domestic
terms and compared with world market prices in
relative terms (try to avoid exchange rate
distortions) ?
Moving to Market Prices
--
Assess the obstacles to introducing market prices.
Where do subsidies play a substantive or policy role
and where are they the result of inattention and an
overly complex administrative price system?
--
Examine Soviet proposals for price reform. Assess the
reasons behind recent failed attempts to reform price
policy.
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--
Develop criteria and guidelines for price decontrol.
Identify options (including scenarios) in which prices
can achieve market values. Assess the extent to which
market factors could produce hyperinflation if prices
were freed (e.g., ruble overhang, monopolistic
industrial structure, etc.) and recommend measures to
ameliorate it. Which key sectors should be targeted
for deregulation first?
--
Consider structural steps, such as allowing firms to
compete for state orders or giving them access to sets
of supplies solely on the basis of price.
Assessing the impact
--
Assess the impact of price decontrol, especially
economic dislocations, bottlenecks, shortages,
adjustment at the consumer and retail levels, etc.
Assistance
Identify terms and criteria of Western involvement in
developing a sound price decontrol policy and toward
supporting the implementation of that policy.
8. Sequencing
--
What plans do the Soviets currently have for
proceeding with macro- and micro-economic reform?
Assess those plans and the sequence of anticipated
steps.
-- Develop sequenced economic reform policy options,
assess their costs and benefits, identify ways to
maximize the benefits and reduce costs, and make
recommendations.
Assistance
Identify terms and criteria of Western involvement in
devising, overseeing and enforcing a properly-sequenced and
appropriate reform program, and locate points at which
Western involvement can be of assistance.