The EBRD’s Stuck Transition Travails
The EBRD’s annual transition report, which now covers the Mediterranean and Middle East in addition to the former socialist economies, lamented decade long economic reform “stagnation” as an anti-capitalist post-crisis backlash resulted in a downgrade wave since 2010. Its long-term forecast for modest 2-4 percent productivity growth implies a convergence “stall” with Western Europe’s income level as only Central Europe and Baltic states will attain 60 percent of the EU-15 average, with the majority falling short due to institutional blockages. Democratization may have reversed the past twenty-five years after an early rise in per-capita living standards while natural-resource exporters have been slow to liberalize. Vested interests have stymied transformation and trade and investment integration with more advanced regional members. Domestic polarization has led to official hesitation, and international backing may have been absent to break the logjam. Education and human capital show a mixed picture, and despite the Eurozone’s return to growth internal consumption and remittances are weak. The three biggest emerging markets Poland, Russia and Turkey have joined global peers in a downturn, and state interference in the energy and financial sectors has undermined previous free-market progress in Hungary, the Slovak Republic and elsewhere. Job and school inequality is pronounced in the Balkans and Central Asia, with the gender divide also gaping in places like Egypt, Morocco and Uzbekistan.
Popular discontent was evident in October’s parliamentary elections in the Czech Republic after successive short-lived governments imploded on corruption scandals. A new party founded by an agribusiness and media billionaire finished second, despite his own checkered history alleging collaboration with the secret police during the communist era. President Zeman from the Social Democrats has also lost support since winning the post and waging a campaign against mining and utility firms as recession endures and another coalition tries to honor the 3 percent of GDP budget deficit target. Amid the political infighting the central bank stunned the FX market by overturning its longstanding no-intervention policy with a Swiss-style “unlimited” commitment to hold the koruna at 27 to the euro. The interest rate is already zero and the change should raise import costs so headline inflation approaches the 2 percent goal. Stocks have been in the negative column along with Hungary and Poland, with Turkey still the core category’s bottom performer. Hungarian banks were ravaged further as they were fined for anti-trust violations for discouraging forint conversion during the Swiss franc lending heyday as another relief scheme is under negotiation prior to upcoming polls. Local giant OTP echoed foreign affiliate outrage and said it would appeal the sanctions in court. Lawmakers passed a bill before that decision removing bank charges for cash withdrawals up to a specific limit. Poland’s cabinet was reshuffled as austerity advocate Finance Minister Rostowski was replaced with a private sector economist who still must fix flailing public accounts.
