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East: IMF Urges EU to Speed Pre-Expansion Reforms

  • Breffni O'Rourke

The International Monetary Fund -- or IMF -- is urging the European Union to make greater progress on its key internal reforms so as to open the path to the EU's eastward expansion. In its latest survey of the World Economic Outlook, issued in Prague today (Tuesday), the IMF says the EU faces an urgent responsibility to reform its own institutions and policies in order to be ready for the enlargement. The report also says the candidate countries -- 10 of which are in Central and East Europe -- should do more to prepare themselves for accession in the coming years. RFE/RL correspondent Breffni O'Rourke -- who is attending the annual meetings of the IMF and World Bank in the Czech capital -- has the story.

Prague, 19 September 2000 (RFE/RL) -- The IMF says that the EU, as the anchor for the accession process, has a central influence on the form and pace of enlargement.

But it says that as things stand at present, delays in the union's internal reforms have raised what it calls "substantial doubts" about the conditions under which the enlargement will occur, and when full membership can realistically be expected for even the first group of applicants.

The 15 EU member states have set themselves a target date of the end of 2002 for being institutionally ready to accept new members, and EU officials have spoken of 2005 as the likely -- but not promised -- date for the first new accessions. The internal reform process is going forward by means of an inter-governmental conference, or IGC, which is charged with reaching consensus on a reform package in time for a summit of EU leaders in Nice, France, in December.

But progress at the IGC is said to be slow, and in its report, the IMF notes that "substantial" movement forward is still required in a number of critical areas. They include voting procedures, agricultural support policies, and regional funding policies.

However, Michael Mussa, the IMF's research director, struck a generally optimistic note today:

"I don't regard that process [of EU enlargement] as slow at this stage. We are concerned that it may become slow, but that is a concern more for the future than for what has been accomplished up to this point."

The IMF report says any continuing lack of EU progress could present significant risks to the accession process. Either membership for the Eastern candidates could be delayed, or new members could be placed in some form of transitional status. This, according to the IMF, could raise the danger that the candidates' commitment to reforms could be weakened and that public support for membership could slide -- both in the existing member states and among the applicants. In addition, the IMF warns, the transition economies could be subject to political or economic shocks that could move them away from the accession track.

Looking at the other side of the coin, the IMF also has assesses the progress that the 13 candidate countries -- which include Cyprus, Malta and Turkey -- need to make. It report characterizes the overall picture so far as one of substantial progress by the accession countries in economic liberalization and adjustment, including reorienting their trade to the West, strengthening capital markets, and improving macroeconomic stability.

But the IMF says that all the candidates still face heavy adjustments, particularly in terms of their mix of jobs and industries, notably agriculture, as well as in trade patterns and in the financial sector.

It says that these necessary changes will occur more smoothly if markets are able to operate efficiently and convey clear price and wage signals. Thus, the candidates need to go-on strengthening the institutions that support market activities, particularly laws and regulations.

The IMF also says that by putting in place a legal framework designed for economically advanced economies, the accession countries have the chance to leap-frog forward. But to realize that advantage fully, the transition economies still face a big effort to build up their human capital and administrative capacity to ensure that laws are applied effectively.

The IMF's assistant director of research, David Robinson, speaks positively of the progress made so far by Central and East European EU candidate countries, compared to those post-communist area nations that are not candidates:

"One striking feature of the transition process has been the generally better performance by the countries that are now applying for membership of the European Union. And while that importantly reflects the initial conditions they faced, which were rather more favorable -- I would say -- than the Commonwealth of Independent States, it also reflects the better progress that they have generally made with structural and institutional reform."

Further, the IMF says that while the process of EU accession may be moving too slowly in the view of a number of applicant countries, there could be risks for them in trying to join the euro common currency zone too quickly. That's because the EU members' inflation and fiscal discipline under the EU members' convergence criteria could potentially conflict with real adjustments which the candidate countries will continue to face for some time.