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East: World Bank Forecasts Growth

  • Andrew Tully



The World Bank expects the transitional economies of Eastern Europe and the Commonwealth of Independent States will experience modest growth through 2002. But the World Bank is cautious about its forecast -- and it is not alone, according to RFE/RL's Andrew F. Tully.

Washington, 4 April 2000 (RFE/RL) -- The World Bank expects moderate economic growth in the former communist countries of Eastern Europe and the Commonwealth of Independent States (CIS) for the next three years. The bank sees slightly higher growth in the Middle East and North Africa.

The World Bank's annual report, Global Development Finance, says that as a region, Eastern Europe and the countries of the former Soviet Union will see average growth in their combined gross domestic products -- or GDPs -- of 2.5 percent in 2000. The region's average growth in GDP is expected to be about 3.5 percent a year in 2001 and 2002, according to the report, which was issued on Tuesday.

But the World Bank cautions that "significant policy uncertainty remains," as the report put it. One of these uncertainties is the price of oil, which would affect Russia and Central Asian states. Another uncertainty is whether Eastern European countries can maintain momentum in bringing their economies -- particularly their banking systems -- into the free-market system.

The report points out that the declining price of oil in the late 1990s -- coupled with the Russian financial crisis of 1998 -- led to a decline of 0.2 percent in 1999 in the region's GDP. Russia and its fellow CIS states were particularly affected, the World Bank says.

But oil prices rose during the latter half of 1999, helping to bring about a small rebound last year throughout the region. At the same time, Russia began manufacturing goods that its citizens could not afford to import. The other CIS states shared in this recovery.

Meanwhile, Eastern European countries benefited by increased trade with -- and investment from -- Western Europe. Their economies are expected to grow by 3.4 percent this year. Growth in these countries is forecast at between 4 percent and 4.5 percent in 2001 and 2002. At the same time, growth in CIS countries is expected to drop to 1.3 percent in 2000.

Ariel Cohen of the Heritage Foundation, a Washington think-tank, is a political and economic analyst who specializes in Russia. He says the World Bank's forecast may be too high.

Cohen tells RFE/RL he agrees that a stable price for oil and continued momentum in improving banking systems can help these countries' economies. But he contends that more factors must be considered.

"Three-point-five [percent growth] for 2001-2001 seems a bit optimistic if you don't have a very solid track record of economic reform, fighting against corruption, legal reform, and further building of institutions of the market economy."

Cohen says most of these countries have not yet established the requirements for growth. He says it is up to the governments -- particularly in Russia -- to institutionalize these requirements to crack down on corrupt officials and businessmen. He says this is the only way to bring more money into these countries and keep their citizens from taking their own money out.

"That, again, depends very much upon the successes of the governments to strengthen and build institutions to clean corruption, to have conditions that are attracting foreign investment and prevent capital flight."

The price of oil also was a major factor in the World Bank's forecast for growth in the Middle East and North Africa. Growth in the region's GDP during 1999 was only 2.2 percent, down from 3.3 percent in 1998 -- primarily because of declining petroleum prices. But a rebound to a 3.5 percent rate of growth this year and about 3.6 percent in 2001 and 2002 are expected because of a rise in the price of oil during late 1999.

The average price of a barrel of crude oil on world markets soared above $30 earlier this year, but last week the Organization of Petroleum Exporting Countries (OPEC) agreed to increase oil production. This is expected to bring the average price of a barrel of crude oil to around $24 or $25. The World Bank analysis says this could contribute significantly to the moderate economic growth for Middle Eastern and North African oil-producing countries over the next three years.

The World Bank report said average growth rates for developing countries overall are likely to reach 4.6 percent in 2000, and climb further to 4.8 percent in the two subsequent years. The analysis attributes this growth to recovery from the 1997-99 global financial crisis.

But the report says not all developing countries will do this well. It notes that the overall economic growth is based on industrial strength, surging world trade, and higher prices for commodities. It says 41 low-income countries -- which have a combined population of over 1 billion people -- will barely register any economic growth at all.

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