Stabilization in Poland Guillermo A. Calvo and Fabrizio Coricelli We examine the dynamics of the January 1990 stabilization programme in Poland, focusing on the substantial and sudden collapse in industrial output, and inflation persistence. We discuss three, non-mutually exclusive, explanations of these phenomena: (1) excessive initial stocks of inventories, (2) an exogenous fall in household demand and (3) tight credit We conjecture that tight credit was at centre stage: it helped to magnify the fall in output, and to coordinate such a fall across sectors. We base such a conjecture on the existence of substantial credit segmentation, and on the underdevelopment of private credit markets, The latter may explain the substantial shrinkage of interenterprise credit, compounding the initial contraction of bank credit They argue that credit tightness is reflected in firms offering wages below the programme's ceilings, especially given that firms are controlled by Workers' Councils. This conjecture is further strengthened by the fact that wages increased, and even went beyond the programme's ceilings, as credit expanded during the year. We argue that the wage hike may be the reason why credit expansion did not result in a major output recovery, and inflation persisted during the year.
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