Size and Structure of Budget The state budget constituted the center of the Soviet financial system and Soviet financial planning. It disposed of different resources than those of the government budgets in market-directed economies and spent these resources for different purposes. It was an instrument of the state as owner and manager of the economy, an instrument for coordinating the material and financial plans, correlating the centralized and decentralized funds, controlling the activities of enterprises and associations, and channeling a large part of the state's resources and of various kinds of subsidies toward the selected branches of the economy. The budget system was hierarchically consolidated. The USSR state budget ( Gosudarstvennyi biudzhet SSSR ) included the Union budget ( Soiuznyi biudzhet ) as well as the budgets of each of the fifteen union republics ( Gosudarstvennyi biudzhet soiuznoi respubliki ). The latter, in turn, included the republic budgetitself as well as the budgets of the autonomous republics and the local budgets ( mestnyie biudzhety ). In keeping with the principle of all-union centralization, only the budget of the USSR had the right to levy taxes, whether all-union, republic, or local; the budgets of the lower level had the right to their âownâ revenues, but these were designated from above. In the system that prevailed until the late 1980s, there were no clear-cut indications as to which specific budget collected which revenue and which specific expenditures were made by each budget. Data on the structure of budget revenues and expenditures indicated only the total distribution by levels.
Vesna Pendovska, Aleksandra Maksimovska Veljanovska
This paper is about the local utility services in the decentralization process in the Republic of Macedonia. Particular emphasis is placed on the legal framework for financing municipal utility services through the decentralization process. Since the utility service tariffs are relatively low, the Macedonian utility companies want to increase their tariffs up to cost recovery levels to achieve higher standards required by the EU Directives. The paper also deals with financial relations between the central and local authorities versus the utility company management and the current state of providing utility services in light of financial issues. It has been found out that there is a huge potential to improve user charges. However, due to the current economic situation and the unwillingness of customers to pay higher fees, this solution cannot be applied for the time being. KEY WORDS: âą public service delivery âą financing municipal activities âą public enterprise âą Macedonia
Private Equity Investment is a financial innovation under new economic situation, which highly contributes to the cultivation of multi-hierarchy capital market, the reduction of financial risk, and the promotion of hitech industry. However, Private Equity Investment develops very slowly in China, contrasting to the rapid growth of Chinese economy, making against the enhancement of power of capital allocation and decentralization of risk, making against industry innovation transition. It is no doubt of great significance that to fund in-depth analyses the Private Equity in the backdrop of China's current excess liquidity, financing pattern of inadequate optimization, and the capital market level is not rich, and other issues.
We are now in the era of the G8, although the G7 still exists as a grouping for Finance Ministers. Why do G7 finance ministries and central banks co-operate? What are the implications of this co-operation for US power and the abilities of the other six states to exercise leadership? What role do the G7 play in global financial governance? How much authority do they possess and how is that authority exercised? This is the first major monograph on the political economy of G7 finance ministry and central bank co-operation. It argues that to understand the contribution of the G7 to global financial governance it is necessary to locate the process in the context of a wider world financial order comprised of decentralized globalization. It also provides original case study material on the G7's contribution to macroeconomic governance and to debates on the global financial architecture over the last decade. It assesses the G7's role in producing a system of global financial governance based on market supremacy and technocratic transgovernmental consensus and articulates normative criticisms of the G7's exclusivity. For researchers in the fields of IR/IPE generally, postgraduate students in the field of international organization and global governance, policy makers and financial journalists this is the most extensive analysis of the G7 and the political economy of global financial governance to date.
