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East: EBRD Report Finds Former Soviet Oil Economies Booming

  • Mark Baker

The European Bank for Reconstruction and Development (EBRD) this week confirmed what many in Russia, Ukraine, and Central Asia had already suspected -- their economies are booming. In its annual Transition Report, released yesterday, the bank said higher oil and other commodity prices are fueling skyrocketing annual growth for many countries. In fact, the former Soviet Union is now the world's second-fastest-growing region in the world -- behind only China and neighboring countries in Asia. But the high prices won't last forever.

Prague, 9 November 2004 (RFE/RL) -- Willem Buiter, the EBRD's chief economist, said that from an economic standpoint, Russia and the countries of the former Soviet Union have never had it so good.

Speaking to RFE/RL today from the bank's headquarters in London, Buiter said that with oil prices at around $50 a barrel and prices of other commodities soaring, growth in the former Soviet Union could reach 7 to 8 percent next year:

"Oil and gas prices are dragging Russia itself and Azerbaijan, Kazakhstan, and Turkmenistan merrily along with them -- and strong cotton prices [as well]," Buiter said. "Gold prices do the same for Kyrgyzstan, and for aluminum it's Tajikistan. So we have a range of very favorable international conditions. Not only are the prices [of their commodity exports] higher, but also for their noncommodity exports, there's buoyant demand."

The bank's Transition Report -- issued each November -- is viewed as a scorecard for the postcommunist countries in Europe and the former Soviet Union the bank was established to help. The report forecasts economic growth in each of the countries and also evaluates them on reform efforts.
"The main consequence of nature's largesse seems to be a slowdown in reform efforts," Buiter said. "Basically, easy growth and easy government revenues from taxation and royalties make the sense of urgency felt by the authorities to pursue reform less acute." -- Willem Buiter, the EBRD's chief economist


Buiter said, however, that while growth rates are rising, progress in implementing reforms -- things like simplifying tax codes and cracking down on corruption -- is lagging. In countries from Russia through Central Asia and Ukraine, he said there was relatively little effort made at reform in the past year.

There might even be an inverse relationship between oil wealth and reform -- meaning that the more natural wealth a country possesses, the less pressure the authorities there feel to implement positive changes.

"The main consequence of nature's largesse seems to be a slowdown in reform efforts," Buiter said. "Basically, easy growth and easy government revenues from taxation and royalties make the sense of urgency felt by the authorities to pursue reform less acute. So, if anything, I think this commodity boom is slowing down reform."

Buiter cited Kyrgyzstan as an exception. In this year's report, Kyrgyzstan was praised for introducing economic reforms the EBRD says will serve them well in the future: "The main things that they've done right [in Kyrgyzstan] is that they liberalized quite [a lot]. There was progress in structural reforms. They privatized the Kumtor gold mine, which accounts for 10 percent of [the size of the Kyrgyz economy] on its own. They have taken steps to enhance open transparency in businesses. They adopted an anti-corruption law in March [2003]."

The report says that even in oil- or commodity-poor states -- like Armenia and Georgia -- economies are growing in step with regional growth. But Buiter said in these countries, successful reform efforts are important to ensure continued growth.

"Reform, reform, reform. And implement the reforms. Don't just pass the laws. Anybody -- or nearly anybody -- can do that. Implement on the ground. And in order to implement with the limited public administration capacity you have, you have to keep it simple," Buiter said.

The EBRD is relatively active in all but two formerly communist countries -- Belarus and Turkmenistan.

Buiter said the past year simply brought more of the same misery to both countries.

He listed Turkmenistan's many problems: "[The] total lack of reform. The frightening backwardness of the public administration. In the case of Turkmenistan, the destruction of its human capital by its dismantling of serious higher education, and indeed undermining even secondary education, makes one worry greatly about the future of the country."

And he said Belarus doesn't fare any better: "They had a fraudulent [referendum recently], and the country is moving steadily away from the canons of democratic and transparent pluralist societies that our bank is supposed to support and work in. Belarus and Turkmenistan are the two worst cases in our bank's portfolio. One really feels for the people of these countries who have to live through these very difficult times."

Neither Belarus nor Turkmenistan meets the EBRD's democratic standards as spelled out in its charter, and the bank has had to greatly reduce its lending and support activities in those two countries.
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