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World: OECD Says East European Reforms Should Have Local Focus

Prague, 19 June 1997 (RFE/RL) -- The Paris-based Organization for Economic Cooperation and Development (OECD) says it is becoming increasingly important for eastern European governments to focus on development at the local and regional levels.

A recent OECD study notes that economic policies are typically created on the basis of macroeconomic goals and tools. The OECD warns that national indicators such as Gross National Product (GNP), balance of payments, export data and unemployment figures can hide regional differences.

As an example, the OECD notes that the economies of cities like Prague, Warsaw, Krakow, Bratislava and Budapest are even more dynamic than those of many western cities. But while these cities have low unemployment rates and are bustling with innovative and energetic new enterprises, most towns outside the major urban areas have much less diversified economies and skill bases. It is in these regions that local officials are now struggling to restructure their economies.

The OECD says eastern Europe's local authorities are hampered by what it calls "the legacies of central planning." It says there is not enough cooperation among neighboring municipalities because local officials are accustomed, instead, to working directly with central planners.

The report says: "A major legacy is that local actors lack experience in taking authority and control." It says many local leaders have never mobilized group projects with long-range strategic goals. Municipal development programs also lack financial resources. Local officials often play the role of tax collector but have little control over their revenues when central governments set local tax rates.

The OECD says: "Despite their best intentions and right instincts... the concept of local economic development is entirely new" in eastern Europe.

The OECD recommends that national governments should strive for stronger partnerships, at the local level, with the public and private sectors. Ultimately, it says, government intervention must aim at improving the functioning of market mechanisms.

But with scarce resources and a long list of critical infrastructure projects, many distressed areas still need to build the basic foundations of a functioning market economy.

Potential investors are still waiting for roads, airports or telecommunications to be developed before they risk putting their money into many parts of eastern Europe.

Private telecommunications companies in the West realize that flourishing businesses become dependable customers. But much of the economic infrastructure in central and eastern Europe remains state-owned. Large companies that have been privatized tend to focus on immediate concerns like modernizing their equipment, rather than supporting economic development programs.

The OECD says few leaders in eastern Europe's private sector understand how their own business goals would be met by participating in private-public regional initiatives. It says few new companies are confident enough about their own future to invest in developing their communities.

Nevertheless, small and medium-sized enterprises are increasingly recognized as a key factor in economic development. Such businesses have strong potential for innovation. They offer job opportunities and increase competition.

The OECD recommends the creation of explicit regional development policies with clear objectives. Once such policies are formulated, they can serve as an overall blueprint -- a master plan with which other related policies are coordinated.

But even with such policies in place, the OECD warns that regional development does not happen overnight. It says: "Some of the most effective initiatives have taken years to plan and implement -- but have brought the most sound and long-lasting results." The timeline is longest for regions that must overcome severe environmental damage, or those that must create a totally new economic base after depending on a single industry that has collapsed.

The report concludes: "The fact that the direct impacts on job creation and local business development structures have not yet reached full potential is natural for this early stage of investment in local development institutions."