1

Roundtable – A Vision of a Sustainable and Resilient North and Central Asia

Lessons learned and priorities aheadVladimir Popov, Vladimir Popov, UN, DESAUN, DESA

1990s 1990s –– unique experiment of transition to the unique experiment of transition to the marketmarket

Lessons are relevant not only for transition Lessons are relevant not only for transition economieseconomies

Transformational recessionTransformational recession Mortality crisisMortality crisis Increase in inequalitiesIncrease in inequalities CrimeCrime CorruptionCorruption Deterioration of health care and educationDeterioration of health care and education

2

25

45

65

85

105

125

145

165

185

205

225

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

(fo

reca

st)

Turkmenistan

Uzbekistan

Azerbaijan

Kazakhstan

Belarus

Central Europe

Tajikistan

Estonia

Armenia

Lithuania

Latvia

Russia

Kyrgyzstan

Georgia

Ukraine

Moldova

Source: EBRD Transition Reports for various years. Central Europe is the unweightedaverage for Czech Republic, Hungary, Poland, Slovakia, and Slovenia.

GDP change in FSU economies, 1989 = 100%

Out of 42 Out of 42 countries countries

that that experienced experienced reduction of reduction of

GDP in GDP in 20072007--09,09,13 were 13 were

transition transition economieseconomies

COUNTRY Yincr07_09Y2009gr

 Latvia ‐21.772 ‐18

 Estonia ‐17.1924 ‐14.1

 Ukraine ‐13.215 ‐15

 Lithuania ‐12.45 ‐15

 Ireland ‐9.79 ‐7

 Zimbabwe ‐9.3662

 Armenia ‐8.5792 ‐14.4

 Finland ‐6.6936 ‐7.8

 Iceland ‐6.5001 ‐7.7

 Japan ‐6.3376 ‐5.2

 Denmark ‐5.9541 ‐5.1

 Italy ‐5.95 ‐5

 Hungary ‐5.7378 ‐6.3

 Mexico ‐5.2845 ‐6.5

 Sweden ‐5.0902 ‐4.9

 Barbados ‐4.7318 ‐5.3

 Jamaica ‐4.658 ‐3.5

 Slovenia ‐4.573 ‐7.8

 Luxembou ‐4.5 ‐4.5

 United Kin ‐4.43 ‐5

 Turkey ‐3.8423 ‐4.7

 Germany ‐3.765 ‐5

COUNTRY Yincr07_09Y2009gr

Croatia ‐3.5392 ‐5.8

Botswana ‐3.274 ‐6

Russian Fe ‐2.7424 ‐7.9

Spain ‐2.7324 ‐3.6

Portugal ‐2.7 ‐2.7

Canada ‐2.2104 ‐2.6

Netherland‐2.08 ‐4

Belgium ‐2.03 ‐3

United Sta ‐2.0096 ‐2.4

Georgia ‐1.978 ‐3.9

France ‐1.8088 ‐2.2

Czech Rep ‐1.805 ‐4.2

Austria ‐1.672 ‐3.6

New Zeala ‐1.3951 ‐.7

Chad ‐1.1042 ‐1.4

Moldova ‐1.0544 ‐7.7

Singapore ‐.922 ‐2

El Salvador‐.575 ‐3

Malta ‐.4525 ‐2.5

Hong Kong‐.3648 ‐2.7

Romania ‐.3183 ‐7.1

Greece ‐.04 ‐2

3

MACROMACROECONOMIC ECONOMIC

POLICYPOLICY

TRANSITIONECONOMIES DID WORSE THAN OTHERS IN 2008-09 RECESSION

GDP Growth Rates in Recent Recession in Transition Economies, % a year, - top 5, bottom 5

