KIEV, May 9 (AFP) - The former Soviet bloc recorded overall
growth in 1997 for the first time since the region launched market
reforms, as the giant Russian economy posted its first growth since
independence, a senior EBRD official said Saturday.
Nicholas Stern, chief economist at the European Bank for
Reconstruction and Development, said private investment was also
surging into the region, but warned states had to grasp the nettle
of financial reform to keep fresh capital flowing.
Officially presenting the EBRD's "Transition Report Update," a
copy of which was obtained by AFP Friday, Stern said: "The reason
that we're seeing a turnaround this year is that Russia has started
to grow."
Russian output rose by 0.4 percent in 1997 -- the first rise in
gross domestic product (GDP) since the collapse of communism, but
the Russian giant accounts for around half of the region's output,
boosting overall average growth in the region to 1.6 percent.
"When Russia turns, that has a very important effect on the
region as a whole," said Stern, noting that the upturn could boost
fellow Commonwealth of Independent States (CIS) members with close
trade links with Moscow.
Stern made his comments on the second day of a five-day annual
meeting of the EBRD's board of governors in Kiev, being attended by
some 3,000 international bankers, finance chiefs and businessmen.
The report underscored the emergence of a two-speed region, with
central and eastern Europe and the Baltic states in general
outperforming CIS member states.
Central and eastern Europe and the Baltics will average 4.1
percent growth in 1998, the report said, while CIS states will
manage GDP growth of just 1.7 percent this year.
Direct foreign investment in the region also surged in 1997,
rising 32 percent to 17.2 billion dollars. However, large capital
inflows helped finance large current account deficits which could
store up problems for the future, the EBRD warned.
Continued financial probity and an overhaul of antiquated tax
systems "are widely seen as crucial if investor confidence is to be
maintained, and fiscal deficits in excess of four percent of GDP in
Romania, Russia and Ukraine give some cause for concern," the bank
warned.
It cautioned that the Asian financial crisis had highlighted the
need for urgent reform in the region's financial sector, saying high
interest rates risked stifling nascent economic growth.
Continued budgetary rigour and tax reform were also vital to
maintain investor confidence.
Stern hailed the region's progress towards the market economy,
noting that in 19 of the 26 states helped by the EBRD private
companies accounted for more than 50 percent of GDP.
But his report warned that while liberalisation and
privatisation was advanced in most of central and eastern Europe, it
remained incomplete in socially sensitive sectors like agriculture,
steel, shipyards, mining and power.
But the prospect of EU membership would spur reforms in those
sectors in countries like Poland, Hungary and the Czech Republic,
the report added.
In Russia, the planned sales in 1998 of 70 major firms including
Rosneft, Transneft, and Sheremetyevo International Airport would
provide a further boost.
Progress in bringing corporate governance up to western
standards and bolstering financial institutions were the challenges
of the next phase of the region's transition to a market economy.
The bank slammed Russia's poor track record on corporate
governance, saying insider ownership dominated most Russian firms,
where "incumbent management has typically remained hostile to
outside shareholders and foreign investors."
Massive payments arrears and the widespread use of barter were
also major problems which had to be confronted, the report
concluded. |
