takes the form of inflation. Substantial relative price adjustments are a third reason. In hindsight, common complaints that too much attention was being devoted to combatting inflation appear particularly misplaced (Nuti, 1992; Nuti and Portes, 1993; Portes, 1993). There is no room for fine-tuning in post-communist stabilization.

Another important criterion for successful transition is deregulation. In theory, stabilization can take place without liberalization, but in the reality it has proved impossible in the post-communist countries because price regulation is usually connected with substantial subsidies that must be reduced if financial stabilization is to succeed. Today there are a number of competing liberalization indices, produced by the World Bank (1996:14), the European Bank for Reconstruction and Development (EBRD) (1995), the Heritage Foundation (Johnson and Sheehy, 1996), and the Fraser Institute (Gwartney et al., 1996). These indices try to compound various indicators of liberalization, such as foreign trade obstacles, price regulation, tax levels, freedom of enterprise, and quality of financial markets. The World Bank liberalization index shows a clear correlation between liberalization and financial stabilization (de Melo et al., 1996).

In an international context, most of the post-communist countries do not rank very high on the rather varied liberalization indices. Unfortunately, the EBRD and the World Bank do not compare the transition countries with countries in other parts of the world, and the EBRD has not even elaborated a composite index. The Heritage index, which endeavors to reflect 1996, includes 140 countries. It puts the Czech Republic as no. 12, and Estonia as no. 26, but the next transition country on the list is Hungary at no. 57; Bulgaria and Russia are no. 100. The Fraser Institute ranks 103 countries for 19931995. Its earlier point of measurement puts the transition countries at a disadvantage, and the highest-ranking transition country is the Czech Republic at no. 51; Hungary is no. 85, while none of the post-Soviet states is included.

We can somewhat arbitrarily choose one of the liberalization indices and define a market economy as a country that surpasses a certain level on that index. Examining how far different countries have advanced toward a market economy at various times, it appears reasonable to put the threshold at 0.5 on the World Bank's liberalization index. Thus, we say that any country that surpasses this level is sufficiently liberalized to qualify as a market economy. Almost all the post-communist countries had passed this test by 1996. The exceptions are rare—notably Turkmenistan, Tajikistan, Azerbaijan, and Belarus (de Melo et al., 1996). We could also use the qualification of an open economy according to the criteria defined by Sachs and Warner (1995), which they identify as the threshold to economic growth. Today those criteria would result in approximately the same four countries being excluded. Moreover, there is only one example of an outright backlash after significant liberalization, namely Ukraine in 1993, which at the time had not been highly liberal-