-20

-15

-10

-5

0

5

10

2008 2009 2010

Azerbaijan

Turkmenistan

Uzbekistan

Tajikistan

Belarus

Croatia

Ukraine

Lithuania

Estonia

Latvia

GDP Growth Rates in Recent Recession in Transition EconomiesYears/Countries 2008 2009 2010 2010 GDP as a % of 2007Latvia -4.24 -18.00 -1.00 77.73Estonia -5.06 -13.90 2.40 83.70Lithuania 2.76 -14.78 0.50 88.01Ukraine 2.10 -15.10 4.00 90.15Croatia 2.40 -5.80 -1.50 95.01Hungary 0.64 -6.32 0.80 95.04Slovenia 3.74 -8.13 1.10 96.35Armenia 6.90 -14.20 4.00 95.39Romania 7.35 -7.13 -2.00 97.70Georgia 2.10 -4.50 2.00 99.46Czech Republic 2.46 -4.30 1.70 99.72Montenegro 7.50 -5.70 -0.60 100.76Russia 5.20 -7.90 4.40 101.15Bulgaria 6.22 -4.95 0.40 101.37Bosnia and Herzegovina 6.00 -2.80 0.80 103.86Serbia 5.50 -3.10 1.60 103.87FYR Macedonia 4.80 -0.80 0.80 104.79Slovak Republic 6.17 -4.66 4.00 105.27Kyrgyzstan 8.40 2.30 -3.50 107.01Moldova 7.84 -6.49 6.90 107.80Poland 5.13 1.65 3.30 110.39Kazakhstan 3.2 1.2 6 110.70Albania 7.7 3.3 3 114.59Kosovo 5.40 4.00 4.60 114.66Mongolia 8.9 -1.6 7 114.66Tajikistan 7.90 3.40 5.50 117.70Belarus 10.00 0.20 6.60 117.49Uzbekistan 9.00 8.10 8.20 127.49Turkmenistan 10.50 6.10 11.00 130.14Azerbaijan 10.80 9.30 9.00 132.00

4

Increase in income inequalities in transition Increase in income inequalities in transition economies in the early 1990seconomies in the early 1990s

5

GiniGini coefficient of income distribution in post Soviet states, %coefficient of income distribution in post Soviet states, %

20

25

30

35

40

45

50

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Russian Federation

Georgia

Turkmenistan

Lithuania

Kyrgyz Republic

Latvia

Estonia

Moldova

Azerbaijan

Tajikistan

Armenia

Kazakhstan

Ukraine

Uzbekistan

Belarus

6

7

8

9

10

11

12

13

14

15

16

17

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

Mo

ratl

ity

rate

, per

100

0 in

hab

itan

ts

63

64

65

66

67

68

69

70

71

Ave

rag

e lif

e ex

pec

tan

cy, y

ears

Mortality (left scale)

Life expectancy (right scale)

Mortality rate (per 1000) and average life expectancy, years, in Russia

Murders per 100,000 inhabitants in 1987 and in 2002 (WHO statistics)

y = 1,2507e0,4158x

R2 = 0,6517

0

5

10

15

20

25

30

35

0 1 2 3 4 5 6 7 8

Murders per 100,000 inhabitants in 1987

Mu

rder

s p

er 1

00,0

00 in

hab

itan

ts i

n 2

002

45 degrees line

Russia

Belarus

Ukraine Estonia

Kazakhstan

Latvia Moldova

AlbaniaTajikistan

Lithuania

AzerbaijanGeorgia

Kyrgyzstan

Turkmenistan

Slovenia

7

Crime rate (left scale), murder rates and suicide rate (right scale) per 100,000 inhabitants

900

1100

1300

1500

1700

1900

2100

2300

2500

2700

2900

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

5

10

15

20

25

30

35

40

45

Crime rate

Murder rate (crime statistics)

Murder rate (death statistics)

Suicide rate

August 1998 currency crisis

CRIME, MURDERS, SUICIDES IN RUSSIA DURING TRANSITION

Corruption perception indices (Transparency International)

2

2.5

3

3.5

4

4.5

5

5.5

1980-85 1995 2002 2003 2004 2005

China

Russia

India

8

LESSONS FOR FUTURE LESSONS FOR FUTURE ECONOMIC POLICYECONOMIC POLICY

State capacityState capacity Macroeconomic policyMacroeconomic policy Industrial policyIndustrial policy Social PolicySocial Policy Privatization (state enterprises)Privatization (state enterprises) Financial sectorFinancial sector

Government capacityGovernment capacitySize of the government shrank in most Size of the government shrank in most

transition economiestransition economiesFig. 13. Consolidated government revenues as a % of GDP

10

15

20

25

30

35

40

45

50

55

1989 1990 1991 1992 1993 1994 1995 1996

%

Central Europeancountries

South East Europecountries

Baltic states

Central Asiancountries

Caucasian states

-China

RUSSIA

9

Fig. 5. Government expenditure, % of GDP

0

10

20

30

40

50

60

1985 1989 1995 1978 1985 1994 1989 1996

Debt service

Defence

Subsidies

Investment

"Ordinarygovernment"

P O L A N DC H I N A

U S S R / R U S S I A

S o u r c e : ( P o p o v , 2 0 0 0 ) .

