The implications of that fact should be remembered when assessing the course of changes in the previously centrally planned economies. The transition in Central and Eastern Europe is inevitably a much more complex and longer-term phenomenon, for which no generalised theory could be available to apply. Such radical transformation requires a feasible strategy implemented with wide political support of the population. Transformation requires some minimum speed, and must start with some “critical mass” of change to secure sufficient impact on the behaviour of economic agents. In individual Central European post-communist countries, the sequence, speed, BIS Review 25/1997  -2-  and forms of individual steps necessarily differed; they had different starting conditions, different degrees of political support of the new governments, and they also applied different strategies. The Czechoslovak case At the start of transformation in 1990, Czechoslovakia had some economic advantages over the other Central and East European post-communist countries. In Czechoslovakia, during the preceding decade, state budgets were mostly balanced, foreign debt was low, and the balance of payments showed no big deficits or surpluses. Inflation was relatively low. Even if there was an inflationary potential (reflected not only in open inflation but also in the forms of hidden and repressed inflation) and the monetary overhang was increasing in the 1980s, its dimensions continued to be considerably lower than in the other countries of Central and Eastern Europe. Czechoslovakia, especially the Czech Republic, also had the advantage of a long industrial history, and of well-educated and skilled labour.

From the start, the program included five main parts: - Macroeconomic stabilisation policies: a restrictive fiscal and monetary policy to remove the monetary overhang and to reintroduce macroeconomic equilibrium. - Liberalisation of prices: after 40 years of central price fixing, the bulk of prices were freed. - Liberalisation of external trade - and introduction of partial convertibility (for resident firms’ current account transactions). That required initial devaluation toward an exchange rate seen as viable from the point of view of the balance of payments. - Massive and rapid privatisation, including the use of the voucher scheme. - Social safety net to protect people whose standard of living dropped below poverty line. These adverse impacts of economic transformation were to be contained within tolerable limits. The programme aimed at re-establishing the role of prices and markets for an efficient allocation of resources. For the start, rationalisation of price relations implied a rise of the price level, owing to a monetary overhang, and to low downward price elasticity. In a small open economy, it made no sense to free internal prices without opening the economy to external competition and to world price relations. And, there could be no meaningful liberalisation of imports and exports without current account convertibility, introduced at least for resident firms. The short Polish and Hungarian experience showed, however, that free trade and partial convertibility should not be attempted without a preceding macroeconomic stabilisation.