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Balkan Endgame and Economic Transformation. Vladimir Gligorov. Contents. The game International actors Emerging economic region EU prospects. The game. The choice was: to democratize and negotiate a proper federal structure, or take control over the party and the army and either

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Balkan Endgame and Economic Transformation


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  1. Balkan Endgame and Economic Transformation Vladimir Gligorov

  2. Contents • The game • International actors • Emerging economic region • EU prospects

  3. The game • The choice was: • to democratize and negotiate a proper federal structure, or • take control over the party and the army and either • centralise Serbia and then Yugoslavia, or • integrate Serbian lands.

  4. International environment • American authority, • European Union conditional promise of integration, • regional normalization, and • UN cooperation.

  5. Economic transformation • Relatively fast and sustained growth based on growth of productivity, i.e., on increased efficiency and not on growth of employment. • High and sustained inflow of foreign investment due to relatively fast decrease of risks due to political stability, institutional change and the prospect of EU integration. • Delayed restructuring of the public sector and recurrent fiscal problems.

  6. Balkan specifics • Slow reindustrialization • High external imbalances • Distorted labour market

  7. Balkan specifics • Macroeconomic stability not really a problem, at least when it comes to inflation • Exchange rate stability not a problem • Fiscal prudence

  8. Annual GDP growth rateschange in % against preceding year

  9. GDPreal change in % against previous year 2004 2005 2006 2007 wiiw forecast Bulgaria 5.6 5.5 5.3 5 Croatia 3.8 3.9 3.7 3.8 Romania 8.4 4.1 4.5 4.5 Turkey 8.9 5.8 6 6 Albania 6.7 5.5 5.5 6 Bosnia and Herzegovina 6.0 6.5 6 6 Macedonia 4.1 3.6 4 4 Montenegro 3.7 4.0 5 5 Serbia 9.3 6.5 5 4

  10. Industrial production in South Eastern Europe (1990 = 100)

  11. Gross industrial production in NMS-5 and SEEC year on year, growth in %, 3-month moving average

  12. Labour productivity in industry in SEEC and NMS-5, 1990 = 100 Note: CS data 2005 Serbia only.

  13. Exports per capita in NMS-5 and SEEC in EUR (goods trade only)

  14. FDI stock per capita in NMS-5 and SEEC 1990-2005, EUR

  15. FDI, exports and balances • FDI increasing but not dramatically • Exports growing • Level low • Deficits high • Comparative advantages in labor or resource intensive sectors

  16. FDI stock per capita in NMS-5 and SEEC EUR

  17. Foreign trade: Exports cumulated period, annual change in % 27.3.06 AL, BA: Data refer to bolance of payment statistic.

  18. Foreign trade: Imports cumulated period, annual change in % 27.3.06 AL, BA: Data refer to bolance of payment statistic.

  19. Trade balance (commodities) in % of GDP in SEEC and NMS-5 2005customs statics Note: Montenegro Data refer to 2003

  20. Current account in % of GDP in NMS-5 and SEEC 2005

  21. Private transfers in SEE % GDP

  22. Average monthly gross wages in industry, EUR (ER), in SEEC and NMS-5 Note: RO net wages, Serbia data 2000 refer to 2001, Montenegro 2005 data refer to 2003

  23. Labor market • Employment low • Unemployment high • Shadow economy significant

  24. Employment in NMS-5 and SEEC 1990 = 100 1996=100

  25. Unemployment Rates, 2000, 2005in % of labour force, average, LFS Note: Albania, registration data, end of period

  26. Policy responses • Fiscal policy prudent • Monetary policy the main instrument • Credit controls not the proper instrument

  27. General government budget% of GDP 27.3.06 Montenegro: Central budget.

  28. Consumer price inflation, 2000-2007change in % against preceeding year 27.3.06

  29. 2004 2005 2006 2007 Prognose Bulgarien 6.1 5.0 8 5 Rumänien 11.9 9.0 8.5 8.0 Kroatien 2.1 3.3 3.5 3 Mazedonien -0.4 0.5 3 3 Türkei 8.6 8.2 9.0 6.0 Albanien 3.0 2.4 2.5 2 Bosnien und Herzegowina 0.7 2.9 6 4 Montenegro 2.4 2.3 3 3 Serbien 11.4 16.2 15 15 VerbraucherpreiseVeränderungen gegen das Vorjahr in % Quelle: wiiw-Jahresdatenbank, Prognosen: wiiw, Juli 2006.

