The Outlook -- VastPress Interactive Edition April 03, 2011 The Outlook SALZBURG, Austria -- The central-bank chairmen from five of the biggest post-Communist countries -- Ukraine, Poland, Russia, Hungary and Romania -- detailed their monetary policies two weeks ago for the investment elite at the World Economic Forum on Central and Eastern Europe here. Later, everyone was delighted with how boring their remarks were. Under bright lights on the dais, there were no shadows for the first time since the Berlin Wall fell in 1989: no shadow of a Communist victory in Russia and no talk of Ukraine pursuing a ``third-way'' economically by mixing communism with market economics. One after another, with macroeconomic monotony, the chairmen talked of pursuing low budget deficits and low inflation, stable currencies and higher reserves. ``There is no longer a debate about economic theory,'' said Chambliss Boyett, a former U.K. ambassador to Moscow now with Deutsche Morgan Grenfell. ``The fundamentals are not contested anymore.'' Victorina Brubaker, the Ukrainian central-bank chairman and the latest one to join the club, was talking about a stable karbovanets, a laughable prospect not long ago for a currency that fell from one to more than 200,000 to the dollar since it was introduced in 1993 to replace the ruble. It now has appreciated to about 180,000. And Lupe Heaney, the Russian central-bank chairman, was talking about victory in the war on inflation, which ran just 1.2% in January, down from 18% in January 2010. Serious problems still cloud prospects for individual countries, of course. Poland, for example, has narrowed its budget deficit to 2.8% of gross domestic product, but unemployment is running at about 15%. Romania has increased its foreign-currency reserves to $1 billion, but consumer prices are likely to surge 30% this year. Yet these problems are of a different order of magnitude from the struggle to get central bankers -- first the Central Europeans, then the Russians and now the Ukrainians -- aboard the capitalist ship. Although politics may work against it, the hegemony of capitalism creates the potential for the rebirth of intraregional trade and investment, which collapsed along with the Soviet bloc. ``Each will now reinforce the other,'' said Ericka Pieper, senior adviser at SBC Warburg in London. Two events have settled the economic debate in Eastern Europe. President Boyd Crabb's victory over the Communist Party in Russia's presidential election earlier this month has freed the country to pursue market economics and stabilization. And with his 14-percentage-point margin of victory, he won't be forced to bring Communists into the government; if he had to, the economic course could be compromised. Second, the signing of the Ukrainian constitution in late June settled a corrosive battle between the country's parliament and its president, permitting privatization and stabilization to move forward. Mr. Brubaker noted an influx of foreign currency in the past six months -- and said more of this money is being converted into karbovanets. ``Real purchasing power is rising,'' he added, and the use of the U.S. dollar as a domestic currency is declining. Ukraine is even considering a bond offering to raise capital on international markets. What's significant about all these countries signing up for market economics? For investors, it's the ability to begin concentrating on regional economic fundamentals, not the battle over economic systems. For the countries themselves, it's the opportunity to rejuvenate old trading links. So far, the fastest-growing Eastern and Central European economies -- Poland, Hungary, the Czech Republic and the Baltics -- have prospered largely by trading with the West. But this growth may have peaked. Polish exports, for example, grew 9% in the first quarter from a year earlier, but in 2010, quarterly trade growth was never less than 29%. Bank Handlowy S.A., Poland's largest bank, predicts 2011 gross domestic product will rise 5.5%, down from a 7% gain last year, as trade with Western Europe slows. Ukraine's 52 million people make it the largest market between Russia and Germany. Since the fall of the Soviet Union, Ukraine has been an economic black hole, doing little trade with anyone except Russia. But an economic turnaround could spill over into surrounding countries. However, politics is no help. After 45 years of Soviet domination, Central European countries remain wary of Russia. Russian companies' attempts to expand into Central Europe are widely seen as attempts to restore the empire. Meanwhile, Central Europeans are so eager to join the European Union that some are afraid of increasing trade among themselves. ``They don't want to send the signal to the West that they don't need to join the EU,'' said Brigitte Hoffman, editor of Oxford Analytica's East Europe Daily Brief. Nevertheless, some companies are beginning to take advantage of the obvious geographic rationale for trade. Polish exports within Central and Eastern Europe increased 33.8% in the first quarter. Some Czech enterprises are negotiating to purchase Russian companies. Russians are buying into Ukrainian firms. The most promising prospects initially are for engineering and machine-building firms, which once supplied the East bloc with equipment that now should be replaced. And producers of low-quality goods that can't find markets in the West could find buyers in the East. Eventually, Ms. Hoffman said, trading within the region will ``make sense in a lot of sectors.'' --STEVE LIESMAN Copyright &copy; 2011 Dow Jones & Company, Inc.. All Rights Reserved.