Because of the presence of substantial informational asymmetries between borrowers and lenders, and an incomplete legal framework dealing with creditors' rights and bankruptcy, many debt financing vehicles which are used in developed market economies are poorly suited to economies that are in the transition from being centrally-planned to market-- driven. Our analysis indicates that asset leasing is an effective and efficient solution to the financing needs of borrowers in such countries, in that it lowers the risks and monitoring costs borne by lenders as compared with more traditional loans. INTRODUCTION Since the lifting of the Soviet Union's control over the former communist states of central and eastern Europe approximately a decade ago, and the subsequent dissolution of the USSR itself, the countries affected-- some of which have only recently been created--have been in the process of making the transition from centrally-planned to market-driven economies. In that process, they have been the recipients both of financial support and economic advice from the developed nations of the West. Among the critical choices the countries have had to face is the speed with which they should seek to accomplish their respective transitions. That has been a contentious domestic political issue in virtually every instance, and has been the subject of differences of opinion among the nations' Western advisors as well. Some have recommended taking the decentralization and privatization plunge immediately and comprehensively, while others have argued for a more deliberate pace. The choices made and the results achieved have varied widely across jurisdictions. While the debate about the most appropriate pace of transitioning continues, there appears to be general agreement that the creation of a well-functioning capital market at some point along the way is integral to the success of the effort. This involves more than simply setting up a securities exchange. It necessitates the establishment of ownership and control rights, transfer procedures, disclosure requirements, provisions for investor protection, bankruptcy laws and creditors' rights--and an effective regulatory and judicial system to enforce the rules fairly and reliably. These of course were and remain among the least-developed features of all the previously-socialist economies. The issue we address here is the means by which firms in such countries might most logically arrange to finance the acquisition of capital assets during the current early stages of the transition of their economies, when financial markets are in an embryonic state. We argue that leasing provides a near-ideal solution to firms' financing problems in that setting. LAWS, CAPITAL MARKETS, AND ECONOMIC DEVELOPMENT The overriding goal of privatizing the stateowned enterprises of a transitioning economy is to promote increased economic efficiency by exposing those enterprises to the discipline of competition in both the product and capital markets. There is evidence from a number of studies that privatization in fact generally accomplishes this objective. In the vast majority of cases, output and employee productivity rise, cash flow and profit margins improve, capital expenditure rates increase, debt levels are reduced, and more workers are ultimately employed (Boardman and Vining, 1989; Galal, Jones, Tandon, and Vogelsang, 1992; Megginson, Nash, and van Randenborgh, 1994; Pohl, Anderson, Claessens, and Djankov, 1997). In order to achieve these gains, not only goods and services but also the ownership claims to the newly-privatized corporate assets must trade freely among consumers and investors in the marketplace. The trading of those claims is what enables the economy's factors of production to be priced, and its assets thereby to be allocated to their most productive uses. The more efficient the marketplace for the claims, the better the resulting allocation. âŠ
Reviews the process of creating an economy dominated by the private sector, discussing the entry by new private businessâparticularly, the privatization of state-owned firms, farms, housing, and commercial real estateâand analyzing why different approaches to ownership change and divestiture can be associated with positive economic results. Different countries will launch privatization at different moments, but once adopted, firms and farms transitioning from central planning need major restructuring of their production and reorientation of their incentives. Entities that face strict financial discipline and competition and have clear ownership will most likely undertake the needed restructuring or exit, leaving room for new and better firms. In the short run, financial discipline can be fostered through stabilization and liberalization measures, but in the long run, decentralizedâpreferably privateâproperty rights and supporting institutions need to sustain financial discipline, respond to market-oriented incentives, and provide alternative forms of corporate finance and governance.
Abstract Privatization has become an international phenomenon. Most attention has been devoted to privatization by stock market flotation or by sales to third parties. Management and employee buyâouts present a third main possibility for transferring assets from the public to the private sector. This paper discusses the scope for privatization buyâouts in LDCs and âpostâcommunistâ economies in the light of conceptual issues and UK experience. The positive aspects of privatization by management and employee buyâouts concern: ownership incentives; the introduction of control mechanisms by institutional investors and various types of financing instruments; indigenous ownership, decentralized privatization; greater incentives in firms where specific skills are involved; the ability to improve trading relationships between a privatized supplier (the buyâout) and its former parent, which remains in the public sector where the supplier is heavily dependent on its former parent; and the general contribution of buyâouts to a redrawing of a state firm's spread of activities to create a more viable entity. The potential problems with buyâouts concern such issues as: absence of entrepreneurial skills; the scope of their applicability; the potentially restrictive effects of debt and debtâlike finance; the need to deal with investment requirements of firms; the lack of personal wealth; the use of inside information by managers to purchase a firm at a price which is to the detriment of the public interest; and the possibility of social and political problems if individuals are perceived to enhance their personal wealth significantly as an accident of where they work. There are means by which many of these potential problems can be dealt with and the paper addresses these.
