Few observers have missed the rich symbolism of the Czech Republic becoming the first post-communist transition country to host the annual meetings of the International Monetary Fund (IMF) and World Bank, seen by those institutions' many enemies as a festival of capitalism.
But far from exuding triumphalism, both fund and bank this week offered partial mea culpas for the fact that the transition to western-style open markets and democracy in many former communist states has been unimpressive.
Presenting the IMF's annual world economic outlook, Mr Michael Mussa, the fund's economic counsellor, noted that transition economies had had their best year since the process started. But in an extensive discussion of the issue, the report noted that, in most cases, European and central Asian transition countries had yet to return to their 1989 levels of output.
Even the relatively advanced Czech Republic had reached only 94 per cent of its 1989 output level by last year.
Both fund and bank are quick to point out that countries that have gone furthest in market and political reforms and that started from a better position have also experienced faster growth.
But they also admit that what the IMF calls the "market-fundamentalist" approach - implementing macroeconomic stabilisation, price and market reform, enterprise restructuring and privatisation in one big-bang package of change - was inappropriate for countries that had yet to develop institutions to give a framework for the market economy.
"In practice, institutional reform was given too little attention relative to macroeconomic developments by policymakers and advisers alike," the IMF said. This week it published evidence of a strong correlation between "institutional quality" - the strength of the rule of law, government effectiveness and the absence of corruption - and growth, an unusually sociological approach for the famously hard-nosed IMF.
This failure to build an effective framework has hampered progress, as the bank points out in a report on poverty in transition economies, also released yesterday: "The partiality and incompleteness of political reforms during the first stage of transition simply allowed some power groups to cement and legalise the power relationships that existed at the end of socialism," it says.
But even partial official admissions of error by the IMF and bank are unusual. The critical question now becomes how this will affect the international financial institutions' behaviour.
A routine incorporation of "softer" and less easily measured issues such as the quality of state governance into lending programmes is likely to meet opposition, particularly since the fund is under pressure to streamline the conditions it places on bank lending.
Meanwhile, a backlash against the politicisation of bank lending is already under way from emerging-market countries such as China, who feel that criticising client countries' governance means the bank going beyond its mandate.
Retrospective admissions of fault will be welcomed by critics of the financial institutions, such as the Bankwatch campaign network. But unless bank staff can win the argument with shareholder countries that such elements deserve a role at the heart of policymaking, its new focus on the importance of institutions may struggle to make progress.
