Colloquium 1995 Summary of Discussions

Panel I Balance Sheet of Economic Reforms in Cooperation Partner Countries Agriculture Ukraine Social Instability and Regional Policy Currency Reform Privatisation Comparison to Other Transition Economies The debate expanded on some of the presentations, but it also brought up some new ideas and fields of discussion not mentioned by the experts. Difficult as it is to discuss such a vast and complex question in hardly one hour, many points remained unanswered. Still, the participants laid the ground for further detailed discussion of more specific problems during the following four panels. Agriculture One participant highlighted the interesting contrasts in the sector of agriculture - a sector that was rather left aside by the speakers - from one transition country to the other. Some states, such as Poland, had a considerable share of privately owned farms already before the collapse of communism, in others there was only state production. The importance of agriculture also varies as to size and overall share of the economies. Another participant asked the audience to bear in mind, that privatisation is no "cure-all medicine". Some countries, such as Hungary, he argued further, had experienced an overdeveloped agriculture, and cutbacks might cause serious problems. It would also depend on what form of private property replaces the former publicly-owned collectives. Concerning the role of the European Union (EU) and the negative impacts of EU restrictions on agricultural imports on the performance in Central and Eastern Europe (CEE), a member of the panel pointed out that there is considerable pressure from inside the EU to abolish these restrictions. Especially the tax payer, faced with ever-rising costs for subsidised and protected goods, would oppose limitations on agricultural imports from CEE. On the other hand, production and export expansion would only in the short term appear to be appropriate solutions. In the long term, bearing in mind the situation on the current food market, the economic crisis will not be solved through increasing output, but through strategic decisions, which have to be taken, either by the government or by the market. Ukraine In the context of the presentation on the state of economic reform in Ukraine, the question of this country's relations with Russia was raised, also taking into consideration Belarus' recent efforts to tie its economy more closely into the Russian system. It was argued that the development of foreign trade - Ukraine in 1994 had a negative balance of payments of about $1 billion, in 1995 estimates amount to $5.5 billion - and the solution of the energy dependence on Russian supply will play the decisive role, as to whether Ukraine will have to integrate into the CIS or not. The difficulties are increased by Ukraine's enormous energy production costs, which are twice those of Russia. Despite abolishment of all export limitations this factor would hinder Ukraine's products from being competitive in terms of price and quality on the world market. The participant added that unless the International Finance Institutions (IFIs), the EU, as well as bilateral agreements provide Ukraine with substantial help, they will not succeed in balancing their trade balance and might, as a consequence, be forced to accept further economic integration into the CIS. In this view 1995 will be the decisive year for Ukraine's reform process. Social Instability and Regional Policy Concerning potential social instabilities in Ukraine, due to tough stabilisation policies, the general attitude was rather positive, as unemployment is not too high, despite potentially high hidden unemployment. Still, it was emphasised, that increased pressure for change in resources-poor regions and ethnic areas, which, especially in the CIS, enjoy more independence from the centre, might cause turnarounds towards authoritarian regimes. This would not only be the case for republics in the Russian Federation but also for former USSR republics, such as Belarus, which might look to Moscow for a more authoritarian policy. Differentiation was made between rural and urban populations. On the one hand, the situation in heavily populated city areas is often worse than in less populated, resources-rich regions, assuming a higher potential for social upheaval. On the other hand, education is much better in city areas than in the country side, explaining why most democratic driving forces can be found in urban areas, whereas communism is still quite popular in rural areas. It was also argued that, contrary to what was said in the presentation, factor endowment will play a decisive role for regions in their relations to the central government. As they do not have direct access to Central Bank money and capital markets, this is the only way to the important valuta. Limited means of power also lie in the possibility to refuse payment of taxes.

Currency Reform The discussion further focused on a declaration by Ukraine's President Kuchma, that the upcoming currency reform would not have confiscatory character. It was argued that this question has not yet been solved and that the situation is expected to be extremely difficult this autumn. The low income group (monthly income of $30-40) would even support confiscatory reform, as they do not have any important deposits. Economists would still be in favour of a simple denomination of the currency as confiscation would not affect those it is attended to. Stabilisation of the new currency would require funding of approximately $1.5 billion. Agreements on this sum have been reached with IFIs, which also agree on the most urgent tasks of containing and neutralising inflation, which is likely to rise in the summer due to seasonal factors, as well as diminishing the budget deficit. Privatisation The question was raised whether privatisation programmes were merely politically motivated or whether they could indeed be considered an economic act. Some participants underlined the different situations, and therefore different motivation, of the various transition countries. In some cases, such as Slovakia and the Czech Republic, privatisation can be seen as a political act, in others social dimensions would dominate the reasoning. The multiplication of objectives could cause the loss of the principal objective of privatisation, that is improving efficiency and productivity. The lack of a competent and capable banking system acting as intermediary between investors, companies and governments was also mentioned. Comparison to Other Transition Economies A comparison was drawn by one speaker with the Chinese example, where transition to market economy was achieved with more creation, less destruction, less social tensions and less unemployment. The difference though, pointed out by another participant, was that the Chinese authorities managed to keep political control over the reform process, whereas the societies in CEE just exploded and gradual progress was made impossible. It was also questioned whether purely economic criteria would be sufficient to judge efficiency of the reform progress, let alone cultural differences and expatriate investment by the large Chinese world community.