Geneva, 21 July 1999
ECE/GEN/99/17
STATEMENT BY
MR. YVES BERTHELOT, EXECUTIVE SECRETARY OF THE
UNITED NATIONS
ECONOMIC COMMISSION FOR EUROPE (UN/ECE),
TO THE
ECONOMIC AND SOCIAL COUNCIL AT ITS
SUBSTANTIVE SESSION OF 1999
(Geneva, 21
July 1999)
The economic
situation in the ECE region: a worsening of
disparities (For sections I and II, please refer to
the Economic Survey of Europe, vol. II 1999.)
Many significant events -
the Russian crisis, the birth of the Euro and the conflict in
Yugoslavia - have taken place in the UN/ECE region since we
met a year ago in New York. These events have affected
to different degrees the economic situation in the region and
the forecasts that can be made concerning short- and
medium-term trends there. Also, they have increased economic
disparities.
Western Europe
and the United States
The economies of the
European Union and the United States were affected only
momentarily and indirectly by the Russian crisis and the
conflict in Yugoslavia. The prospects of 2% growth in
western Europe and 3% in the United States are in line
with the forecasts made at the start of the year. In the
United States, where the situation is one of significant
imbalance, both internal and external, a preventive
tightening of monetary policy will be required to ensure a
soft landing. In western Europe a slight increase in growth
rates is likely during the second half of the year on account
of the effect of short-term interest rates on consumption,
the stimulus to exports caused by the relative depreciation
of the Euro and the recovery in eastern Asia and, finally,
the neutrality of fiscal policies. The principal uncertainty
resides in the manner in which the overvaluation of shares
will be resolved.
Central Europe
and the Baltic States
The countries of central
Europe and the Baltic States have suffered from the weakness
of world demand following the Asian crisis, the collapse of
their exports to Russia after the August 1998 crisis and the
slackening-off of demand in the west. The countries most
affected were the Baltic States. Growth slowed down, and, in
most of the countries concerned, unemployment increased.
Although these developments highlight the sensitivity of the
economies of these countries to external shocks, it is
important to note that they have been able to handle the
situation and in particular to avoid an excessive
deterioration of their current account positions. This no
doubt helped to restore confidence among investors, who were
hesitant following the Russian crisis and concerned at the
effect of the conflict in Yugoslavia; finally, they gave
precedence to long-term considerations and during the early
months of 1999 increased their rates of direct investment,
which had already risen in 1997 and 1998.
Russia and the
CIS
The situation in Russia
after the collapse of the rouble deteriorated less than had
been initially anticipated. The forecasts of the drop in GNP
during 1999 had been reduced from -10% to -1%. This is due to
some extent to the fact that the devaluation of the rouble
has revived a market for domestic products, but also to the
recent increase in the price of oil. However, Russia is still
facing very serious economic problems; their solution will
require the implementation of a highly systematic programme
of reforms and also foreign aid to lighten the burden of
debt, which currently exceeds the country's present capacity
to service. The CIS countries suffered the direct impact of
the Russian crisis, which drastically reduced their exports;
with a very few exceptions their growth rates will be
negative.
South-eastern
Europe
Already before the conflict
in Yugoslavia, south-eastern Europe was faced with serious
difficulties. These can essentially be attributed to the
inheritance of the past, the absence of systematic reforms
and the low level of economic relations between countries in
the region, which was further depressed by the sanctions
imposed on Yugoslavia. The industrialization which took place
during the 40 years of communist regimes was not soundly
based; investment decisions reflected the arbitrary
preferences of the planners rather than relative comparative
advantages. With exposure to competition in a framework of
over-rapid liberalization, and in the absence of
restructuring, the productive capital investment of entire
sectors was wiped out. After some years of decline, the
countries of central Europe and Slovenia were able to resume
growth, and have now returned to 1989 levels. On the
other hand, the countries of south-eastern Europe are in
stagnation; they have not succeeded in achieving
macroeconomic stability and are subject to financial and
monetary crises. The result was that income per head in the
countries of south-eastern Europe, which in 1989 was
equivalent to 85% of that of the countries of central Europe,
had on the eve of the conflict in Yugoslavia fallen to 50%.
The conflict thus broke out at a time when the situation in
the region was already difficult; it will become even more
so.
