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The East: IMF Lowers Growth Forecasts For Region

  • Robert Lyle

Washington, 22 December 1998 (RFE/RL) - For the countries in transition to market economies, the International Monetary Fund (IMF) says this year will see a negative growth rate of nearly one percent and next year they can expect a decline of nearly two percent.

The latest IMF analysis was released Monday in the fund's newest interim reassessment of it's World Economic Outlook.

The continuing turmoil in the global economy has prompted the fund to do several interim reassessments so far this year.

In this latest, the fund raised it's projections for the world economy this year to a 2.2 percent gdp (gross domestic product) growth rate, but lowered its forecast for 1999 to about the same 2.2 percent economic growth.

The fund's assessment of the individual nations in transition varies widely from the overall negative 0.8 percent growth.

The IMF said both economic and social conditions in Russia have "deteriorated dramatically" since the August financial crisis and that Russia's GDP will decline 5.7 percent this year -- not quite as bad as the negative six percent forecast earlier -- but will fall an even larger 8.3 percent in 1999.

The fund's report says Moscow continues to lack macroeconomic policies that would help restore the confidence of investors and establish the preconditions for sustainable growth, has a large underlying fiscal imbalance, and has current budget plans which simply "fail" to meet the requirements for turning the situation around.

For any hope of success, said the fund's assessment, Russia would have to reestablish stability-oriented overall economic polices accompanied by significant banking system restructuring, the normalization of relations with creditors and a return to the "unfinished task of structural reform."

Among the steps required as a part of this would be a fiscal policy which is based on the bulk of government expenditures being financed by tax revenues, without resort to arrears, and whose financing would allow inflation to be reasonably contained, said the IMF.

In Central and Eastern Europe, the fund's report said, Hungary and Poland have weathered the financial market turmoil reasonably well while in the Czech republic, output is estimated to have fallen by 1.5 percent in 1998, but should recover with a one percent growth in 1999. For all the countries of Central and East Europe, excluding Belarus and Ukraine, the fund is forecasting growth in 1998 of 2.9 percent and a much better 3.2 percent next year.

The IMF report says Ukraine, in addition to facing reduced trade from Russia and other effects of the country's crisis, is also confronted with the consequences of its persistent budgetary imbalances and inadequate reform efforts. The fund forecasts Ukraine will suffer a negative 1.7 percent growth rate this year and a much steeper fall of negative 3.5 percent next year.

Kazakhstan, like most countries in the developing world, has suffered from sharply reduced access to international financial markets, which has exacerbated the impact of the slowdown in trade with Russia, says the IMF. Almaty's GDP growth this year is forecast at a negative 1.5 percent. No forecast was made for 1999.

The Baltic countries -- Latvia, Lithuania and Estonia -- have been hit by both the reduced access to private external financing and the direct effects from the Russian crisis, especially through banking and trade ties. The fund says that Estonia and Lithuania, in particular, are vulnerable to changes in sentiment in global financial markets. The fund forecasts economic growth in Estonia as 5.1 percent this year and 3.6 percent next year; for Latvia, growth this year of six percent and five percent next year; in Lithuania, growth this year of 5.3 percent and of four percent next.

The fund dramatically lowered its forecast for the Transcaucasus and Central Asian nations to 2.1 percent this year and three percent next year -- a full one-half cut from earlier forecasts.

However, IMF officials acknowledge that the last growth figures for the region were not properly updated when the Russian crisis hit, so the new figures only reflect the statistics catching up with the facts a few months later.

Following are the latest IMF forecasts of GDP growth in 1989 and 1999 for selected countries in transition: