PRESS BRIEFING BY CHAIRMAN OF ECONOMIC COMMISSION FOR EUROPE
Press Briefing
PRESS BRIEFING BY CHAIRMAN OF ECONOMIC COMMISSION FOR EUROPE
19980706
At a Headquarters press briefing this morning, Eveline Herfkens, Chairman of the United Nations Economic Commission for Europe (ECE), said that the Russian Federation needed a credible reform programme to attract investment. The state of the economy of the Russian Federation was important because of the tremendous dependence of other Commonwealth of Independent States (CIS) countries on the situation in Russia.
Ms. Herfkens, introducing the second of its three issues of the Economic Commission Survey of Europe 1988, said the fall in world commodity prices had had a negative impact on the export earnings of Russia and other CIS primary commodity exporters. At the core of persistent and fundamental problems faced by Russia was its chronic fiscal imbalance and the manner in which it was being financed. If the public debt continued to grow at its present rate it might soon be beyond government control. Due to the low level of monetization in Russia and the persistent flight of capital abroad, authorities had been forced to attract increasing amounts of foreign funds to finance the deficit. That had made the country more vulnerable to volatile short-term foreign capital.
She said the Russian debt was high compared with its export earnings and budgetary income, and that situation would remain unchanged as long as Russia continued to finance the debt with foreign capital.
While 1997 had been, on the whole, the best year since 1989 for transition countries, she said, the outlook differed from country to country. The Eastern European countries which were beginning the phases of accession to the European Union, were doing fine. Preparations for entering the Union provided a framework which would be beneficial to their economic outlook. The outlook for the countries in the Balkans, however, was different. Their situation remained very weak, primarily because of the lack of serious reform efforts.
She went on to say that the Asian crisis had created problems for the Russian economy, which had then had an impact on the rest of the CIS. Recalling the financial crisis in Latin America in the early 1980s, she said that investors had withdrawn money from the whole of the South American continent and many countries which did not deserve it had been negatively affected. In the current situation, however, investors discriminated among the various countries. For example, they viewed the situations in Ukraine and Poland as different and acted accordingly. Poland continued to benefit from foreign investment.
In reviewing the Survey, Ms. Herfkens said the document, in addition to an overview of the economic situation and outlet in the ECE region at mid-year, also provided an overview of the Commission's spring seminar in
ECE Briefing - 2 - 6 July 1998
April 1998 which had been devoted to the problems of enterprise and bank restructuring in the transition economies. The papers selected for the Survey highlighted the continuing fragility of the enterprise and financial sectors in many of the transition economies, a fragility which rendered them especially vulnerable to external financial shocks emanating from other parts of the world economy. The seminar had been attended by experts from different countries who spoke freely in their individual capacities about lessons learned from their experiences.
Yves Berthelot, Executive Secretary of the ECE, announced that the Survey would, in the future, be issued three times a year instead of annually. He called attention to the third part of the current report which contained a statistical table with the latest information on a long-running series of macroeconomic variables.
In response to a question, Ms. Herfkens said that Russia must "get its act together" and become serious about reforms. The Russian Federation needed the kind of stability that the international financial community could provide, but that international community did not want to get involved until there was evidence of reforms. If financing was provided without the conditionality of a strict reform programme, it would undercut the political will to reform, as well as the political positions of the reformers.
Mr. Berthelot said there was a clear link between the Asian crisis and the situation in Russia. The Asian crisis acted as an incentive for lenders to reassess the situation of the borrower. In such a situation, the consequences for Russia had been particularly unfortunate.
* *** *