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East: South East Europe Stability Pact Pledges Investment Reforms

For several years, foreign direct investment in the developing countries of Southeastern Europe grew rapidly, peaking last year at 3 billion euros (now $3 billion). But the driver was privatization, which is slowing, and the European Bank for Reconstruction and Development says foreign investment is likely to stagnate this year. RFE/RL reports that the South East Europe Stability Pact countries pledged yesterday in Vienna to make themselves more attractive to foreign investors.

Vienna, 19 July 2002 (RFE/RL) -- Western business leaders and potential investors have been giving the countries of the South East Europe Stability Pact some blunt advice: If you want to attract more foreign investment, clean up your collective act.

Yesterday, economics and foreign affairs ministers from eight countries in the region pledged to take that advice.

Meeting in Vienna's grand Hofburg palace under the auspices of Austrian Economy and Labor Minister Martin Bartenstein, the ministers signed a declaration pledging to combat corruption, reduce barriers to trade and investment, simplify business regulations, establish mechanisms to resolve business disputes, and introduce fair and transparent accounting practices.

In a conference that preceded the declaration, Bartenstein told the assembled ministers that in the peace and stability that followed the Balkan wars of the 1990s, their countries made advances but that the hard part lies ahead: competing in the global economy. "The last excuse for failing to resolutely tackle the region's remaining political and economic problems has gone and everybody, political leaders and business representatives alike, will from now on be benchmarked against the results achieved by others elsewhere," Bartenstein said.

The Organization for Economic Cooperation and Development, the European Union, and other international organizations and financial institutions joined with Southeastern European countries in June 1999 in the stability pact to promote economic and political stability in the region. The countries in the pact are Albania, Bosnia, Bulgaria, Croatia, Macedonia, Moldova, Romania, and the Federal Republic of Yugoslavia, along with its constituent republics of Serbia and Montenegro.

Special Coordinator of the stability pact Erhard Busek also had some plain words at the conference. "I'm always telling things quite bluntly. Foreign direct investment is going down after the first wave of privatization [in Southeastern Europe]. And therefore we have to do a lot," Busek said.

The European Bank for Reconstruction and Development says that in the flurry of selling formerly state-run companies and shares of companies in the late 1990s and in 2000 and 2001, the eight states in the pact generated a peak of 3 billion euros in direct foreign investment last year. The bank says that figure is likely to remain static this year.

The growth was impressive but the figure is still relatively small. The Czech Republic on its own, by comparison, attracted more than 5 billion euros in foreign investment last year.

Busek also said that the international business community tends to regard the countries in the pact as a unit and they should conduct themselves that way. "It is only by taking collective responsibility for the investment climate that the individual countries of Southeast Europe can secure the foreign-direct-investment flows that are so necessary for future economic development. One bad story from the region can spoil 10 good stories," Busek said.

Both Special Coordinator Busek and OECD Deputy Secretary-General Richard Hecklinger offered some additional advice to the ministers from the stability-pact countries. Busek said that as important as foreign investment is, the countries should not overlook domestic investment sources. And, for them, the states should necessarily move toward not merely reducing but possibly eliminating trade barriers and tariffs within the region. "For the domestic sources [of investment] in the region, we are doing the free-trade agreements as a first step. I think we have to move in the direction of a free-trade area, something like CEFTA, in preparation for European integration and the common market," Busek said.

CEFTA is the Central Europe Free Trade Area, comprising Bulgaria, Croatia, Czech Republic, Hungary, Romania, Slovakia, and Slovenia. Hecklinger seized upon and seconded the proposal. "The minister [Bartenstein] and special coordinator [Busek] also talked about the importance of cooperation within the region, of tearing down barriers to trade and investment, adopting common principles and standards, to make a virtually free-trade and free-investment area in the region that will take advantage of the over 55 million people to form a good market, not just of the region itself but also for companies to locate to serve the broader markets of Europe," Hecklinger said.

The Austrian Ministry of Economy and Labor distributed a study concluding that the stagnation of foreign investment in the stability-pact countries is part of a worldwide economic slowdown. The report said the slowdown had hurt the large multinational companies responsible for the bulk of foreign direct investment. This study forecast a decline of foreign investment in the region this year.