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Prof. Dr. RUMEN GECHEV
Director, Center on Sustainable Development at the
University of National and World Economy (UNWE), Sofia,
Bulgaria
The Trade-off Between Transition and Sustainable
Development in the Former Socialist Countries
of the Balkans
Sustainable Development is:
“Development which is environmentally friendly and
socially justified”
The Sustainable Development (SD) has four, mutually
supportive and interrelated dimensions:
(a) economic;
(b) social,
(c ) environmental and
(d) institutional
Market reforms and SD
Short-term versus Long-term effects
Short-term effects (1989/90 – 1997/98)
A/ Economic recession and lost of up to 25 % of the GDP in most
countries. Factors which led to this sharp GDP shrinkage:
(1) Collapse of the COMECOM market;
(2) Inadequate for the new business environment state-owned
economy - obsolete technologies and products. State-owned
companies did not have the capacity to handle the price and
non-price competition of the imported goods;
(3) Inherited huge foreign debts (70-120% of GDP) and exhausted
hard currency reserves. For instance, Bulgaria announced in
1991 that it can not serve any longer its foreign debt because
only 70 million dollars were left as a hard currency reserves at
the Central Bank;
(4) Lack of business educated managers;
(5) Weak banking system and absent or underdeveloped market
institutions;
Market reforms and SD
Short-term versus Long-term effects
Short-term effects (1989/90 – 1997/98) continue….
B/ Fragmentation of the land property at a time when modern agriculture
was based on land consolidation. This consolidation is a
prerequisite for putting into practice highly productive technologies.
C/ Strong social polarization and sharp deteriorating of the standard of
living. This process was mirrored in the worsened GINI index in all
countries in the region. In most former socialist countries in the
region the unemployment was in the range of 18-24%.
D/ High level of corruption which was an additional obstacle for the
attraction of foreign investments .
E/ Lower level of pollution is probably the only clear positive effect though
it was based rather on the deep economic recession than on any
improvement of technologies or implementation of new
environmental standards.
Market reforms and SD
Short-term versus Long-term effects
Long – term effects on SD
A/ Real potential for establishment of a modern, highly competitive market
economies;
B/ Harmonization of the national environmental, health and technical
standards with those in the EU;
C/ Possible boost for the regional economic integration and better
utilization of the regional growth factors.
D/ Speeded preparation for EU accession which could lead to a
substantial ease of the ethnical and religious problems in the region. It
could probable make meaningless or at least less dangerous, the
territorial disputes among some of the countries.
E/ Consolidation of the democracy and political pluralism and further ease
of the ethnical and religious problems in the region.
Foreign trade in 2006 (in million €)
1200
969
868
1000
872
800
719
exp
600
535
imp
349
400
53
Al
ba
ni
a
0
3
130
66
6
42
79
69
34
G
re
ec
e
FY
R
M
ac
R
om
an
ia
Sl
ov
en
ia
Se
rb
&
M
N
C
ro
at
ia
Tu
rk
ey
50
B&
H
200
276
184
GDP in 2007
(in billion USD, PPP)
Slovenia
55
Montenegro
26
Macedonia
17
Serbia
57
Croatia
69
B&H
30
Albania
20
Romania
247
Bulgaria
87
0
50
100
150
200
250
300
GDP per capita in 2007, USD PPP
30000
25000
20000
15000
10000
5000
0
Bulgaria
Romania
Albania
B&H
Croatia
Serbia
Maced.
Monten.
Slovenia
M
Sl
ov
en
ia
o
ia
ia
gr
on
ne
ed
H
a
tia
rb
oa
Se
te
ni
ia
ia
B&
ba
Cr
ac
on
M
ar
an
lg
m
Al
Ro
Bu
Unemployment rate in %, 2007
50
45
40
35
30
25
20
15
10
5
0
Public Debt as a % of GDP in 2007
60
50
40
30
20
10
0
Bulgaria
Romania
Albania
B&H
Croatia
Serbia
Maced.
Monten.
Slovenia
Share of the “Balkan trade” for the Bulgarian
foreign trade turnover in 2006 in million €
5304
Balkan
Total
23601
World Bank assessments : Several Macroeconomic
Trends Show Clear Improvement…
From 2000 to 2006, public debt/GDP was cut in all
countries (by 4 % in FYR Macedonia, by 30% in B&H,
by 25% in Serbia & Montenegro, nearly by 35% in
Bulgaria.
The positive macroeconomic results were achieved
through tight fiscal policy efforts (budget deficits under
control), speeded privatization, sustain economic
recovery. Public debt (mainly foreign debt) restructuring
was among the most decisive factors for stability and
growth.
Public Debt Restructuring continue…
This restructuring has included such instruments
as:
(a) buy back operations;
(b) debt refinancing at more favorable interest rates;
(c) conversion of short term debt into long-term debt
instruments;
World Bank: …But Many Challenges
Remain
Still High government spending/GDP (B&H, Serbia, Montenegro, Albania).
