Steven Fries

Barter and Non-Monetary Transactions in Transition Economies: Evidence from a Cross-Country Survey

This paper reports the findings of a survey of more than 3,000 firms in 20 transition countries. It shows that barter and other non-monetary transactions (including the use of bills of exchange, debt swaps, barter chains, and the redemption of debt in goods) are an important phenomenon in Russia and Ukraine. Contrary to what is commonly believed they are not negligible in Central and Eastern Europe. The causes and consequences vary significantly between countries, but several conclusions emerge strongly. First, barter and other non-monetary transactions are associated in all countries with financing difficulties for firms. They appear to be helping to assure liquidity in an environment in which contract enforcement (including tax enforcement) is uncertain. Secondly, the use of these mechanisms is not significantly related to the restructuring and performance of firms that use them in most countries except Russia. Thirdly, in Russia and Ukraine the nature of non-monetary transacting is importantly different from elsewhere. It is much more associated than elsewhere with market power and limited trading networks. It is also more costly in terms of restructuring and performance. Firms that barter are less likely to improve their existing products, probably because barter enables them to dispose of otherwise unsaleable goods. They are also more likely to engage in internal reorganisation of a kind designed purely to service existing barter chains. Internal reorganisation is strongly associated with improved performance for firms that do not barter, but is unrelated to performance for firms that do. Overall, in Russia and to a lesser extent in Ukraine (but not elsewhere) the findings are consistent with the hypothesis that economic disorganisation, in the sense of Blanchard & Kremer (1997), means that barter and other non-monetary transactions are both more likely to occur and more damaging when they do occur.

Corporate Governance in Developing, Transition and Emerging-Market Economies

• Sound national systems of corporate governance are essential for all countries, including the poorest, to reap the benefits of globalisation. • “Corporate governance” comprises the institutions that govern the relationship between people who manage corporations and all others who invest resources in them. • The quality of local corporate governance critically affects a country’s ability to achieve sustained real productivity growth and the success of its long-term development efforts. • Pyramidal corporate-ownership structures, cross shareholdings and multiple share classes are widely used by corporate insiders in the developing world to extract corporate-control rents, exploit other investors and resist pressures to improve corporate governance. • The power of corporate insiders and their close relationship with those who exercise political power mean that sound corporate governance requires sound political governance, and vice versa.

Market entry, privatization and bank performance in transition

This paper examines how market entry and privatization have affected the margins and marginal costs of banks in the post-communist transition. We estimate bank revenue and cost functions, allowing the estimated parameters to change over time. In the first sub-period (1995-98), we find that privatized banks earned higher margins than other banks, while foreign start-ups had lower marginal costs. In the third sub-period (2002-2004), foreign banks remained low marginal cost service providers, while privatized domestic banks had the widest margins. Subtracting marginal costs from margins to calculate mark-ups, an indication of demand for services, shows that initially privatized banks had the largest mark-ups. However, by the third sub-period, differences among private banks diminished. In comparison to private banks, state banks persistently under-performed in controlling costs and attracting demand. Our evidence therefore indicates that foreign bank entry promoted lower costs and that privatization and market entry encouraged more demand for services. Copyright (c) 2006 The Authors Journal compilation (c) 2006 The European Bank for Reconstruction and Development..

Financial and Enterprise Restructuring in Emerging Market Economies

This paper examines alternative approaches to building sound financial structures in emerging market economies. The foremost task is to resolve the bad loan problem and to recapitalize insolvent state banks. By restoring an incentive for banks to price accurately the risks of new lending, this effort would be an important first step in strengthening financial control. However, we argue that this endeavor is only part of the task at hand; the remainder is to provide financing that facilitates the economic restructuring of SOEs. A comprehensive strategy may involve combining discipline derived from enforcing existing loans to SOEs with adequate funding for new forms of ownership, including financing for enterprise sell-offs and leasing.

La gouvernance d'entreprise dans les pays en développement, en transition et les économies émergentes

• Des systemes sains de gouvernance des entreprises sont d’une importance cruciale dans tous les pays, y compris les plus pauvres, pour pouvoir tirer parti de la mondialisation. • La « gouvernance d’entreprise » englobe les institutions qui regissent les relations entre ceux qui dirigent les entreprises et tous ceux qui y investissent des ressources. • La qualite de la gouvernance d’entreprise determine fortement la capacite d’un pays a accroitre durablement sa productivite reelle, ainsi que le succes de ses efforts de developpement a long terme. • Les dirigeants des entreprises dans les pays en developpement font un large usage de structures pyramidales du capital, de participations croisees et de categories d’actions multiples pour tirer des rentes du controle des entreprises, exploiter les autres investisseurs et resister aux efforts d’amelioration de la gouvernance des entreprises. • Du fait des relations etroites qu’entretiennent les dirigeants des entreprises avec ceux qui exercent le pouvoir politique, une saine gouvernance d’entreprise requiert une saine gouvernance politique et inversement.