Central Bank Independence in Transition Economies

W. Maliszewski 

CASE Foundation 

24

(politically) independent Central Bank while Belarus, Hungary, Kyrgystan and 

Ukraine the least independent. 

3.3.2. Index of Economic Independence 

Table 2 

GMT index of economic independence for transition economies (1996) 

 

D1 D2 D3 D4 D5 M6 M7 

Index 

Belarus 

*  *    *  3 

Bulgaria 

*  * *  *  4 

Croatia 

*  * *  *  4 

Czech Rep. 

a

  * * * *  *  5 

Georgia 

* * * *  *  5 

Hungary 

* *  *  * * 5 

Kyrgystan 

*    * * * *    5 

Latvia 

*  * *  *  4 

Poland

 a

 

* * * *  *  5 

Romania 

*    *  *  3 

Russia 

b

 

*    *  *  3 

Slovak Rep.

 a

  * * * *  * * 6 

Slovenia 

*  * *  *  4 

Ukraine 

*     *  2 

Source: See Appendix 

Notes: 

D1: direct credit facility is not automatic 

D2: direct credit facility is at the market interest rate (or at the basic CB rate) 

D3: direct credit facility is temporary 

D4: direct credit facility is of limited amount 

D5: bank does not participate in the primary market for public debt 

M6: the discount rate is set by the central bank 

M7: supervision of commercial banks is not entrusted to the central bank (**)  

        or not entrusted to the central bank alone (*) 

a

 Direct credit to the Government is not permitted by the CB law 

b

 The Bank of Russia is not allowed to grant credit to cover budget deficit except cases when 

such financing is stipulated in the budget law (see appendix). Thus, this provision sets the limit 

on the Government borrowing (specified in the budget law) and makes it non-automatic (i.e., 

the Government does not decide on its borrowing from the Bank). 

 

Although maintaining price stability is the main goal of most of the Banks, this is 

only rarely backed by precise regulations, crucial for establishing the actual Bank's 

independence. In particular, the provisions for economic independence of the Bank are 

much more diversified than in case of the political independence. The political 

consensus on imposing the limits on the Government borrowing from the Bank is 

probably much more difficult to attain. Only two statutes (Georgia and Hungary) 

specifies that the interest rate on the credit to the Government should be determined by 

the basic CB rate. In only one country (Kyrgystan) the Bank is prohibited from 

purchasing Government securities on the primary market. The limitations on the 

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