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EBRD: Report Says Growth Robust In Postcommunist Countries

Economic growth in the postcommunist countries is outpacing much of the rest of the world -- this according to a new report by the European Bank for Reconstruction and Development. The bank says investors are pouring money into parts of the region in anticipation of eventual EU accession. In the countries of the former Soviet Union, relatively high oil prices are fueling growth there.

Prague, 23 April 2003 (RFE/RL) -- Economic growth in the postcommunist countries of Eastern Europe and the former Soviet Union continues to outpace that in much of the rest of the world, including the United States and the European Union. This is according to a recent report by the London-based European Bank for Reconstruction and Development (EBRD).

In the report, released yesterday, the EBRD said the economies of the former communist countries expanded last year by 3.7 percent on average -- higher than the global average for 2002 of around 3 percent.

Willem Buiter, the EBRD's chief economist and the author of the report, told RFE/RL the performance is notable given the economic weakness of the world's biggest national economies -- the U.S., Germany, and Japan. "Despite the weakness of the overall global environment, which did indeed affect the region, there has been a considerable amount of resilience. [For this year,] for 2003, we again expect a pretty robust performance," he said.

He said the EBRD expects growth in Eastern Europe and the former Soviet Union to reach around 4 percent this year.

Different factors account for the economic growth. Buiter said that in the relatively advanced countries of Central Europe, growth is fueled in part by foreign investment ahead of those countries' entry into the European Union.

"In Central Europe and the Baltics -- the [pre-EU] accession countries -- it's partly domestic demand, consumer demand especially. But [it's] also investment-driven, in anticipation of imminent membership in the EU. [This] has stimulated [strong] foreign investment flows," Buiter said.

In the oil- and gas-producing states of the former Soviet Union, including Russia, growth is due largely to the recent rise in the price of oil. The EBRD expects Kazakhstan, a major oil producer, to experience growth of some 6.5 percent in 2003.

This robustness, in turn, has helped promote economic growth in some of the neighboring states in the Caucasus and Central Asia. The Tajik economy, for example, is expected to expand by 6 percent in 2003.

"We see [economic] figures [in these countries] that -- in terms of growth rates -- are really quite attractive. Of course the levels from which these countries are growing, the levels of productivity and the levels of per capita income are still very low," Buiter said.

Buiter said, however, there are potentially dark clouds on the horizon. In Central Europe, government budgets are in deficit, which could lead in turn to rising interest rates and slower growth.

"In the accession countries, all of the medium-sized countries have to watch their fiscal status. There is a budgetary problem in Hungary, in the Czech Republic. Two other large countries -- Slovakia and Poland -- are in slightly better shape from a budgetary point of view," he said.

The main danger for the energy-producing countries is a sharp drop in the price of oil. Oil prices rose to near records earlier this year amid war fears over Iraq, but have since fallen. Economists warn prices could fall further once oil from Iraq is again sold on international markets.

Buiter said in general, the growth statistics reflect the EBRD's underlying philosophy that political reform and economic growth go hand-in-hand. He used Uzbekistan, Belarus, and Turkmenistan as examples of economies that continue to under-perform because of a lack of political development.

"We expect once again that Uzbekistan will pay the price for its failure to reform and have just 'slow' growth -- 2.5 percent is very little for a country with its potential. We also don't anticipate growth miracles in Belarus, another completely unreformed country. And in the other utterly unreformed country, Turkmenistan, we basically expect the only signs of life will be strictly related to gas exports," he said.

Buiter said lessons can be drawn from the Balkans and Moldova, where recent improvements in the political situation have led to a more optimistic economic prognosis.

"In Southeastern Europe, I think there clearly has been a marked improvement in political stability. Peace and physical law and order have been restored across the region. Serbia and Montenegro has become an integral part of the region again following the demise of the Milosevic regime. All this is good news. At the same time, the region is still attracting very little [foreign investment], and there's only one reason for that -- the poor quality of the investment climate, which still deters a lot of investors, and the limited size of the national markets," he said.

Buiter said the Balkan countries can improve the investment climate by working toward greater regional integration. He said investors must see them increasingly as "pre-EU."

The EBRD was established in the early 1990s to help the former communist countries establish democracies and market-based economies. The U.S. is the bank's biggest single shareholder. Other shareholders include the European Union and the transition countries themselves.

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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.