Macroeconomic Reforms
and Enterprise Constraints

data Data and Source

In a centrally planned economy, securing inputs for an enterprise is a major problem while enterprise financing is relatively unimportant. Under central planning, financial resources are allocated passively in responses to enterprises' financing requirements, and financial resources do not determine an enterprise's ability to secure inputs. Instead, inputs are rationed through bureaucratic means, and enterprises confront a chronic shortage of inputs.

Budgetary discipline in financing enterprises and price liberalization creates a market for raw materials and inputs. Limited financial resources constrain enterprises' ability to demand inputs and creates an inverse relationship between the price of inputs and an enterprise's demand for inputs. Price liberalization allows the price of inputs to adjust to equate the demand for inputs with the supply. Thus enterprises' problems shift from finding ways to secure particular inputs to finding ways to secure capital.

A measure of the development of product markets is the extent to which securing inputs becomes a financial problem rather than an issue of bureaucracy, barter, or personal connections. The shift in the nature of problems confronting enterprise managers in the Russian Federation since the price liberalization and macroeconomic reforms in early 1992 indicates progress toward the development of a market economy. In contrast, the pattern of enterprise constraints in Kyrgystan is more typical of that prevalent under central planning.

topic Enterprise Restructuring in the FSU