  30. Current account and gross external debtin % of GDP 27.3.06 Current account Gross external debt

  31. Share of total foreign debt in GDP, 2000-2005in % 27.3.06

  32. Anteil der privaten an der gesamten Auslandsverschuldung, 2000-2006in % Quelle: Nationalbank des jeweiligen Landes.

  33. Reale Wechselkurse, 2003-2006 (EUR per NCU, VPI-deflationiert, Veränderung gegenüber Vorjahr) Anmerkung: Ansteigende Linie bedeutet reale Aufwertung.Quelle: wiiw-Monatsdatenbank, nationale Statistiken.

  34. Nominal growth (cumulative, in percent) (lhs) Real growth (compound rate, % per year) (rhs) 300 45 38 37 40 250 35 34 28 200 30 25 20 150 18 20 16 100 15 12 13 10 10 50 5 3 5 2 0 0 CS RO BG TR AL HU BA HR SI MK PL SK CZ EUR Bank credit to the private sector, 2002-04 Sources: IMF, International Financial Statistics; national data; BIS estimates.

  35. Bank credit to the private sector, 2000-04 (increase in percent of GDP, annual average) Sources: National data; BIS estimates.

  36. Real growth of credit, 2003-04(cumulative growth rate, in percent) BG Enterprises 85 RO BA CS 65 AL SI 45 TR HU MK 25 HR CZ 5 PL SK -15 Households RO 300 CS 250 BG AL TR 200 MK 150 HU BA SK CZ 100 HR SI PL 50 0 Source: National data; BIS estimates.

  37. Time, savings and foreign currency deposits Foreign liabilities 100 80 60 40 20 0 -20 RO BG SK HR SI HU PL TR MK CZ Commercial bank liabilities, 2002-04(annual pct change, quarterly average ) Source: IMF; BIS estimates.

  38. Capital controls Quantitative restrictions Reserve requirements Albania 10% Bosnia and Herzegovina 15% Bulgaria 23% per year increasing after the limit Croatia 17 % to 55% (marginal) Macedonia 10% Montenegro 23 % Romania 35% to increase to 40% Serbia 18% to 38% on foreign currency

  39. Western Balkan free trade area • Free trade area from January 1, 2007 • The area is small and the intra-regional trade is segmented • Distortions through different trade regimes with the EU and the rest of the world

  40. SEE trade: exports as % of total (2004)percentage point change in shares 2001-2004 * EU-4 = Austria, Germany, Greece, Italy.

  41. SEE trade: imports as % of total (2004)percentage point change in shares 2001-2004 * EU-4 = Austria, Germany, Greece, Italy.

  42. Bulgarien 0.0 0.0 0.3 0.2 0.8 0.4 0.1 6.3 1.2 1.7 2.3 Kroatien - 0.1 0.8 0.0 Mazedonien - 0.3 - 0.2 0.0 - 0.2 0.4 - 0.4 0.0 1.0 - 1.8 Rumänien 0.0 - 0.1 0.8 0. 0 0.2 1.2 - 4.8 1.2 - 1.3 Serbien & Montenegro - 0.6 - 0.3 0.4 1.7 Russland 0.1 - 0.1 - 0.4 - 0.6 0.3 0.0 - 16.9 - 5.9 - 2.4 - 4.6 8.3 - 4.5 - 2.7 - 2.2 EU - 4* 1.2 1.4 4.4 1.8 5.9 SOE - 7 0.8 0.3 0.7 Exportanteile 2005 Veränderung der Anteile in Prozentpunkten, 2001-2005 von: ALB B&H BUL CRO MAC ROM S&M RUS nach: Albanien 0.1 - 0.1 0.0 0.0 0.0 0.4 0.0 2.3 5.0 Bosnien und Herzegowina 0.0 - 0.1 - 0.3 0.1 0.0 Gesamtveränderung, Mrd. USD 0.4 1.4 5.9 4.4 0.8 14.4 1.9 153.6 * EU-4 = AUT, GER, GRE, ITA.Quelle: IMF Direction of Trade Statistics.

  43. Political challenges • Unfinished process of disintegration • Montenegro referendum • Kosovo negotiations • Bosnia and Herzegovina connection • Regional integration

  44. Stability Inflation speeding up Real exchange rates apreciating Policies mainly prudent

  45. EU prospects • The Hague Tribunal • Stabilization and Association Agreement • Democratization • Threat of populism

  46. SEE EU accession forecast