Therefore, the authorities in Eastern Europe had to suppress reforms whenever the requirement for reform (b) came up. As a consequence, Eastern Europe experienced a repeated history of reform and suppression until the political pressure from the USSR was removed in the late 80s. Once the political pressure was removed, these countries experienced drastic political shifts, until finally the dictatorship of the communist party was broken down. Under the new regime, radical economic reforms were also pursued partly reflecting the commitment of the IMF and World Bank.

On the other hand, the Asian planned economies succeeded in implementing reforms beginning with (a) and gradually moving to (b) without drastic changes in their political systems. Thus, the reforms in the Asian planned economies have displayed more continuity.

## 1 -2-2 External Factors

In addition to the above-mentioned inefficiency of these domestic economies, we can point out the inefficiency of the external transaction system of the planned economies as well.

The Council for Mutual Economic Assistance (CMEA) had the following problems.

First, there was no rationality in the international division of labor in the CMEA. Although the division of labor was in principle to be determined by considering both efficiency and equality, in actuality greater importance was given to equality, which sacrificed efficiency.

Second, international trade, both in volume and price adopted, was prescribed in advance by bilateral trade plans for each item. In the trade plans importance was attached to the bilateral trade balance. The prices had little flexibility and an irrational price system which reflected little of the price changes in the international market was generated.

Third, the multilateral settlement mechanism did not work. Though in principle multilateral settlements became possible with the introduction of the transferable ruble and the establishment of the COMECON Bank in 1963, since actual trade was still based on bilateral trade plans which attached importance to the bilateral trade balance, the transferable ruble lacked not only the function as a settlement currency but also the function as a purchasing means. (Even if a country acquired reserves of transferable ruble, the country couldn't use it unless it concluded a bilateral trade plan with another country.)

These problems enlarged the defects of the planned economies, which are (a) lack of incentive and (b) inefficient resource allocation, and brought about several unfavorable results, including the fall of international competitive power, accumulation of international debt, and so on.

China, which did not participate in the CMEA, was aware of these demerits of the planned international transactions. Thus it has adopted an open policy since the early stage of reforms e.g. the establishment of “Special Export Zones” in Guangdong and Fujian provinces in 1979. The open policy of China, and of other East Asian countries such as the Asia NIEs and ASEAN, brought amazing dynamism to the region. The success of the open policies and the dynamism of the neighboring economies must have put great pressure on the Asian planned economies to open up their economies.

The CMEA collapsed in 1991. This seems to have accelerated the confusion in Eastern European economy. Most of the former Asian planned economies, to the contrary, especially