The Reform Process Comes to a Sudden Halt (1989)

Abstract

Half a year after the introduction of the “restrictive measures” in October 1988 (i.e., in March 1989) it became clear that the restrictive policy aimed at “control of the economic environment and restoration of economic order” (henceforth: controlling and putting in order) had not brought the desired result in the short run. Not only did the centralized measures squeezing the supply of money and credit cause difficulties in the first quarter of 1989 in the procurement of agricultural products; they also significantly disorganized industrial production and the whole domestic commodity turnover. Since the measures affected mainly that state enterprises, a growing number of these became insolvent. This insolvency showed not only, and not even mainly, in the cooperative deliveries among firms (since in these cases mutual settlement without cash, through bank accounts, and by issuing bills of exchange was still possible), but also in the procurement of basic agricultural and raw materials, as well as with the payment of wages and premiums. Not infrequently, this entailed the stopping of production or even of work, and this quite naturally resulted in new shortages on the markets. This is why the PBC finally had to relax the restrictions and instruct the industrial, commercial, and other specialized banks to make available the credits on circulating assets needed for continuous purchase of materials and for production.