Relatively large foreign debt as a % of GDP (Serbia, Montenegro, Albania)
Huge current account deficits (all countries) in the range from 10% to nearly
25 % of GDP (Financial Times, January 30th, 2008 – data about current
account deficits (2007) of Bulgaria (-23%), Serbia (- 16.3%) and Romania
(14%).
Pre-EU accession costs is pretty high. All these countries need to invest
heavily in a catching-up policy which supposes (a) technological update, (b)
product innovation, (c) implementation of much higher technical, health and
environmental standards, (d) harmonization of the overall legal system and
establishment or reform of the relevant institutions.
The risk of financial and macro economic instability in the event of sudden
decline in anticipated flows of foreign capital.
Obstacles for successful development at the
Micro economic level
(a)
(b)
(c)
Privatization of state-owned owned and municipal companies
have proceeded slowly in all countries and failed to produce
a strong, competitive private sector. Only Slovenia and
Croatia managed to complete the economic restructuring at
an earlier stage.
The banking system is relatively weak, both financially and
institutionally, and lends mainly to governments and state
enterprises rather than to the private sector. Small national
economies are insufficiently integrated into markets around
them.
Political instability and unpredictability remain high in some
Balkan sub-regions, namely Kosovo, B&H. The situation in
Macedonia is also far from stable and predictable.
Advantages of the Balkan Region
Proximity to the European Union (EU). All Balkan
former socialist countries (Bulgaria and Romania are
already members of the EU) must be viewed as
future members of the EU, therefore those countries
are like are springboard for foreign investments from
outside of the European Union.
Proximity to energy sources and/or transit area for
energy sources (oil, natural gas, coal) from Russia
and the Middle East.
Relatively well-educated, low-cost workforce and
some promising sectors for investment.
Necessary steps towards EU membership
Market liberalization:
(1)
Lower trade barriers, both tariff and non-tariff;
(2)
Harmonization and simplification of the customs procedures;
B. Substantial improvement of the infrastructure with the support
through different EU funds and co-financing from leading
international financial institutions like the World bank, IFC,
EBRD, and EIB.
C.
EU has to articulate more clearly a path toward integration
with the Balkan countries defined as "Partnership for
Prosperity."
A.
Regional integration – a prerequisite
for an accession to the EU
(a)
(b)
(c)
(d)
The EU is encouraging Balkan countries to pursue economic
integration among themselves and better utilize their potential. It
supposes:
Liberalization of the regional trade;
Development of regional specialization and cooperation at macro
and micro economic level;
Joint-realization of huge infrastructural projects which could boost
the economic development, like: oil and natural gas pipe lines,
extension and/or modernization of the existing trans-border
highways and railways, optimization of the energy system and
energy distribution, joint implementation of environmental
programs, etc.
Greece, Bulgaria and Romania must play more active role in the
“regional cooperation” of the other Balkan countries. This
cooperation is seen by the EU as a pre-condition for their
accession to the Common Market.
Natural gas pipe line “Southern Stream”
Russia – Balkans -Central and Western Europe
“Southern Stream”
Five billion dollars project. It will be completed within
3 years.
The initial contract was signed between the Russian
giant “Gazprom” and the Italian company “ENI” in
2007. The Russian and the Italian ministers of
energy were present at the official ceremony in
Rome.
The Russian president Putin signed an agreement
with Bulgaria and Serbia in January 2008.
“Southern Stream”
Natural gas not only from Russia but also
from Kazakhstan and other former republics
of the Soviet Union.
Northern route: Varna (Bulgaria) to Serbia,
Slovenia, Austria and the rest of Europe;
Southern route: Varna(Bulgaria) – Greece
– Italy – than the rest of Europe.
Southern Stream:
Equity: BULGARIA : RUSSIA
50% : 50%
(a)
(b)
(c)
(d)
Economic Benefits for Bulgaria:
250-400 million USD per annum (transit taxes);
Investments of 1.4 billion USD for the construction on
Bulgarian territory. This investment will assure additional
positive effects, like: engagement of hundreds of domestic
sub-contractors, generation of additional GDP and
respectively higher income.
200 million USD budget revenues (VAT) annually;
Sustain energy supply at preferential prices based on longterm agreement;
Economic Benefits for Bulgaria - continue
(e)
Relatively cheap and environmentally
friendly energy for the sectors of
metallurgy, the chemical industry and for
the transportation services;
(f) Attraction of additional FDI in the above
sectors because of the competitive
advantages;
Balkan Geopolitics
“Southern Stream” versus “Blue stream”
(Russia :Turkey)
“Southern Stream versus NABUKO (Iran :
Turkey: Bulgaria : Europe)
Outcome for the EU: an increased energy
dependence on Russia or energy supply
diversification?
Balkan Geopolitics - continue
Establishment of the Balkans as a key energy
transition region: conflict or balance of the strategic
interests of the USA, EU and Russia?
How the Balkan countries could convert these
strategic interests into concrete economic and
political benefits?
If well utilized, the establishment of Balkan energy
transition system will ease the political tension in the
region and will increase its security.
Was Churchill Right?
Winston Churchill observed that »the
Balkans have the tendency to produce more
history than they can consume.«
Or the so called “great powers” have over the
centuries exported to the Balkans more
history than we could absorb?