by VK
Experts from Moscow, Kiev, Kishinev, Yerevan and Astana discussed the impact of the financial and debt crisis of the euro zone and world on economies of CIS states at the “Crisis in Europe and world: what should economies of CIS expect”. They talked about crisis-resistance of their economy and ways to minimize the influence of crisis tendencies on the economies of Russia, Ukraine, Kazakhstan, Armenia and Moldova.
Mikhail Golovnin, Deputy Director of the Institute for Economy of the RAS (Russia)
The weak point of the five CIS economies and Russia is their complicated structure based on separate goods and separate production. All these economies are very open. We experienced it well in 2008-2009 when we were hit by the global economic and financial crisis. Avoidance of such collapses is obviously impossible, but we may weaken their impact.
Problems used to be caused by the global financial market, but all eyes are fastened on Europe today. The ways for crisis transmission for Russian economy are clear, at least, - they are foreign trade and the investment stream.
The European Union is the main foreign trade partner of Russia: about 48-49% of foreign trade is based on EU states. Moreover, there is the global factor for Russia and the influence of the crisis in Europe on world oil prices, which will influence the trade of Russia with the EU and other energy carriers.
Concerning the investment stream, it is not a simple issue. On the one hand, the EU is also the main investment partner of Russia. But Russian capital is leaving states, EU states are often a referral agent in the movement of Russian capital through global financial markets. Various situations are possible here, but in any case, major reduction of capital streams may cause repercussions for the Russian economy.
Similar streams concern CIS states too. States with advanced trade ties with the EU, where the EU is the main provider of capital for their economy would be influenced. Since Russian economy would also be harmed in case of serious problems of EU, bypassing streams of Russia’s induction would appear – foreign trade, investments, some states value the stream of migrants. We remember the dramatic reduction of the transfer of migrants and it was a serious impact of global recession on economies of certain CIS states. In other words, CIS states will be hit from two sides: from the European Union and through Russia.
Avoiding it is a complicated question. The first crisis wave showed that the maintenance of domestic demand is very important. Perhaps, the potential was not fully used. There are means of supporting the economy and coping with structural unbalance, avoidance of unidirectional raw economy which resulted in Russia being one of the main victims of such crises.
Igor Burakovsky, head of the Institute for Economic Studies and Political Consultations (Ukraine)
Regarding Ukraine, I agree with everything Mikhail Golovnin has said. It is the undiversified structure of our export for Ukraine. They are problems with capital reception. We see a phenomenon of Ukrainian banks with foreign capital starting to pay off inter-bank loans that they received from their parent companies in Western Europe. It is clear that it is a strategy of consolidating the finances of the banks. It is, on the one hand, pressure on the currency rate, because currency needs exchange, but on the other hand, it is clearly a narrowing of financing opportunities. We will see how this phenomenon goes on.
The second aspect is the cash transfers of Ukrainian migrants. Less demand means less cash, that is why less can be transferred due to economic problems of the European Union. We have been observing changes of migrants’ priorities in the last 1.5-2 years. People used to go abroad to make money and then bring it here to improve their living standards, educate children and etc. But more and more people tie their lives to foreign states, so money stops arriving through this stream.
Concerning Ukraine, it is clear that we cannot wait out the crisis. It is still a problem of state finances for Ukraine. Problems of economic activity cause problems for state finances. We need to think over the financial policy and state expenses of the upcoming 2-3 years. To be honest, the UEFA Euro 2012, which was quite a success, was a burden for the Ukrainian budget, because most cash was borrowed; it is part of our sovereign debt and should be treated carefully. There should be a fine line between financing major projects stimulating industrial and economic activity to avoid the “Dutch Disease” when we stimulate something important, help everyone, whole economy declines.
The second aspect is the debt. Ukraine experiences such a problem today. We need to pay 16.3% of our state debt. This means either restructuring or extreme scenarios.
The third aspect (common for Kazakhstan and other states) is that we need to try and help the domestic market avoid anti-crisis protectionism. If we start locking markets away from each other, if tariff and non-tariff methods would be used to support certain industries and spheres, it would be a negative experience. It is what we can influence. Such a non-aggression pact during the crisis would be important, I believe.
Bauirzhan Turlybekov, head of the Department for Macroeconomic Development, Social Sphere and Medium-Term Forecasting of the Institute for Economic Studies (Kazakhstan)
Currently, if Europe talks about a fiscal union, Kazakhstan is considering common economic integration. First of all, we are talking about a common market of the Single Economic Space. Regarding further stages, they are being worked on, SES agreements are being implemented, a new “air bag” is being formed.
Finances of the National Fund of Kazakhstan and budget transfers were actively used during the crisis. The difference from European states is lack of inter-budget transfers and lack of a fiscal union. The US, for instance, does not allow any state to transfer funds to another one, this, finances need to be searched for elsewhere. Kazakhstan uses the National Fund.
Regarding this day, the economy is taking the right track, 5.6% according to Q1. Should a crisis occur, states will most likely use the measures tested in 2008-2009.
Ashot Tavadyan, head of the sub-department for mathematic modeling of economy at State Economic University (Armenia)
The word “crisis” has a hard tone. Before arriving here, I checked forecasts for the euro zone. The President of the European Central Bank Mario Draghi predicted growth of 0.3%, the GDP dropping by 0.1%, a small recession. We can say that Greek economy in the economic potential of the euro zone is only 2%. Measures taken at the latest EU summit have given their positive results. It affected market indexes as well: Russian markets saw certain improvements from 3% to 5%.
Concerning illnesses of our economies, they are very similar indeed. It is a problem of economic security of our states, first of all – monopolization, secondly – weak diversification of our economies. Mining industry plays a very important role in our economies, but we lack the processing part.
The third serious problem is corruption, i.e. the illnesses are inside us, not outside. Our corruption level is quite high: the list of Transparence International puts all CIS states (out of 182 in the list) under the top 120. Russia is rated according to losses from corruption in economy at about 15%, in construction over 20%. We are all close in the corruption list, so I believe that our corruption losses are quite high, about 20%.
I must add a note about forecasting quality for our states. It may sound a bit indelicate: I have recently published a book “Intervals of uncertainties in economy” at the Nauka publishing center. We used to be ready for pessimistic and optimistic forecasts. There are always attempts to determine the mood of forecasts today. It is certainly untrue. Forex Club predicts a growth of 3.5% for Armenia, the World Bank 3.8%, state budget 4.2%. Our governmental program sets 7%. We need to determine a rational level of forecasts, like 3-7% of GDP growth and have a related program to fulfill data of forecasts, optimistic and pessimistic.
In other words, the illnesses are inside us and the impact of European recession on our economy should not be overestimated.
