The Effects of the Demise of the CMEA and the USSR on Output in Hungary

Abstract

The need to reform intra-CMEA trade and the underlining pricing and settlements mechanisms were discussed quite early in Hungarian academic circles. Naturally, the dissolution of this international institution was an issue never touched upon during the discussions, but several possible options for a new mechanism were analyzed in the late 1980s (see, for example, Richter, 1988; Szamuely, 1989). One of these possible mechanisms of cooperation was the abolishment of state trading and the use of convertible currency payments instead of transferable ruble settlements, with the natural implication of the eventual application of world market prices in transactions. When evaluating the costs and benefits of the different options for new pricing and settlements (payments) mechanisms, several institutional questions remain unanswered. For instance, Who would make the decisions and sign contracts for transactions in the new system, especially for the still highly centralized socialist economies? What procedures could be used to enforce contracts? In 1989 and 1990 several calculations on the expected impact of a new settlement mechanism were carried out and official and semiofficial debates were organized in Hungary and in the Soviet Union about the different reform scenarios.[1] These debates helped to reinforce the commitment of Hungary’s government and Communist party to initiate some changes within the framework of the CMEA. It would be difficult to trace the role of these deliberating activities on the process that led to the decision of the CMEA representatives in Sofia in early 1990 to change the system of pricing and settlements within the CMEA starting in January 1991.