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05/13/91

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Experts discuss keys to success in Eastern Europe

STANFORD -- As economic and political reforms sweep across Central and Eastern Europe, the issues of economic liberalization, price stabilization and privatization of state property present difficult challenges to governments in the region, experts said at a Hoover Institution conference May 8-10.

Experts who assembled at the first session of the "Out of the Red: Economic Transition in Eastern Europe" conference included senior-level government officials from six Central and Eastern European nations and policy experts from the United States.

In the session on economic and political reform, scholars and government ministers from Central and Eastern Europe agreed that the challenges facing the fragile governments in the region threaten both legitimacy and stability.

Edward Lazear, senior fellow at the Hoover Institution, said there are a number of basic principles that help make an economy efficient, and that liberalization of prices to market levels is central to the reform process.

This includes a group of legislative and administrative initiatives that establish property rights, promote free trade and institute an efficient tax code.

Lazear said that while these goals are accepted by all, there are political obstacles to their implementation. Individuals can lose even when society gains and the losers will attempt to delay reform through political means.

Edwin Meese, a distinguished visiting fellow at the Hoover Institution, said that property rights are, essentially, human rights. "Economic liberty and the right to private property were essential to the early founders of the nation, and they are essential today," said Meese, and must be a basic and unassailed fact of economic reform. "The ability to own, hold and utilize property is essential," he added.

Jeffrey Sachs, professor of economics at Harvard University, detailed conditions in Poland and said that transferring state property into private hands is crucial to the transformation and development of nations in the region.

He noted that the "best chance for reform" for Poland and the other Central and Eastern European nations lies in their full integration into the European Economic Community. However, he noted, full participation is being limited by Western European governments that are limiting access to their own markets.

Virgil Constantinescu, Romanian ambassador to the United States, said there is a direct relationship between political and economic reform. "They go hand in hand in a complementary manner to achieve an overall goal."

A new Romanian constitution will be adopted by the end of the year, said Constantinescu, with basic guarantees regarding individual freedom.

He noted that economic reforms are "moving at full speed. In the area of land reform, almost 80 percent of the land has been privatized and 100,000 small private companies have been registered in Romania since the revolution."

Nobel laureate Kenneth Arrow, professor at Stanford University and senior fellow (by courtesy) at the Hoover Institution, said that governments must be both credible and flexible in the current situation.

"Governments must lay out plans that are credible and must have the authority -- the leadership -- to be effective," Arrow said. "This must be based on legitimacy instead of power."

Prof. Dragomir Vojnic, director of the Economic Institute in Zagreb, Yugoslavia, said his government "expects a revitalization of the reform program that will make it possible to reestablish the convertibility of the dinar, to control hyperinflation and to revitalize production."

The issue of financial assistance was discussed and Constantinescu commented that "aid should come in significant amounts, but not without conditionality."

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