Stabilization programs in Eastern Europe : a comparative analysis of the Polish and Yugoslav programs of 1990

The authors compare the implementation of two apparently similar stabilization programs by two reforming socialist countries, launched two weeks apart (Dec. 1989 in Yugoslavia and Jan. 1990 in Poland). They investigate possible differences underlying the apparently similar programs that may account for better initial performance of Yugoslavia's program (a sharper reduction of inflation with smaller losses in output). The authors identify significant differences in initial conditions in the two countries as well as the sequence and degree of some policy measures. The differences may explain the difference in the early results. They also identify the most important issues the two countries must address in the second stage of reform. These include the unfreezing of nominal variables and resolving the critical structural problems affecting both economies. The authors conclude that the microfoundations of socialist and market economies are clearly different. These differences imply that in socialist economies the case for including incomes policy in stabilization programs may be stronger.