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Former U.S.S.R./Europe: IFC Says Privatization Uneven in Region

Washington, 26 September 1996 (RFE/RL) -- Privatization of large enterprises in the nations of Central and Eastern Europe and the former Soviet Union is progressing at a very uneven pace, according to the International Finance Corporation (IFC), the World Bank's affiliate for relations with the private sector.

In its annual report released in Washington, the corporation says the extent of state divestiture of bigger state companies ranges from less than two percent in Georgia to more than 70 percent in Estonia and Hungary and 81 percent in the Czech Republic.

When it comes to privatization of smaller companies, the pace of transition has been much more uniform and faster, 90 percent in Albania, the Czech Republic, Estonia, Hungary, Lithuania, Poland and Slovakia and 70 percent in Russia. The IFC did not provide percentages for the Central Asian nations.

The IFC says that the pace of privatization is a key factor helping to determine each nation's prospects for drawing private investors, along with the assurance of property rights, low inflation and credible reforms that are seen as irreversible.

The corporation's annual report says that progress in market reforms is generally positively correlated with the private sector's share of GDP (gross domestic product), the measure of the total flow of goods and services produced by an economy.

In 1995, it says the private sector's share varied from an estimated 70 percent in the Czech Republic to 55 percent in Russia to no more than 15 percent in Belarus.

Overall, the IFC estimates, the private sector accounts for more than 50 percent of the economies in nine of the 20 European countries. It did not tally the Asian nations.

Still, the corporation puts a great deal of emphasis on the Central Asian nations. It notes that they have all made progress in "modernization and market-oriented reforms while coping with major economic dislocations."

It says the Kyrgyz economy recorded growth of about one percent in 1995, the first upturn since 1990, and that the rate of contraction in output in Kazakstan, Tajikistan and Uzbekistan has slowed. It says that despite difficult economic circumstances, Tajikistan began to implement a comprehensive reform program.

The IFC says that in the flux of transition from command to market economies, the republics of Central Asia require "support in privatizing and restructuring existing assets in many sectors" of their economies.

It notes that in the 1996 financial year which ended June 30th, the IFC approved investment projects in Kazakstan, Kyrgyzstan and two in Uzekistan, with IFC loans or direct investments totaling nearly $121 million. In addition, it launched 11 technical assistance and advisory projects in the Central Asian nations.

For the European nations in transition, in which the IFC includes Turkey along with the former Communist states, the corporation approved 38 projects in 1996, including 36 in 13 countries and two projects with a regional focus.

This is a big increase over the previous year, in which the IFC launched 28 projects in ten countries and two regional programs. At the end of the 1996 fiscal year, the IFC says its loan and investment portfolio included investments in 142 companies in 16 countries.

Among its most significant moves in the financial year included a $60 million guarantee facility to allow the Intra-Regional Trade Enhancement Facility to underwrite local bank credits as a way to get trade among these nations moving again. The IFC says intra-regional overall trade has been on the rise, but that most has been conducted expensively or inefficiently on a cash or barter basis.

In addition to its own investments in the region, which totaled $405 million in 1996, the IFC prides itself mostly on its ability to leverage much larger amounts of financing from other sources, including the private markets. For example, it notes that its own $405 million investment in the European nations brought in other financing totaling more than $600 million.

On top of the direct projects, the IFC launched 49 technical assistance and advisory projects in the European nations, many of which could lead to direct IFC investment or lending.

A new initiative the IFC is just now launching will put investment officers in sixteen countries which are having particularly difficult transitions in an effort to help get the process moving, mostly with micro-loans to small business people. Albania, Azerbaijan, Bosnia, Macedonia, Kazakstan, Mongolia, Slovakia and Uzbekistan are among the countries which will be included in the three-year program which is being underwritten with a $40 million special small enterprise fund.