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East: EBRD Report Sees Big Disparities Between CIS And Central Europe

The European Bank for Reconstruction and Development today released its annual Transition Report. The report studies how each country in Central and Eastern Europe and the former Soviet Union is progressing in its transition to a market economy. The bank says strong regional disparities persist between the states of the former Soviet Union and the countries in Central Europe. It says those differences may take generations to overcome. Correspondent Ron Synovitz has the story.

Prague, 14 November 2000 (RFE/RL) -- The European Bank for Reconstruction and Development, or EBRD, said today that countries in the Commonwealth of Independent States, particularly in Central Asia, will need at least a decade of high growth to recover from the economic decline experienced since 1989.

The statement is part of the EBRD's Transition Report 2000, the bank's latest annual survey of economic transition in the former Eastern bloc.

The report says the economic recovery that began in Russia and Central Asia around the middle of last year is now progressing rapidly. But EBRD Chief Economist Willem Buiter tells RFE/RL the former Soviet republics will still need to implement reforms to ensure that their growth is sustainable in the long term.

"There's no doubt that we need a decade or more of sustained growth in the CIS to make up for the output losses they've suffered since the transition began."

Buiter says much of the economic recovery seen in Russia and Central Asia since last year is based on relatively high international oil prices -- which have caused income from energy exports to soar.

"Net exporters of oil (and gas) have benefited greatly from this tripling, almost, of the price of oil since the beginning of 1999. We're talking here about Russia, Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan. They've gotten a gift. Russia's budgetary performance, Russian export performance, would be adversely affected if oil prices came down. [The value of Russian exports] will at some point [decline] because the current oil price is not sustainable."

The EBRD says that a series of currency devaluations in the former Soviet republics since the Russian financial crisis of 1998 have helped local producers. The Bank says all CIS countries, except for Armenia, have experienced a drastic depreciation of their currencies in recent years. These devaluations have increased the prices of imported goods, thus protecting local producers from cheaper imports.

But the EBRD warns that one adverse effect of the devaluations has been an increase in the burden of government debts that are denominated in Western currencies, such as U.S. dollars and German marks.

The Bank's report says the rising cost of servicing such debts is putting pressure on state budgets. It says countries will have to compensate for the higher debt payments by improving their systems for collecting taxes -- and broadening tax receipts to include more sectors other than oil and gas.

In comparative terms, the EBRD says the economies of the more advanced transitional countries of Central and Eastern Europe have on the whole rebounded to 1989 levels.

A table in the EBRD report compares each country's gross domestic product (GDP, or the total value of all goods and services produced in a given year) in 1989 with GDP at the end of last year (1999).

According to the Bank, economic output in Poland and Slovenia is now greater than it was in 1989. Slovakia's GDP is now approximately the same as it was in 1989. The bank says Hungary and the Czech Republic, the other successful reformers, have almost caught up to 1989 levels.

The situation is different in the Balkans, where economic output in Bulgaria and Romania is still well below that recorded before the fall of communism. Output in Bulgaria has fallen by a third since 1989, while Romania's economy has contracted 24 percent during that time.

Reliable information on Yugoslavia (Serbia and Montenegro) was not available to allow the EBRD to make comparisons between 1989 and 1999. But the EBRD estimates the Yugoslav economy contracted about 50 percent during the past 10 years.

In the Baltic states, the numbers show a mixed bag. Output in Estonia, the Baltic region's best-performing economy, is about 25 percent below 1989 levels. The Bank says Latvia and Lithuania have both contracted by around 40 percent since 1989.

The EBRD says growth in the CIS will have to exceed that in Central and Eastern Europe for several generations if the former Soviet republics are ever to catch up with Poland, Hungary, Slovenia, and the Czech Republic.