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CONTENTS ivThis Occasional Paper analyzes the experience of countries that have implemented very sizable fiscal adjustments over the past three decades. It aims to identify key conditions and institutional approaches that have contributed to sustained outcomes and to favorable macroeconomic developments.

Russia, the Baltic states and the other countries of the former Soviet Union inherited health and education systems that were in need of substantial structural and financial reform. In spite of a sharp decline of real resources, this reform has barely begun. While health and education have not suffered disproportionate cuts, employment has been maintained, with real wages sharply compressed, purchases of materials reduced and energy-related spending taking a greater share of resources in many countries. Structural and financial reform would include reducing staffing and physical capacity, while increasing expenditures for materials and wages for the more highly qualified.