The rehabilitation of
south-eastern Europe
The conflict in Yugoslavia
has caused direct material damage within the country,
currently estimated, pending a precise evaluation, at some
US$ 30 billion. The conflict also affected
neighbouring countries, and in particular Albania, the former
Yugoslav Republic of Macedonia and Bosnia Herzegovina,
which received inflows of refugees. Some of Yugoslavia's
neighbours had to bear financial burdens as a result of the
arrival of the refugees; all of them suffered the equivalent
of an external shock due to the loss of the Yugoslav market,
increases in the cost of exports and imports to or from
Europe, a sharp reduction in income from tourism (10 to 50%)
and a rise in the cost of credit. In addition, direct
investment, which was already weak, decreased still further.
Priority is obviously being
given to the return of the refugees and the establishment of
the United Nations administration in Kosovo. In this
field, attention will be directed primarily to the problems
of rehabilitation of the economy of the region; on the basis
of the estimate mentioned earlier, a strategy will be
proposed which is to be gradually implemented within the
framework of the Pact on Stability in Europe.
One essential task in the
short term is the provision of compensation for the burdens
and the losses suffered by Yugoslavia's neighbours. The IMF
has estimated these at US$ 1.7 billion, of which
0.9 billion are attributable to a worsening of the
current account balance-of-payments deficit. Commitments by
the international community so far amount to
US$ 0.6 billion (US$ 0.4 billion
consisting of loans), but only a very small amount has
actually been made available. In countries such as the former
Yugoslav Republic of Macedonia, the fact that losses are only
being partially covered, together with delays in payment, may
prevent the reversal of the economic decline and make for an
increase in unemployment, which already affects nearly
35 per cent of the economically active population.
In a country with a precarious ethnic balance there is a real
risk of tension arising.
In view of the fact,
mentioned earlier, that the situation in the region was
already disquieting before the conflict in Yugoslavia, a
rehabilitation strategy must not only provide for
compensation, as just indicated, and the reconstruction of
wrecked infrastructure, but also a programme for the
long-term development of market institutions and
infrastructures. The establishment of properly functioning
institutions will take time; consequently, continuing support
from outside will be needed. In the initial stages inflows of
private funds will be inadequate, and public funds will be
necessary; an increase in the indebtedness of these countries
to unbearable levels must be avoided.
The rehabilitation strategy
must include the development of economic relations between
the countries in the region and their integration into the
European ensemble. The Pact on Stability in Europe wisely
recognized this. Many problems, such as border crossings,
transit and the interconnection of networks can only be dealt
with satisfactorily at the regional level and in harmony with
practice in Europe as a whole. In this context, the
implementation of the conventions and standards of UN/ECE
which make for good relations between member countries, which
are respected by all European countries and constitute one of
the achievements of the UN/ECE, would be a factor
facilitating the development of the region. With a view to
promoting exchanges between countries in the region and to
bringing them closer to the European Union, the idea of a
free-trade zone and a link to the Euro was advanced. Although
in terms of stability the merits of the proposal are
apparent, the risks which the experience of the last
10 years have highlighted must not be underestimated; a
rapid liberalization of trade while industry is weak and of
average quality may destroy production capacity without new
capacities developing in areas where comparative advantages
do exist. In addition, it is difficult to strike a balance
between monetary stringency to limit inflation, on the one
hand, and development, on the other; that equilibrium will
not automatically be ensured by tying currencies to a strong
one.
The strategy elements
outlined above recall those which made the Marshall Plan
so successful: a programme of reforms and investments,
covering several years, to be defined by each country;
financial support, primarily in the form of grants; and a
regional approach. To what extent the Pact on Stability in
Europe will resemble that model remains to be seen. But in
the absence of long-term support for reform policies defined
by the countries concerned themselves, the region would
remain marginalized and the disparities referred to at the
start of these observations would worsen.
The continuation of
reforms within UN/ECE
During the past year, and in
accordance with the recommendations made by the Economic and
Social Council, the main effort has been directed to
cooperation with the United Nations bodies active in
Europe and with non-United Nations regional
organizations; at the same time, cooperation with the other
regional commissions has been strengthened.
Under the chairmanship of
the Deputy Secretary-General, the United Nations
agencies active in Europe held a meeting and agreed to
prepare a joint evaluation of trends, problems and priorities
in countries with economies in transition and, on that basis,
if the procedure proved effective, to identify joint
projects.
