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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?