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After studying the nature and variety of transition in 10 regional capitals of Russia, the authors observe that: 1) All cities have experienced radical changes in their institutions and economies - changes associated on the one hand with the abolition of central planning and the introduction of freer markets, and on the other hand with political decentralization and the introduction of local elections. 2) These changes have led to a wide diversity in economic and social outcomes, reflecting differences in the central government's (inequitable) economic relations with regions with regional as well as differing local and regional policies. Most northern cities adopted policies more consistent with the central government's support of free market reforms; most southern (Red Belt) cities pursued more cautious, protective policies. 3) City governments are using proactive economic policies, including interventions to save local industries. Such efforts highlight the dual nature of the Russian transition, characterized by a shift in power from central to local government as well s public to private enterprises. 4) A major difficulty facing Russian cities is the cost of subsidies to housing and utilities. Real estate in general constitutes a major expenditure category for local government rather than, as in most western cities, a major source of revenue. A transition in this area alone could revolutionize the finances and independence of Russian cities. 5) The jury is still out in what the right social and industrial policies were during the first years of reform. Ulyanovsk clearly lagged on market reforms, and Saratov represents a model of liberalization without institutional support. Both extremes have failed, but so far the social consequences of the Saratov model appear to be worse than those of the Ulyanovsk model. 6) With the credibility of Russia's federal government at an all-time low, foreign investors have no choice but to rely on the competence and reliability of local leaders, especially mayors and governors. They will be looking for evidence of accountability in the form of the rule of law, and transparency in the form of reliable public information. Information at the city level - often unavailable and not easily accessible - would be very useful in attracting local researchers to monitor progress (as a basis for accountability) and diagnose problems (as a basis for public policy debate and political decisions.

In this paper, the authors examine monetary policy in 26 transition economies in Central and Eastern Europe (CEE) and the Former Soviet Union (FSU) between 1989-1994. They provide a schema for classifying the use of 6 important monetary policy instruments, both direct and indirect, and suggest criteria for defining market-oriented use of these instruments. They assess the extent of market-oriented instruments use during the period under review and around stabilization. The impact of instrument use on inflation and financial depth, which declined dramatically during the transition's early years, is also explored. The authors indicate several clear patterns. Among them, by the end of 1994, slightly less than half the countries were relying primarily on market-oriented forms of monetary instruments and had moderate or low reliance on such instruments. Countries quickly formulating a monetary policy response were more likely to switch to market-oriented instruments. Second, CEE countries moved more rapidly than FSU countries towards these forms, even when stage of stabilization is controlled for. Third, using credit ceilings appeared helpful in the year of stabilization, especially in CEE countries; the elimination of these controls was associated with effective stabilization. The authors conclude that monetary stability goes hand in hand with adjustment in the real sectors. Generally, the relatively weak link between market orientation of instruments and indicat effective suggests thst inflation control and financial depth are more directly related to policy stance, which is in turn related to broader structural reforms.

Private services could contribute greatly to economic growth in Russia and the other former Soviet states. The authors use econometric analysis to identify the gap between expected and actual levels of service activities in these countries and simulate the effect on GDP and employment of closing the gap. The gap is particularly wide for business and consumer services. Transport and publicly provided services are comparable to, or higher than, those in other countries. Traditionally, the Marxist doctrine of socialist economies has labeled services"nonproductive."And there is continuing evidence that national policies in these countries favor producers of goods over producers of services. In Russia, for example, there was until recently a 25 percent ceiling on trade margins for some products, and the enterprise profits tax is higher for producers of services than for producers of goods. Also, coefficients for real estate lease payments are sometimes higher for service firms. It will be important for Russia and the other former Soviet states to identify a policy agenda to facilitate the rapid expansion of services. The policy agenda should entail legal, economic, and institutional changes to eliminate the current bias against services, so that service firms can operate on a level playing field. It should also include proactive programs to stimulate a rapid increase in the level of service activity. Appropriate measures may include: (a) changes in the tax law, the regulatory framework, and other economic incentives; (b) government programs to accelerate private sector development and the privatization of government distribution and service activities; (c) training for enterprise employees to facilitate their transfer from production to service activities; (d) action to support the orderly development of input and output markets; (e) creation of a modern banking system that will use appropriate criteria to provide credit to service enterprises; and (f) consideration of service activities as priorities for international technical assistance and direct foreign investment.

This model was developed to provide a moacroeconomic framework for Tunisia's structural adjustment program and a flexible tool for further country economic analysis. As currently specified, it is designed to analyze fiscal, debt, and incomes policies, while deriving implications for the exchange rate and for the availability of credit to the private sector. Several policy experiments are carried out to illustrate this focus, and suggestions are offered for variations in model closure and detail.