This research tackles issues of fiscal policy and of social and economic development in the transition economies of the Commonwealth of Independent States (CIS). The novelty of this study is a compilation of the topics discussed in a unified fashion. Despite recent economic growth, the still lacking solid market institutional base, persistent inequality and labor migration, lagging social systems and inconsistent fiscal revenue continue to shape the development context of the twelve CIS economies. Now, after sharp fiscal contraction at the height of the market reforms, the state is back in the economy. That role is not clearly identified and strategic approach has to be worked out in the unique conditions of state-capitalism. Crucially within the CIS countries may be categorized between net exporters and net importers based on their external positions.
As an intellectual roadmap, this study reviews several key aspects of fiscal policy, development, and political economy in each country group. Addressing the balance of payments and role of state the study refutes the twin deficits proposition due to missing correlation between fiscal and external deficits in the CIS. The true drivers are elsewhere and are specific to country circumstances. Review of fiscal policy sustainability raises concerns as budgets are stretched. Despite net exporters' reliance on energy exports recent events of the 2008-2009 global crisis have got all CIS economies in search of new sustainable financing sources.
One alternative to low cost operational fiscal income proposed in this study is a Diaspora bond - a debt instrument with a patriotic discount for the expatriates. Revenue from that must be channeled to strategic public investment in education and infrastructure (e.g. Strategic Learning Systems and Infrastructure Development Fund) facing innovation and rapid growth challenges. Related to the Diaspora efforts are the proposals of Diaspora Mechanism and Migration Development Bank to help the CIS economies regulate labor migration trends and remittances flows, which have had distortionary effects on smaller economies but a benefit to the larger net exporter countries; and to address the welfare problems of the army of migrants.
With new fiscal revenue sources and potential access to the Diaspora, the fiscal diamond of fiscal policy efficiency becomes a fiscal net, custom tailored for each country's specifics. Exchange rate fluctuations and current account changes correlations in the newly open CIS economies are important. Econometric analysis suggests the J-curve effect with country variations. Due to the quantity effects, political and economic sensitivity of exchange rate in transition, and reliance on imported consumer goods, early detection is instrumental.
Related to exchange rate vulnerability and currency shock is the model of currency reserves targeting, built and estimated in this study. Geared towards the CIS, the model also considers external, private and public debt outcomes of blended fiscal and monetary policy decisions characteristic of the CIS. The model analytically assesses the potential financial crisis and currency-run in transition. This then has direct application in the context of the current economic meltdown that has affected the transition economies.
Ongoing global economic crisis is the test to the CIS economic development model's resilience. It is apparent that strong state's role is needed. Design of proactive and innovative fiscal program, effective fiscal policy, will be the key to the sustained well-being and growth of the post-socialist economies of the CIS. This study attempts a unified and novel approach to the problem analysis within a general social and economic development scope.