#9
Asia Times
May 7, 2002
Central Asia, Eastern Europe, see 'remarkable growth'
By Gustavo Capdevila

GENEVA - Russia and the transition economies of Eastern Europe and Central Asia, former members of the now-defunct Socialist Bloc, were among the world leaders in growth in 2001.

The economic growth of Eastern Europe and Central Asia surpassed that of the rest of the countries belonging to the United Nations Economic Commission for Europe (ECE), which includes Western Europe, the United States, Canada and Japan, for a total of 55 members.

ECE executive secretary Brigita Schmognerova said the economic outcome in 2001 for the 27 ECE transition economies was "surprisingly good", with an average growth of 5 percent. But the top prize went the group of countries that form part of the Confederation of Independent States (CIS), created after the dissolution of the Soviet Union in 1991. The overall gross domestic product (GDP) increase of the CIS countries was 6.2 percent, and half of those economies experienced nearly 9 percent annual growth.

In presenting the ECE economic report in Geneva, Schmognerova highlighted the success of Russia, "an engine of growth for the rest of the CIS countries". The transformation of Russia since the August 1998 financial crisis "has been remarkable", stated the Slovak economist who has been at the helm of the ECE since February.

From 1999 to 2001, Russia's GDP climbed at an average annual rate of 6.5 percent. The ECE analysts attribute this strong performance to two factors: the sharp depreciation of the ruble after 1998 and the success of the energy sector, which benefited from favorable market prices.

But the report also recognizes the merits of the Russian authorities, who made "a considerable effort to accelerate systemic transformation and market reforms". In 2001, Russia introduced more comprehensive legislative reforms than in all the years since the fall of the communist regime. Most of these reforms are aimed at economic liberalization, and Schmognerova said she is confident that they will contribute to consistent future growth.

However, the interim director of the ECE Economic Analysis Division, Dieter Hesse, a German national, points out that "dependence on commodities exports [particularly in the energy sector] cannot be a long-term economic strategy" for Russia and the rest of the CIS.

The chief of the Transition Economies section, Rumen Dubrinsky of Bulgaria, commented that Russia would need the price per barrel of crude to remain at US$22.5 in order to benefit. For every dollar less per barrel on the international market, Russia's GDP shrinks 1 percent, said Dubrinsky.

To confront the setbacks that could arise from dependence on petroleum, "the task for Russia is to develop a competitive industrial structure to diversify its exports", said Hesse.

Sustained economic growth was reported in other parts of the region, such as the Baltic states of Estonia, Latvia and Lithuania, where it reached 6.2 percent. The average GDP growth in most of the East European transition economies was around 3 percent, but was "pulled down by the weak performance by the largest regional economy, Poland, whose GDP increased by just one percent", says the ECE report.

The only negative report from the transition economies, a 4.6 percent GDP decline, was in the Former Yugoslav Republic of Macedonia, which was shaken by the internal military conflict. Growth decelerated in Hungary and Slovenia. "The effect of weakened demand in Western Europe was more pronounced in these two economies," said Schmognerova.

Transition-economies expert Dubrinsky reckoned that the relatively delicate situation of countries such as Poland and Hungary - which earlier were among the vanguard of the transition economies - is because they are undergoing different phases in the reform process.

The CIS countries and some of their neighbors are just now entering the main phase of transitional recovery, while the more advanced countries are now entering a second phase in the process, in which "they are dealing with different types of economic problems as they are starting major institutional and structural reforms", he said. As is the case of Poland, these reforms sometimes come at a substantial cost, added Dubrinsky.

The ECE predicts moderate growth of the transition economies in 2002, a slowdown from last year due to global economic stagnation and the slow recovery in Western Europe. The regional UN agency forecasts growth of around 5 percent for the CIS this year, a deceleration with respect to the 6.2 percent average recorded for 2001.

In the Baltic states, economic expansion is expected to be slightly more than 4 percent, while in Eastern Europe it will reach approximately 2.75 percent, says the ECE. Russia should see 4.3 percent GDP growth, though the ECE experts recognize that it will depend on how international petroleum prices play out.

"In Poland, the austerity measures the government is expected to implement are likely to slow down economy activity and GDP is likely to grow by just 1 percent," said Schmognerova. Nevertheless, "the CIS is likely to remain the fastest growing region of the ECE area in 2002. The majority of those countries are predicted to see GDP growth in the range of 5 to 8 percent," she said.

The ECE report forecasts grow of 1.6 percent for the United States in 2002, 1.4 percent for Canada, and 1.4 percent for Western Europe as well. Japan's economy, however, is expected to see a 1.1 percent decline. (Inter Press Service)

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