The finalization of that
joint evaluation has been delayed by the conflict in
Yugoslavia and the need for each agency to meet immediate
needs or to prepare for the rehabilitation phase. By the end
of the month, UN/ECE will have circulated for comment a
document describing the impact of the events in south-eastern
Europe.
Since the establishment of
the Organization for Security and Cooperation in Europe
(OSCE), ECE has been assisting it by providing analyses and
data for its annual Economic Forum and its seminars. In
addition, last year, as a contribution to the preparation of
the Charter on European Security to be adopted in November in
Istanbul at the OSCE Summit, ECE organized a seminar on the
economic dimension of security, which was attended by
ambassadors to the two organizations and academicians. The
seminar confirmed that no theoretical model existed
explicitly linking together the constituent elements of
security, namely the democratic legitimacy of Governments;
respect for institutions and the rule of law; and development
accompanied by equity in the distribution of effort and of
benefits. The inadequacy of early-warning systems, and the
importance of evaluation missions conducted by
multidisciplinary teams and of qualitative syntheses of the
analyses conducted by different institutions, became
apparent.
Consultations with the
office of the Norwegian Chairman (and with the office of the
Austrian Chairman in the near future) and with the OSCE
secretariat offer prospects of significant progress in the
organization of that cooperation, and in particular greater
use of the Economic Survey of Europe by the Economic
Forum and association with the formulation of the programmes
of some OSCE seminars. In addition, at the last session of
the Commission I gave a short communication on the risks
arising from contrasting economic trends in Europe and urged
that closer relations be developed with OSCE and the Council
of Europe to highlight the convergence of the activities of
the three pan-European organizations towards the promotion of
the unity of the continent.
It suffices to mention here
that ECE has significantly strengthened its cooperation with
the Central European Initiative (CEI) and the Black Sea
Economic Cooperation (BSEC) by providing studies or
contributing to the execution of projects. Relations with the
European Commission, which are already very close, have been
further strengthened in the fields of assistance to
south-east European countries within the South-East European
Cooperative Initiative (SECI).
Cooperation with the other
regional commissions has become more concrete and practical
either within the framework of the Executive Committee on
Economic and Social Affairs (EC-ESA), within which
exploratory studies have been prepared under the auspices of
a regional commission or a worldwide body, or bilaterally,
where the expertise of one commission is used by one or more
others. For instance, the expertise of ECLAC on pension funds
was used for ECE's annual economic seminar, and the
conventions and standards of ECE in the fields of commerce
and transport have been disseminated and adapted by ESCWA and
ESCAP.
There was a common lesson to
be drawn from all the above projects, namely that every
cooperative project must have a team leader and that that
leader must be chosen pragmatically.
IV. Hearings
for the preparation of the Millennium Assembly
At the request of the
Secretary-General, hearings were organized; they were
attended by approximately 100 NGOs and representatives of
Governments from the ECE region. The participants were
assiduous and attentive throughout the two days of the
hearings. The President, Mr. Guido de Marco, President of
Malta and a former President of the General Assembly, closed
the discussions, which covered three themes: human rights,
peace and security and sustainable development. Mrs.
Robinson, Mr. Petrovsky and I were respectively the
moderators for these three themes. The common approach was
that of seeking how the United Nations could respond to the
fears and hopes of civil society in those fields.
The analyses and the
recommendations made will form the subject of a report which
will be widely disseminated. The principal conclusions can
already be identified as follows:
The restoration
of the primacy of the United Nations and respect
for the Charter is necessary for peace and
stability. To achieve that end the United Nations
must have the courage to discuss how respect for
articles VI, VII, VIII of the Charter can be
reconciled with the prevention of outrageous
abuses of human rights.
The actual
implementation of existing principles,
conventions and standards must take precedence
over the negotiation of new principles,
conventions or standards.
The changes
which globalization has brought about in the
relative powers of Governments, NGOs and
enterprises imply a linkage between those changes
and the work of the United Nations; they would
serve in the implementation of conventions and
standards.
The United
Nations should have a parliamentary assembly.
The resources of
the United Nations are totally insufficient if
Governments wish the conventions and standards
they have signed to be given real effect.
For further
information, please contact:
Information Unit
United Nations Economic
Commission for Europe (UN/ECE)
Palais des Nations, Room
356
CH - 1211 Geneva 10,
Switzerland
Tel: +41 22 917 44 44
Fax: +41 22 917 05 05
E-mail: [email protected]
Website: http://www.unece.org/press/press_h.htm