استقلال بانک مرکزی و عملکرد اقتصادی در شرق اروپا

Following the breakdown of central planning by the early 1990s, transition economies faced varying measures of the need for economic restructuring and stabilisation. This paper examines both the trends in economic performance in eight eastern European countries and the degree of central bank independence (CBI) granted after reforms. The evidence of the paper indicates that both the measures of CBI and the measures of financial market development (FMD) show significant association with macroeconomic variables. Also, the sample exhibits positive association between CBI and measures of FMD.

Since 1989, the former centrally-planned economies have launched political and economic reforms that included varying degrees of stabilisation, liberalisation, restructuring and privatisation. In countries where decades of central planning prevented the development of market forces and institutional mechanisms for efficient resource allocation, transition to a market economy required substantial institution building. By investigating both the status of central banking reforms and their role in economic performance, this paper focuses on one such aspect of institution building. A common feature of financial sector reforms in transition economies was replacing the monobank system with a two-tier system that legally separated savings and commercial banks from the central bank (CB).1 Savings and commercial banks thus emerged out of the former branches of the CB and took over the management of saving and credit transactions with the household and enterprise sectors. The persisting linkages within the financial system and those between the financial system and the enterprise sector, on the one hand, and both of their linkages with the government, on the other, posed impediments for rapid success in stabilising transition economies to varying extents.2 In addition to the weak financial system, concentrated industrial structures and large state-owned enterprises of the central planning period enhanced the capacity of enterprises to organise as special-interest lobbying groups. During transition, these enterprises opposed market reforms since they desired to maintain the flow of resources that they were accustomed to obtain, regardless of the degree of their efficiency.3 Moreover, a sizeable portion of the banking sector that remained state- or enterprise-owned continued to lend to inefficient enterprises. Local governments also posed an additional source of resistance to bank and enterprise structuring. As fiscal decentralisation of the former socialist states led local governments to assume many social spending functions at the local level, the central government maintained much of the tax collection function. Local governments therefore resisted the privatisation of local enterprises that remained to be their main source of revenue. Furthermore, in the absence of prudent regulatory and supervisory mechanisms, managers of banks and enterprises that are subject to restructuring often appropriated the profits and assets. Recapitalising such banks and enterprises necessitated large amounts of funds. Given the implied social or political costs of restructuring enterprises that are “too big to fail”, fiscal and monetary authorities in many transition economies continued to subsidise them. Thus, the continued flow of funds to inefficient enterprises generated substantial pressure for inflationary monetary expansion in many transition economies. Inherited economic distortions generated further challenge to stabilisation and market reforms in transition economies. As the inherited monetary overhang and shortages led to high rates of inflation in the periods that followed price liberalisation, expectations of a reform failure and uncertainty about the new relative price structures led enterprises to initially set prices above the market-clearing levels in order to obtain short-term gains. Moreover, as state control over the economy subsided, tax revenues declined,4 increasing the fiscal deficits and thus pressures for inflationary credit expansion. At the onset of market reforms, most transition economies lacked the institutional mechanisms that were necessary to eliminate inflationary pressures, such as a developed financial sector and a sophisticated tax collection system. The absence of both fiscal and financial discipline aggravated these difficulties in implementing market reforms. This paper argues that both central bank independence (CBI) and financial market development (FMD) may facilitate market reforms by helping to enforce fiscal and financial discipline. CBI is generally considered a mechanism to separate monetary policy from short-term fiscal pressures; it thus symbolises the commitment of political authorities to price stability (Barro and Gordon, 1983, Cukierman and Meltzer, 1989 and Cukierman, 1992). In addition, several studies, including Grilli et al. (1991), Alesina and Summers (1993) and Cukierman, Webb, Neypati (1992) and Cukierman, Miller, Neypati (2001, in press), show the negative association of CBI with the level and variability of inflation. In view of the increase in the number of legally independent CBs in the 1990s, Maxfield, 1994 and Maxfield, 1997 studies the underlying motives and circumstances for creating an independent CB in developing countries. Among those motives, she emphasises the motive of signalling creditworthiness. Policy makers who are strongly committed to establishing financial discipline and price stability may grant CBI. Maintaining CBI, however, requires, inter alia, politically powerful groups that have anti-inflationary incentives. As Goodman (1991) and Posen (1994) point out, FMD is most likely to yield such strong anti-inflationary interest groups. A developed financial market not only provides the government with non-inflationary means to finance fiscal deficits and is, therefore, usually associated with low inflation, but it is also likely to generate a strong opposition to inflation, because inflation harms financial intermediaries that lend long term and borrow short term. Hence, as a developed financial market facilitates both establishing and maintaining an independent CB, CBI, in turn, facilitates FMD by forcing, through hard budget constraints, financial intermediaries to lend efficiently. Economies with high inflation and deficits may, nevertheless, have difficulty in adopting laws and regulations to attain an independent CB and a developed financial system as the government’s financing needs and the formation of inflation lobbies usually hinder such developments. Hence, causality between such institutional measures and macroeconomic indicators can in fact be both ways. This paper explores the association of both CBI and FMD with the economic performance of eight former centrally-planned eastern European countries in transition, namely, Albania, Bulgaria, the Czech Republic, Slovak Republic, Hungary, Poland, Romania and Slovenia. The measure of the degree of CBI is based on the set of criteria developed by Cukierman et al. (1992, referred to as CWN herein). This measurement reveals that many transition economies in eastern Europe have adopted laws that grant the CB rather high degrees of independence, even when compared to the Bundesbank which is considered to be the most independent CB. We then modify this set of criteria by adding three other criteria: (1) financial independence of the CB, (2) supervision of banks, and (3) emergency credits, the latter of which is particularly relevant for transition economies, where, due to a weak financial system, the CB is more likely to be viewed as the lender of last resort than otherwise. Next, we provide several measures of FMD: the ratio of credit to the private sector to GDP, the M2 to GDP ratio (also called as financial deepening), the interest spread (), the ratio of time deposits to GDP (as a measure of confidence in the banking sector5) and, the real interest rates. Finally, we investigate the association of these CBI and FMD indices with some major macroeconomic indicators. The findings of this analysis suggest that both the degree of CBI and the measures of FMD appear to be related with selected macroeconomic variables of interest.

In view of the fiscal and financial problems inherited from the system of central planning, this study hypothesises that both CBI and FMD are significantly related with macroeconomic performance in transition economies. The measurement of legal CBI based on a comprehensive set of criteria indicates that, in the early 1990s, many eastern European economies in transition have enacted CB laws that granted the CBs rather high levels of independence. We, nevertheless, argue that imposing overly strict legal lending limits on the CB may not be sustainable and, therefore, credible in many transition economies. Given the high social and political costs of transition, setting realistic targets for monetary policies and maintaining transparency, both in lending and in rescue operations, are important for both the credibility of monetary policies and the success of market reforms. Our empirical inquiry via an event analysis suggests positive association of both CBI and FMD with price stability. In addition, credit to the private sector, in ratio to GDP, and the ratio of time deposit to GDP, as measures of FMD, appear to be significantly associated with budget deficits and real GDP growth in the period that follows the enactment of the recent CB laws. Another measure of FMD, the interest rate spread, is also significantly associated with growth in the period that follows the enactment of the recent CB laws.