"Financing transition: investing in enterprises during macroeconomic transition"

1998

"Financing transition: investing in enterprises during macroeconomic transition"

Willem H. Buiter, Ricardo Lago, Hélène Rey

http://www.ebrd.com/pubs/econo/wp0035.pdf

Chapter 4 of the book :
Financial Sector Transformation
Lessons from Economies in Transition
by Mario I. Blejer and Marko Skreb (Editors)

ISBN: 0521640377, ISBN13: 9780521640374, 412 pages, hardback Published by Cambridge University Press on 1999




Summary .This paper examines investment decisions and financing during the transition to a market economy, and the link between enterprise performance and macroeconomic conditions. A number of simulations are carried out on three stylised EBRD investments across three groups of countries in transition. The main results indicate that investments in Greenfield enterprises are generally more attractive in countries of advanced transition than in countries of early transition. This is so because the cost of a Greenfield investment can be assumed constant irrespective of the country where it takes place, whereas the returns (cash flow) of the investment in the early transition countries are much more volatile and may be less favourable. Likewise, for countries of early transition, debt investments are less attractive than equity because the very high downside risk is not compensated with an upside payoff. Finally, the more risk- taking investors willing to invest in early transition countries should consider equity investments in pre-existing assets. The reason is that the higher volatility of the returns of these immobile assets is already "priced in" as a significant discount in their price. The paper concludes with some reflections as to whether commercial banking -- investing in a portfolio of loans -- is a commercially viable activity in early transition economies. The main intuition is that it appears that countries need to have advanced beyond a "threshold" of progress in transition for commercial banking to become a profit-making activity.

"The Financial Sector in Transition Economies Ten Years After: The Issues, the Record, and the Challenges"

2002

"The Financial Sector in Transition Economies Ten Years After: The Issues, the Record, and the Challenges"

Ricardo LagoTIGER Working Paper Series No. 23, Warsaw, August 2002

http://www.tiger.edu.pl/publikacje/TWPNo23.pdf

"The Illusion of Pursuing Redistribution through Macropolicy: Peru’s Heterodox Experience 1985-90"

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"The Illusion of Pursuing Redistribution through Macropolicy: Peru’s Heterodox Experience 1985-90"

http://www.nber.org/chapters/c8303

Chapter 9 in NBER and Chicago University Press book The Macroeconomics of Populism in Latin America (1991), Rudiger Dornbusch and Sebastian Edwards, editors (p. 263 - 330)Published in January 1991

http://nber15.nber.org/bookcv_chicago_1/dorn91-1.pdf


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