U.S.-Japanese Corporate Finance For at least two decades, Japanese corporate investment consistently has outpaced U.S. corporate investment. One of the leading explanations of this phenomenon--and a favorite among U.S. corporate managers--is that the cost of capital is lower in Japan than in the United States. The combination of lower real interest rates and higher stock prices makes it cheaper for Japanese firms to borrow money and issue equity, enabling them to invest more. But how do we square this explanation with the view held by many economists that capital is mobile across national borders? If capital is indeed cheaper in Japan than in the United States, why don't U.S. companies go bargain hunting for capital in Japan? The answer may lie in differences in the structure of corporate financial markets between the two countries. 1) In 1977, the average debt-equity ratio of Japanese companies was roughly four times that of U.S. companies; it is now about the same. 2) Until fairly recently, about 90 percent of all Japanese corporate debt took the form of short-term bank loans; during the same period, only about 30 percent of U.S. corporate debt was financed by banks. 3) In a sample of financially distressed U.S. public companies, roughly one-half filed for reorganization under Chapter 11 of the Bankruptcy Code; in a comparable sample of Japanese companies, none filed for bankruptcy protection. These stark differences in financing behavior suggest tha there is more to understanding the cost of capital differences than a simple comparison of interest rates and stock prices. I have conducted research with Takeo Hoshi, Anil K. Kashyap, and David N. Weil that may shed some light on how structural differences in the two financial markets--many of which are quickly disappearing--could explain in part why corporate investment in Japan has been higher than in the United States. Relationship Banking in Japan Historically, the linchpin of Japanese corporate finance has been the close relationship between a firm and its main bank. The main bank provides debt financing, owns some of the company's equity (by statute, no more than 5 percent), and may even place bank executives in top management positions. This system is similar in many respects to West Germany's, but it contrasts sharply with U.S. financing practices. Here, large companies generally have a more arm's-length relationship with the capital market; their debt and equity tend to be held diffusely. Japanese banking practices are driven more by relationships, while U.S. banking practices are driven more by price. For many Japanese companies, the main bank relationship is part of a larger industrial structure known as the keiretsu, a group of companies centered around affiliated banks and other financial institutions. These companies also have strong product--market ties to each other that are strengthened by cross-share ownership. Historically, the links have been strongest in the six largest keiretsu--Mitsubishi, Mitsui, sumitomo, Fuyo, Dai-ichi Kangyo, and Sanwa. This corporate financial structure can facilitate investment through at least two distinct channels. first, the main bank and keiretsu system can provide a ready source of funds to companies that otherwise would be unable to raise capital in a decentralized market. Thus, even though the system may not affect the cost of capital, it can affect the availability of capital. Second, the main bank and keiretsu system can lower the costs of financial distress. This facilitates investment in two ways: by ensuring that companies with valuable investment opportunities are able to exploit them; and by enabling companies to take on more debt, which generally is thought to be cheaper than equity. I consider each of these channels in turn. Liquidity Constraints and Investment In a frictionless capital market, companies with valuable investment projects should have to trouble raising the funds they need to finance these projects. âŠ
Although the recent performance of the U.S. macroeconomy is being hailed as "the longest modern peacetime expansion s n failures of depository institutions have been closely linked to certain depressed productive sectors in the country. The most stark examples can be found in the depressed farm-belt and oil-producing regions. Observations indicate that financial firms do not or cannot diversify against industry-specific risk when choosing their loan portfolios. Such behavior may be explained by extensive government regulation of the industry's scale and scope or by technological costs of intermediating credit that encourage specialized lending by region or by industry. This paper does not attempt to formally explain why depository institutions engage in specialized lending; rather, it examines some implications of regional and sectoral banking in terms of macroeconomic perf~rmance.~ It considers the short-run implications of bank-capital immobility when banks produce real services in channeling the flow of funds into investments. We illustrate how regional banking conditions can affect the mix of aggregate investment and the level of future aggregate output in the absence of macroeconomic fluctuations. Given the current deregulatory trend in structural policy changes, the nature of the financial services industries has come under intense scrutiny. Recent banking literature has formalized how financial contracts are related to imperfect information. A recurring theme has been that when information is costly, the quantity and nature of external finance has allocative consequences. Diamond (1984) demonstrates how financial intermediaries (hereafter referred to as banks) can improve the efficiency of capital markets by diversifying and thus minimizing information costs; however, perfect