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East: U.N. Survey Indicates Positive Economic Prospects

Prague, 7 July 1998 (RFE/RL) -- A new survey issued by the U.N. Economic Commission for Europe says that short-term prospects for the transition economies of Central and East Europe are positive. It says the likelihood is that, for most of them, economic conditions in general will be favorable for the rest of this year.

The report, issued by the ECE's headquarters in Geneva, says however that in view of the broad uncertainties in the world economic situation, there are major challenges facing the region. One of these is the impact Russia's economic problems can have on the countries around it.

On the positive side, the survey says that among the Eastern European and Baltic countries, further acceleration of growth can be expected in Hungary and possibly in Slovenia, while the Estonian economy is likely to perform above official expectations. By contrast, economic decline is likely to continue in Romania, and output there for the year may well be below the official zero growth target. The 10 per cent growth target for Yugoslavia is also unlikely to be met.

The survey says the Eastern economies have been helped by the rising demand of the West European economies, which are themselves recovering in strength. Exports to West Europe from East Europe and the Baltics continued to rise strongly in the first quarter of the year. In another positive sign, the rates of inflation continued to fall in most transition economies.

The survey also says that the start of the formal process of enlarging the European Union towards the east is an important factor in safeguarding political and economic stability in the transition countries. But the road towards EU membership will not always be easy. Roumen Dobrinsky, economic affairs officer with the Economic Commission for Europe, explains:

"The Eastern enlargement is a very serious challenge both for Eastern Europe and the EU itself. There are problems and issues which have to be resolved before this process can materialize. For the countries of East and Central Europe, the challenges which lie ahead are at the same time processes which will create additional safeguards for their stability. They have to build up the institutional environment, create institutions which are necessary for the proper functioning of all their markets; they have to try to put into place the body of rules (aquis communautaire) which is the essence of international cooperation within the EU."

The ECE report says the greatest potential risk for the CIS and East Europe as a whole stems from the great uncertainty surrounding Russia's economic condition. In view of Russia's financial instability in the first half of the year, and the government's counter-measures, growth prospects for that country have deteriorated badly. The shockwaves of the Russian turbulence in May and June were felt in all financial markets in Central and East Europe and in the Baltics. The survey notes that neighboring Belarus was also hit by financial turmoil in March and April, leading to a sharp drop in the exchange rate of the national currency.

Economist Dobrinsky of the ECE says another major challenge to the transition countries is posed by the process of globalization of the world economy:

"The transition countries of Eastern Europe are becoming full fledged members of the world economy, so they take part in the global process of capital movements and the increased international interdependence, so they must be especially cautious with regard to keeping their internal and external balances checked so that they do not allow exorbitant imbalances both domestically and internationally." Dobrinsky goes on to say there is a potential danger in this regard for countries which are undergoing major structural change, and which are starting to grow rapidly. He says this process inevitably leads to the inflow of foreign capital and growing current account imbalances, which potentially may threaten macro-economic stability. However, he says that overall, most transition countries have been quite capable of finding the proper balance between growth and external balances.