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East: World Credit Crunch Looms




Washington, 23 October (RFE/RL) -- One small ray of good economic news for 22 nations in Central/Eastern Europe and Central Asia came out of the final rush by the U.S. Congress to adjourn this week -- extension for another year of a program that allows some exports to the U.S. to enter American markets duty free.

Called the GSP or General System of Preferences, the program was started in 1976 to help developing countries build their export earnings. It allows 149 designated countries to sell over 4,500 specific products in the U.S. free of tariffs.

In the former communist countries of Central/East Europe and Central Asia, only Georgia and Turkmenistan are not participating. Of all the rest, 15 sold at least 75 percent of their exports into the U.S. in 1996 under the GSP program -- the Czech Republic, Slovakia, Latvia, Lithuania, Estonia, Poland, Russia, Kazakhstan, Kyrgyzstan, Uzbekistan, Croatia, Macedonia, Albania, Romania and Bulgaria.

Three of those, Uzbekistan, Macedonia and Albania, actually sold over 98 percent of their exports to the U.S. duty free.

The U.S. Trade Representative's office, which administers the program, says it has no current figures for these countries, but in 1996 the total goods covered amounted to over $1.5 billion. With current overall trade significantly larger, officials say they expect this figure could at least double in 1998.

Without the program, large amounts of the exports of these countries to the U.S. would have stopped because they would not longer be competitive with duties of up to 50 percent.

For a region continuing to assess how seriously it will be hurt by the Russian and Asian financial crises, this is the first good economic news in recent weeks.

Still, the effects of the financial crises are largely unknown. The next big concern, says Gary Littman, the Director for Eurasia of the U.S. Chamber of Commerce's International Division, is the drying-up of international finance for trade. "Financing will be tight," he told our economics correspondent in Washington.

It is not just financing for trade either. The Managing Director of the International Monetary Fund (IMF), Michel Camdessus, warned this week that credit has become noticeably short all around the world. He said this could put the world into a liquidity crisis.

Liquidity is the ready availability of money to finance any kind of economic activity.

Camdessus said the flow of credit is being interrupted because of investor's aversion to risk. Too many investors, he said, are shifting funds into government treasury instruments in the U.S. and Germany as safe havens during turbulent times on world markets.

Improvements in stock markets from the U.S. to Europe and Asia in the past week have reversed that flow somewhat, but the tightening is being seen everywhere.

The U.S. Federal Reserve (Central Bank) says at least one quarter of all American commercial banks have significantly tightened their lending standards over the previous four weeks. It has not had an identifiable impact yet on the U.S. economy, which continues to be strong. But some real estate experts are cautioning that they are seeing a backlog in transactions, which indicates banks are getting tougher about approving loans.

If they are getting more selective on domestic real estate lending, the experts say, they are tightening even more for lending in emerging market countries.

The global organization of commercial financial institutions, the Institute of International Finance, had already forecast that private capital flows into Central and Eastern Europe would decline nearly 35 percent this year -- to $44 billion -- because of the first effects of the Russian crisis.

The drying up of credit in the region could push that figure even further down.

U.S. Deputy Treasury Secretary Larry Summers said Thursday that while too much easy short-term lending and investing was a cause of the financial crises in Asia and Russia, the irony is that more lending -- not less -- may be the solution to keep the system liquid and functioning.

"While excessive efforts to attract hot money can clearly end in disaster," he told a conference in Washington, "it would be a mistake to infer that restrictions" on financial flows necessarily promotes stability.

The head of Deutsche Bank's Asian-Pacific operations in Singapore, John Ross, tells reporters he thinks the danger of a real global credit crunch is "overplayed," but a Swedish banker in Tokyo -- Robert Stenram -- is quoted as saying the danger is that the credit shortage can become a self-fulfilling prophecy as bankers and investors "follow the herd" to avoid all risk. "So much of it is about psychology," he says.
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