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East: Europe Faces New Economic Division

A World Bank official predicts Europe may once again be partitioned into "haves" and "have nots" -- with the dividing line this time not between West and East but between the countries of Central Europe and their neighbors further east. NCA correspondent Mark Baker speaks with the Bank's Lajos Bokros at an economic conference in Prague.

Prague, 26 October 1999 (RFE/RL) -- A ranking official of the World Bank is warning that a new economic division is emerging in Eastern Europe that threatens to duplicate the former division between NATO and the Warsaw Pact.

Lajos Bokros is a former Hungarian finance minister and now director of the World Bank's financial advisory services. He says the economic gap between the Central European countries that border the European Union and countries further to the east is widening quickly.

Bokros spoke with RFE/RL in the Czech capital Prague on the sidelines of an international conference to assess the economic transformation in the 10 years since the fall of communism. He says a new "fast track" is developing in the region and is leaving the rest of the countries behind.

"If you look at the map, you see the three small Baltic states, and then Poland, the Czech Republic, Slovakia, Hungary, and Slovenia. These are the countries that are growing, maybe not all of them all of the time, but which have strong fundamentals [and are] more or less prepared for accession [to the EU]. They have a very good chance to join [the EU] -- if not in the next two years, then maybe in the next four years."

The situation, he says, is very different in countries like Russia, Ukraine and the nations of Central Asia:

"Those countries do not have...economic growth. These countries have a very distorted economic structure. These countries have lost 40 [percent], 50 [percent] or 60 percent of their GDP in the first decade of the economic transition."

While the fall in GDP has been less severe in Romania and Bulgaria, Bokros places them in the category of nations that may well be excluded from the new Europe.

Bokros says the gap between the "haves" and "have nots" is being made worse by the migration of young people who no longer see opportunities for themselves in their home countries. He tells RFE/RL that if these countries do not act quickly to redress the imbalance, they risk being passed over by the EU for decades.

Bokros says the big challenge for the World Bank and other international organizations is to help these less-fortunate countries. But he concedes the Bank's plans for them are not as comprehensive as for the more developed countries and that the problems the Bank faces are vaster.

"In countries like Russia, where the biggest problem is the total lack of confidence on the part of the people themselves in their own government, in their own future, the real issue is to implement governmental reform, public sector reform -- in order to regain a minimum degree of confidence, a minimum degree of reliability, a minimum degree of predictability..."

Bokros says the Bank's strategy is to put emphasis on basics like fighting corruption and improving the efficiency of government to provide basic social services. He says the Bank is also concentrating on helping countries improve tax collection and cut down on cheats.

Reflecting on the general aim of the Prague conference to analyze the 10 years of post-communist economic transformation, Bokros says he and the Bank have learned hard lessons about what works and what does not work. He says that the most important factor in transforming an economy is maintaining "macro-economic stability," in other words, keeping deficits in line and currencies and interest rates relatively stable to provide a predictable investment climate.

"I cannot overemphasize the importance of macro-economic stability. In this respect, both Poland and [the Czech Republic] are really outstanding examples of consistent macro-economic policy, and that is very commendable because sometimes, as we can see, [when solving] the problems of economic transformation, people tend to disregard the importance of macroeconomic stability."

Bokros contrasts Poland's and the Czech Republic's early successes with Hungary's early failure to establish macroeconomic stability. He says in the early years of the 1990s, Hungary ran high deficits in trade and in public finance, and was living well beyond its means.

Bokros says what saved Hungary was the activity of its privately owned companies, which he says were quick to integrate with Western European markets. He says Hungary also dealt quickly with the problem of non-viable state-owned industries, something he says a country like the Czech Republic -- which still has many overbloated companies from the communist era -- could learn from now.

In terms of strategies that transforming countries should avoid, Bokros says the way that a country transfers ownership in its state-owned companies is important.

He says, in particular, that mass privatizations schemes such as were tried in the Czech Republic and elsewhere have been a failure. He says with the benefit of hindsight, these schemes did not produce optimal results in any of the countries in which it was tried.

In Hungary, which did not have a mass privatization scheme, companies were mostly sold to foreign investors. Bokros says in addition to bringing in outside investment capital and expertise, the presence of the new foreign owners helped rid the economy of cronyism.

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    Mark Baker

    Mark Baker is a freelance journalist and travel writer based in Prague. He has written guidebooks and articles for Lonely Planet, Frommer’s, and Fodor’s, and his articles have also appeared in National Geographic Traveler and The Wall Street Journal, among other publications.