Stagflationary Effects of Stabilization Programs in Reforming Socialist Countries: Enterprise-Side and Household-Side Factors.

Abstract

Dismantling subsidies could give rise to serious macroeconomic difficulties in the short run. This article explores a view based on the enterprise sector as a central source and main channel of the stagflation phenomenon, using as an example the stagflation that followed the 1990 stabilization program in Poland. The stagflation phenomenon is linked to features of the financial market that are somewhat peculiar to reforming socialist economies: the weak credit links between households and enterprises, and the existence of large interenterprise debt. The policy implications of the enterprise-side view include more explicit consideration of initial conditions in the credit market, implementation of privatization schemes, and the development of a domestic banking system. Copyright 1992 by Oxford University Press.