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Russia: EBRD President Forecasts Gloomy Growth Prospects

London, 19 April 1999 (RFE/RL) -- The president of the European Bank for Reconstruction and Development, Horst Koehler, says Russia's economic crisis resulted in a decline in aggregate output of the eastern countries in 1998.

Saying the region faces new risks following the Russian financial collapse of August last year, Koehler said economies are likely to contract again this year.

Koehler told the annual meeting of the EBRD in London today that the economic position of a number of countries is still "fragile." He said low growth in the EU and Asia's difficulties have further reduced the growth prospects of countries that have switched their trade toward world markets. Moreover, several countries have seen a rapid build-up of debts.

He said the EBRD itself made a misjudgment by not anticipating the Russian turmoil, and hence, in 1998, it made its first substantial financial loss of about $225 million.

The poor performance was partly because the bank's provisions to projects in Russia accounted for more than half of its total provisions.

He said the crisis in Russia is not over and its repercussions are affecting countries throughout the region, with a sharp decline in both intra- and inter-regional trade, and a fall in commodity prices.

He said: "The root cause of the crisis is the Russian Federation's slow, uneven and flawed progress with structural reforms. This weakness undermined the fiscal position, leading to excessive short-term borrowing, which, when combined with a fragile banking system, led to financial collapse."

He said one of the lessons of the Russian economic crisis is that "strong action against corruption and the abuse of investors' rights is overdue."

But the most important lesson is that "a market economy cannot work effectively without strong market-oriented institutions and a functioning state. This includes a transparent and accountable public administration with integrity and which is committed to, and capable of enforcing, the rule of law."

He said it is now apparent that the transition from command to market economies in many countries of the region "will take a long time."

He also urged stepped-up efforts to enlarge the EU to the east more energetically, and for deepening and strengthening in the relationship of the EU with the CIS.