European Bank Report Finds Former Soviet Oil Economies Booming
By Mark Baker, Radio Free Europe/Radio Liberty

Radio Free Europe, Czech Republic
Nov 10 2004

The European Bank for Reconstruction and Development (EBRD) this
week confirmed what many in Russia, Ukraine, and Central Asia had
already suspected — their economies are booming. In its annual
Transition Report, released yesterday, the bank said higher oil and
other commodity prices are fueling skyrocketing annual growth for
many countries. In fact, the former Soviet Union is now the world’s
second-fastest-growing region in the world — behind only China and
neighboring countries in Asia. But the high prices won’t last forever.

Prague, 9 November 2004 (RFE/RL) — Willem Buiter, the EBRD’s chief
economist, said that from an economic standpoint, Russia and the
countries of the former Soviet Union have never had it so good.

Speaking to RFE/RL today from the bank’s headquarters in London,
Buiter said that with oil prices at around $50 a barrel and prices
of other commodities soaring, growth in the former Soviet Union could
reach 7 to 8 percent next year:

“Oil and gas prices are dragging Russia itself and Azerbaijan,
Kazakhstan, and Turkmenistan merrily along with them — and strong
cotton prices [as well],” Buiter said. “Gold prices do the same for
Kyrgyzstan, and for aluminum it’s Tajikistan. So we have a range
of very favorable international conditions. Not only are the prices
[of their commodity exports] higher, but also for their noncommodity
exports, there’s buoyant demand.”

The bank’s Transition Report — issued each November — is viewed as
a scorecard for the postcommunist countries in Europe and the former
Soviet Union the bank was established to help. The report forecasts
economic growth in each of the countries and also evaluates them on
reform efforts.

Buiter said, however, that while growth rates are rising, progress
in implementing reforms — things like simplifying tax codes and
cracking down on corruption — is lagging. In countries from Russia
through Central Asia and Ukraine, he said there was relatively little
effort made at reform in the past year.

There might even be an inverse relationship between oil wealth and
reform — meaning that the more natural wealth a country possesses, the
less pressure the authorities there feel to implement positive changes.

“The main consequence of nature’s largesse seems to be a slowdown
in reform efforts,” Buiter said. “Basically, easy growth and easy
government revenues from taxation and royalties make the sense of
urgency felt by the authorities to pursue reform less acute. So,
if anything, I think this commodity boom is slowing down reform.”

Buiter cited Kyrgyzstan as an exception. In this year’s report,
Kyrgyzstan was praised for introducing economic reforms the EBRD says
will serve them well in the future: “The main things that they’ve
done right [in Kyrgyzstan] is that they liberalized quite [a lot].
There was progress in structural reforms. They privatized the Kumtor
gold mine, which accounts for 10 percent of [the size of the Kyrgyz
economy] on its own. They have taken steps to enhance open transparency
in businesses. They adopted an anti-corruption law in March [2003].”

The report says that even in oil- or commodity-poor states — like
Armenia and Georgia — economies are growing in step with regional
growth. But Buiter said in these countries, successful reform efforts
are important to ensure continued growth.

“Reform, reform, reform. And implement the reforms. Don’t just pass
the laws. Anybody — or nearly anybody — can do that. Implement
on the ground. And in order to implement with the limited public
administration capacity you have, you have to keep it simple,”
Buiter said.

The EBRD is relatively active in all but two formerly communist
countries — Belarus and Turkmenistan.

Buiter said the past year simply brought more of the same misery to
both countries.

He listed Turkmenistan’s many problems: “[The] total lack of reform.
The frightening backwardness of the public administration. In the
case of Turkmenistan, the destruction of its human capital by its
dismantling of serious higher education, and indeed undermining even
secondary education, makes one worry greatly about the future of
the country.”

And he said Belarus doesn’t fare any better: “They had a fraudulent
[referendum recently], and the country is moving steadily away from
the canons of democratic and transparent pluralist societies that our
bank is supposed to support and work in. Belarus and Turkmenistan
are the two worst cases in our bank’s portfolio. One really feels
for the people of these countries who have to live through these very
difficult times.”

Neither Belarus nor Turkmenistan meets the EBRD’s democratic standards
as spelled out in its charter, and the bank has had to greatly reduce
its lending and support activities in those two countries.