FISCAL-POLICIES IN EASTERN-EUROPE

We focus on the role of fiscal policies in macroeconomic stabilization in eastern Europe and assess the sustainability of fiscal policies fo r the central and eastern European economies in transition. We show th e main causes of fiscal imbalances experienced at the beginning of the transition process. Countries that adopted tight fiscal policies were more successful with their inflation stabilization programmes, have e xperienced a faster recovery of growth, and did not experience a steep er decline in output. Countries with unsustainable fiscal policies all floated their exchange rate, bur there are both floating and peg arra ngements among the successful stabilizers. In all the successful cases , however, current account convertibility was established. We also dis cuss the experience of Poland and Romania--two polar cases in terms of fiscal policies and present lessons and policy recommendations for ot her economies in transition.