diversification makes bank capital and the dispersion of bank asset returns irrelevant to bank portfolio choice. These strong informational assumptions allow the intermediation process to work more smoothly than we observe. If these conditions are not met, bank capital and the risk of bank assets affect bank profitability. Bernanke and Gertler (1987) show how the inability to eliminate variability in portfolio returns implies that "health" of a'bank's balance sheet can affect the flow of funds to risky bank investments. In their model, depositors cannot observe the ex-post returns on bank projects at any cost and bank capital must absorb random asset returns; insufficient bank capital may constrain banks from investing in risky but profitable investments. In a similar framework, Samolyk (1989) examines how the interest-rate risk associated with the maturity transformation in bank portfolios affects bank asset management. This paper will analyze the implications of imperfect information for investment in a decentralized banking ~ystern.~ We present an intertemporal model of banking similar to that of Bernanke and Gertler. Bankers possess a specialized technology that allows them to channel resources to investment projects that would not be funded in direct credit markets. They also have information about their portfolio returns. Unlike Bernanke and Gertler , this analysis attempts to incorporate the notion that there is more than one productive sector in the economy. We assume that in the short run, bank
The Hungarian banking system developed from the first third of the nineteenth century along the continental path, leading to the predominance of universal banks, the department stores of finance. This system of a large number of small banks with numerous branches, a sizable part of them at county and town levels, was controlled by a handful of big banks that were tightly intertwined with large foreign banks. This situation created many well-trained and broadly-skilled bank officers because, especially in the provincial banks and in branches with a limited staff, the bank employees had to be jacks of all trades, mastering all banking and stock exchange operations. Due to the fact that the Association of Banking Employees, a trade-union-like organization, had a strong left-wing audience which had considerable influence among bankers, the higher echelons of banking staffs consisted largely of pro-Allies liberals who had not been associated with Nazism. Thus, to a considerable extent, the new regime was able to draw its banking cadres from professionally well-trained, and politically loyal or neutral people. From 1949 on, even after the filling of the controlling posts with cadres of the labor movement, the lion's share of the former banking staff remained in lower posts as deputies of the new upper-level managerial staff, or in influential advisory jobs. Thus, the correctness and the professionality of banking operations, accounting, calculation, compilation of balance sheets, correspondence, both domestic and foreign, has been maintained at very high standards. Nevertheless, by having eliminated former top-level managers to a large extent, there was and is a scarcity of bankers who are specialists in allocating loans so as to optimize the safety and profitability of a portfolio. This lack was not obvious until the present decentralization because, even after the reform of the economic mechanism in 1968, the autonomy of the banks continued to be severely curtailed. There is a justified hope that Hungary can fill this gap since, from 1951 on, there has been university training for banking, and
Of primary importance to the investor in corporate shares is the dividend return. But many a purchaser of shares has other dominant interests. He may desire merely to qualify to be a director. He may be a pirate and contemplate a particular suit which he can institute only as a shareholder. He may hope to acquire the right of a shareholder to examine the stock ledger or other books or records of the corporation in order to broaden his activities as a broker or promoter. He may seek to gain control of the corporation in order to loot it, or to preclude it from competing with some other enterprise in which he is primarily interested. He may be a speculator buying shares to cover a previous short sale, or in anticipation of a rising market and a profitable resale. No one of these persons has the interest of an investor. The investor buys shares for the long pull, and while he will be gratified by an appreciation in market value, his major concern is with income, i. e. dividends. One investing in corporate shares, whether an individual or an institution, desires the corporation to make the maximum possible profits and to distribute such profits in the form of dividends as rapidly as may be consistent with the continuation of maximum profits in the future. But this may not be the goal of the corporation's management. In many modern corporations the ownership of the shares is so widely scattered that the management, i. e. executive officers and directors, through control of the proxy process for shareholders' meetings, is self-perpetuating.' Where such management control exists, the members of the management may own very few shares, as personal shareholdership is not the basis of their control. And where the officers and directors themselves own very few shares, their interest in the corporation may relate primarily to matters other than the distribution of profits. They may develop philanthropic interests such as raising living standards by increasing wages as rapidly as competitive conditions allow, or by progressively producing more and cheaper units to the benefit of the consuming public. Or they may be interested not in dis-