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Eastern Europe Perched between Stagnation and Crisis
An account published yesterday by Moody's rating service says that the macroeconomic situation in a number of Eastern European countries (the Baltic countries, Bulgaria and Romania) is not comparable to that in Southeastern Asia in 1997. The agency's analysts are concerned that the combination of fixed foreign exchange rate for those countries' currencies and their extremely high current accounts deficit, but they say that a currency crisis is very unlikely.
In several Southeast Asian countries ten years ago, the influx of foreign investment ceased to compensate for the current accounts deficit and those countries' gold and currency reserves were quickly depleted, resulting in a currency and stock exchange crisis. That crisis spread to Russia in August 1998.
Moody's analysts say that the new European Union members are protected from a crisis of the “Asian type” by better market and government institutions. In particular, there is little risk of investments being used ineffectively. This is demonstrated by the high rate of growth of labor productivity in those countries.
Moody's does see a threat of the “Portuguese syndrome” in those countries, however. In 2000, exactly when the idea of “catching up to Portugal” arose in Russia (and led to the idea of doubling the GDP), that European country, which was also experiencing rapid growth of the GDP, by European standards, and strongly negative current account indicators (around 9%). Giving up the escudo in favor of the euro and membership in the EU damaged the competitiveness of the country's economy, resulting in continuing economic stagnation that will require painful structural changes to remedy. The growth of labor productivity is the only thing that will return Portugal to the path of rapid development and keep the Baltic countries from leaving that path.
www.kommersant.com
All the Article in Russian as of Mar. 20, 2007
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