This chapter is a review of the early debates on how best to do the transformation from socialist central planning to a market economy with private capitalist owners sets the stage. It is noted that the popular euphoria generated by the fall of the Berlin Wall permeated the world academic community with numerous papers and conferences on the subject, and a broad consensus on the main changes was reached; however, a wide rift occurred on two key points: should this be done rapidly or gradually, and what should come first: market liberalization or development of new institutions? An important clarification is made that criticisms of the Washington Consensus for ignoring social costs of liberalization and institutional development were unfounded straw-man depictions. All relevant documents or statements of international institutions clearly include both of these elements; at most, such criticisms could justifiably note IMF and others paid insufficient attention to these elements.

A widespread criticism persists that international institutions – the IMF, the World Bank, and the EU) “imposed” the neoliberal model of the market on countries, often causing great pain to people. Chapters 1 and 2 showed that, on the contrary, pain was greatest not where reforms were fastest, but where they were gradual and partial. This chapter discusses how in fact foreign influences interacted with domestic policy choices and historical forces, concluding that reforms could not easily be forced where leaders wanted to move slowly, and where they chose rapid reforms they often moved even faster than recommended by external conditionality. Notably, one aspect in which the IMF succeeded in convincing virtually all transition countries was the need for budgetary and monetary discipline to control inflation; the three- to four-digit inflation of the early nineties was effectively under control by about 2000 – with many countries below 10 percent and others only slightly above. The World Bank and EBRD focused on other aspects of reform with mixed success, while the most effective incentives/pressures were those of EU membership requirements, often called the EU anchor.