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East: World Bank Predicts Short-Term Growth

Despite so much bad economic news coming out of Eastern Europe and Central Asia, the World Bank says improved economic times are on the horizon. RFE/RL's Andrew F. Tully reports on the latest report on prospects for the region -- and asks whether the growth can be sustained.

Washington, 8 December 1999 (RFE/RL) -- The former communist nations of Eastern Europe had a difficult year in 1999, but the World Bank sees better times ahead for this region in the short term, mostly because of growth in Russia.

But the international lending institution is not as optimistic about the long-term prospects for Eastern Europe and Central Asia.

Eastern European states suffered a loss of economic growth primarily because of declining trade both to the west, because of financial trouble in the European Union (EU), and to the east, because Russians could not afford their imports.

Mick Riordan, a senior economist with the World Bank, spoke with RFE/RL about these problems after a news conference where the bank issued its annual report, "Global Economic Prospects and the Developing Countries: 2000."

"You had countries such as Poland, Hungary, Czech Republic, Slovakia being hit from both sides on their export markets, and growth declined in that region to about 1 percent from about 3 percent, 3 and a half percent, in the year prior. So '99 for Central and Eastern Europe was quite a difficult time."

Russia, meanwhile, showed growth in 1999 in its gross domestic product, or GDP, thanks to the rising price of oil and increased industrial production. Riordan explained that the rise in factory output occurred, ironically, because Russians could not afford imported goods, so turned to domestic producers.

"The recovery in Russia, or stabilization in Russia, was much more dramatic than we had expected. We had anticipated a decline -- in the forecast that we had done six months ago -- of about 5 and a half percent in the GDP of the former Soviet Union states. In fact, we're looking at growth -- positive growth -- of about 0.7 percent this year."

Riordan said an improved Russian economy will combine with more prosperity in the EU for at least short-term growth exceeding recent World Bank forecasts.

He said already France and Germany are showing signs of coming out of what he called a "pseudo-recession," and other members of the EU are doing well.

Riordan said this is good news for the countries of Eastern Europe, in particular those nations that may soon become members of the EU.

But the World Bank economist wondered how long this growth can last, both in Eastern Europe and the countries of the former Soviet Union.

"The question that arises, then, is this situation sustainable? Will this at some point lead to a breakthrough to more sustainable growth? I think the question -- or the answer -- at this reading, at least, is highly uncertain, that there are a number of challenges, as we mentioned, both on the fiscal front, on the restructuring of corporations, and a number of the structural issues that still remain to be addressed in Russia."

Others wonder, too. Robert Dunn is a professor of economics at George Washington University in Washington. He takes a slightly more pessimistic view.

"An awful lot of this depends on continuing high prices for oil. It's difficult to see that the price will stay that high for that long. I expect it to come back down, but I don't know when and by how much. Also, the Poles are doing well and the Hungarians are doing well but the Czechs are having a tough time. And the Czech Republic has been sort of a centerpiece, but now it's not doing well. I guess Bulgaria's doing a bit better. It's still hard to see how the Russians will do well until they really get on with reorganizing -- privatizing -- agriculture, and until they begin imposing a modicum of civil order in the place by getting control of crime."

The World Bank report says the long-term prospects for Eastern Europe and the countries of the former Soviet Union are not as good as were forecast earlier by the institution. Until now, the bank said it expected growth in the region to be about 5 percent a year from 2002 to 2008. That growth forecast has been reduced to 4 percent a year.

The bank attributes that decline primarily to Russia, which it called a nation rich in natural resources that does not perform up to its potential. It cited declines in savings and personal investment, badly structured financial institutions, and the continued flow of capital from the country.

Riordan and Dunn were interviewed after the World Bank issued its forecast on economic prospects around the world. The 49-page report included projections for Eastern Europe and Central Asia, but focused on developing countries like those in East and South Asia, Sub-Saharan Africa and Latin America.