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The East: Decline Of EU Imports Could Hurt Economies

Prague, 19 November 1998 (RFE/RL) -- The Paris-based Organization for Economic Cooperation and Development (OECD) says the biggest threat to the economies of Central and Eastern Europe in coming months is a possible slowdown in the growth rate of imports into EU member states.

The OECD made the remark in its latest twice-yearly Economic Outlook report released Nov. 17. The report says that even a mild slowdown in EU imports will seriously hurt the economies of Russia, Ukraine, the Baltic states, Slovakia, Bulgaria, Romania and Slovenia.

It also warns that the banking sectors in Eastern and Central Europe are fragile and not well placed to cope with financial distress caused by a decrease in economic activity.

The report says a third major cause for concern is the possibility of abrupt changes in currency exchange rates. The OECD says volatile exchange rates could lower confidence and cause serious problems with inflation and foreign debt payments.

For Russia, the OECD says the outlook depends on the policy choices made by the current government. It says the key issue is how many new rubles are printed and injected into the economy.

It warns that printing too many rubles will likely lead to hyperinflation. It says price controls and a reintroduction of large-scale administrative planning of the economy could result in the loss of years of progress toward market reforms.

The OECD urged the Kremlin to put what it calls "responsible financial policies" in place.

For Russia and former Soviet republics like Ukraine and the Baltics, the OECD says the key to continued recovery will be economic developments in Germany.

But it also warns that Russia now faces a major banking crisis caused by a sharp decline in the value of government and corporate securities -- a major source of investments and profits for many Russian banks.

On a global level, the report says that Asian and Latin American countries are sliding deeper into crisis. It says recoveries in Asia, Latin America and Russia are not likely until the middle of next year at the earliest. The report also downgrades earlier growth forecasts for EU states.