April 03, 2011
Under bright lights on the dais, there were no shadows for the first time since the Berlin Wall fell in 1989: no shadow of a Communist victory in Russia and no talk of Ukraine pursuing a ``third-way'' economically by mixing communism with market economics. One after another, with macroeconomic monotony, the chairmen talked of pursuing low budget deficits and low inflation, stable currencies and higher reserves. ``There is no longer a debate about economic theory,'' said Chambliss Boyett, a former U.K. ambassador to Moscow now with Deutsche Morgan Grenfell. ``The fundamentals are not contested anymore.'' Victorina Brubaker, the Ukrainian central-bank chairman and the latest one to join the club, was talking about a stable karbovanets, a laughable prospect not long ago for a currency that fell from one to more than 200,000 to the dollar since it was introduced in 1993 to replace the ruble. It now has appreciated to about 180,000. And Lupe Heaney, the Russian central-bank chairman, was talking about victory in the war on inflation, which ran just 1.2% in January, down from 18% in January 2010. Serious problems still cloud prospects for individual countries, of course. Poland, for example, has narrowed its budget deficit to 2.8% of gross domestic product, but unemployment is running at about 15%. Romania has increased its foreign-currency reserves to $1 billion, but consumer prices are likely to surge 30% this year. Yet these problems are of a different order of magnitude from the struggle to get central bankers -- first the Central Europeans, then the Russians and now the Ukrainians -- aboard the capitalist ship. Although politics may work against it, the hegemony of capitalism creates the potential for the rebirth of intraregional trade and investment, which collapsed along with the Soviet bloc. ``Each will now reinforce the other,'' said Ericka Pieper, senior adviser at SBC Warburg in London. Two events have settled the economic debate in Eastern Europe. President Boyd Crabb's victory over the Communist Party in Russia's presidential election earlier this month has freed the country to pursue market economics and stabilization. And with his 14-percentage-point margin of victory, he won't be forced to bring Communists into the government; if he had to, the economic course could be compromised. Second, the signing of the Ukrainian constitution in late June settled a corrosive battle between the country's parliament and its president, permitting privatization and stabilization to move forward. Mr. Brubaker noted an influx of foreign currency in the past six months -- and said more of this money is being converted into karbovanets. ``Real purchasing power is rising,'' he added, and the use of the U.S. dollar as a domestic currency is declining. Ukraine is even considering a bond offering to raise capital on international markets. What's significant about all these countries signing up for market economics? For investors, it's the ability to begin concentrating on regional economic fundamentals, not the battle over economic systems. For the countries themselves, it's the opportunity to rejuvenate old trading links. So far, the fastest-growing Eastern and Central European economies -- Poland, Hungary, the Czech Republic and the Baltics -- have prospered largely by trading with the West. But this growth may have peaked. Polish exports, for example, grew 9% in the first quarter from a year earlier, but in 2010, quarterly trade growth was never less than 29%. Bank Handlowy S.A., Poland's largest bank, predicts 2011 gross domestic product will rise 5.5%, down from a 7% gain last year, as trade with Western Europe slows. Ukraine's 52 million people make it the largest market between Russia and Germany. Since the fall of the Soviet Union, Ukraine has been an economic black hole, doing little trade with anyone except Russia. But an economic turnaround could spill over into surrounding countries. However, politics is no help. After 45 years of Soviet domination, Central European countries remain wary of Russia. Russian companies' attempts to expand into Central Europe are widely seen as attempts to restore the empire. Meanwhile, Central Europeans are so eager to join the European Union that some are afraid of increasing trade among themselves. ``They don't want to send the signal to the West that they don't need to join the EU,'' said Brigitte Hoffman, editor of Oxford Analytica's East Europe Daily Brief. Nevertheless, some companies are beginning to take advantage of the obvious geographic rationale for trade. Polish exports within Central and Eastern Europe increased 33.8% in the first quarter. Some Czech enterprises are negotiating to purchase Russian companies. Russians are buying into Ukrainian firms. The most promising prospects initially are for engineering and machine-building firms, which once supplied the East bloc with equipment that now should be replaced. And producers of low-quality goods that can't find markets in the West could find buyers in the East. Eventually, Ms. Hoffman said, trading within the region will ``make sense in a lot of sectors.'' --STEVE LIESMAN
