Brainard Wins Amex Prize, Deserves Nobel For Analysis Of Eastern European Financial Crisis

The Center for Security Policy today applauded the work of Bankers Trust senior economist Lawrence J. Brainard, one of the most astute analysts of contemporary global financial affairs. In doing so, it joined American Express Company — which last week awarded Dr. Brainard first prize and $25,000 in its 1990 Essay Competition in International Economics and Financial Markets for a paper originally entitled "Reform in Eastern Europe: Creating a Capital Market."

The Center celebrated this accomplishment by releasing key excerpts of the Brainard essay as recently updated and given a new title, "Strategies for Economic Transformation in Eastern Europe: The Role of Financial Market Reform." In this seminal analysis, Dr. Brainard reveals why economic reforms in Eastern Europe — including those prescribed by the IMF and World Bank — have failed thus far to produce urgently needed growth.

Dr. Brainard maintains that reform efforts over the past decade in countries like Poland, Hungary, and Yugoslavia have floundered because conventional economic stabilization programs have failed to tackle bank reform. He notes that, "Privatization cannot succeed without a functioning capital market. And a capital market cannot be created unless a thorough reform of the banking system is enacted. Privatization and banking system reform, therefore, must go together."

In Dr. Brainard’s view, unless existing banks in Eastern Europe are restructured, Western credits and resources going into these countries will likely be squandered; instead, they will probably simply serve to perpetuate the power of those members of the nomenklatura who are benefiting from the existing economic structure. It would be folly for the West to provide such assistance absent structural reform in the banking system.

"Larry Brainard’s analysis should be required reading for any U.S. government official or Member of Congress hoping to encourage the creation of genuine free market systems and economic prosperity in Central and Eastern Europe," said Frank J. Gaffney, director of the Center.

Gaffney added, "Dr. Brainard provides a practical and time-tested blueprint for promoting a viable financial base. His guidelines must be followed if the substantial amounts of Western assistance to this region now being contemplated are not to be wasted. Worse yet, failure to adopt the Brainard approach may cause the democratic reform movements — whose continued popular support will depend greatly on economic success — to lose their all-important political legitimacy."

The key excerpts of Dr. Brainard’s award-winning essay are attached; copies of the complete text may be obtained by contacting the Center.