Decline in government revenues/ GDP ratio and GDP change in 1989-96 in transition economies (EE, FSU, China, Vietnam, Mongolia)

20

40

60

80

100

120

140

160

180

200

-10 -5 0 5 10 15 20 25 30 35

Decline in government revenues/ GDP ratio from 1989-91 (average) to 1993-96 (average), p.p.

China

Vietnam

Armenia

Tajikistan

Croatia

Macedonia

Poland

Uzbekistan TurkmenistanEstonia

BelarusKyrgyzstan Russia

10

MACROECONOMIC POLICYMACROECONOMIC POLICY

Government capacity Government capacity –– government government spending is inadequate spending is inadequate

Fighting inflation is not #1 priority Fighting inflation is not #1 priority (excessively tight monetary policy)(excessively tight monetary policy)

Exchange rate is overpriced (Dutch Exchange rate is overpriced (Dutch disease)disease)

External debts of companies and banks External debts of companies and banks are growing because there is no capital are growing because there is no capital controlcontrol

Industrial policyIndustrial policy Resource abundance: A curse or blessing? Resource abundance: A curse or blessing? -- DESA DESA

Working PaperWorking Paper No. 93, June 2010. CoNo. 93, June 2010. Co--authored authored with with V. V. PolterovichPolterovich and A. and A. TonisTonis..

Mechanisms of resource curse, economic policy Mechanisms of resource curse, economic policy and growth. NES Working Paper # WP/2008/082 and growth. NES Working Paper # WP/2008/082 (co(co--authored with V. authored with V. PolterovichPolterovich and and A.TonisA.Tonis).).

Appropriate Economic Policies at Different Stages Appropriate Economic Policies at Different Stages of Development. Coof Development. Co--authored with V. authored with V. PolterovichPolterovich. . NES, 2004.NES, 2004.

Stages of Stages of Development, Economic Policies and Development, Economic Policies and NewNew World World Economic Order (coEconomic Order (co--authored with V. authored with V. PolterovichPolterovich). ). Paper presented Paper presented at the Seventh at the Seventh Annual Global Development Annual Global Development Conference in St. Conference in St. Petersburg, Russia. January 2006.Petersburg, Russia. January 2006.

11

Actual sophistication of exports as Actual sophistication of exports as compared to predicted one (based on compared to predicted one (based on GDP per capita) is very informative for GDP per capita) is very informative for explaining variations in growth rates explaining variations in growth rates

among countriesamong countries

DiversificationDiversification

DaniDani RodrikRodrik. . WHATWHAT’’S SO SPECIAL S SO SPECIAL AABOUTBOUTCHINACHINA’’S EXPORTS?S EXPORTS? Harvard UniversityHarvard University, , January 2006January 2006

Until recently Chinese import tariffs were Until recently Chinese import tariffs were extremely highextremely high

12

Decrease in cotton production and increase in Decrease in cotton production and increase in output of cereals and vegetablesoutput of cereals and vegetables

Production of some agricultural goods, thousand tons

0

1000

2000

3000

4000

5000

6000

7000

8000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Cereals

Vegetables

Cotton

Potatoes

Source: WDI.Source: WDI.

Manufactures exports, % of merchandise exports

0

10

20

30

40

50

60

70

80

90

100

2011

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

China

Georgia

Kyrgyz Republic

Armenia

Afghanistan

RussianFederation

Kazakhstan

Tajikistan

Azerbaijan

Turkmenistan

13

In Uzbekistan the share of machinery and equipment and In Uzbekistan the share of machinery and equipment and chemical in total industrial output increasedchemical in total industrial output increased

Structure of industrial output in 1991, % of total

Electric energyFuelSteel Non-ferrous metalsChemical and petrochemical

Machinery and equipment

Wood, pulp and paperConstruction

materialsLight

Food

Other

Structure of industrial output in 2011, % of total

Electric energy

Fuel

Steel

Non-ferrous metalsChemical and petrochemical

Machinery and equipment

Wood, pulp and paper

Construction materials

Light

FoodOther

Source: State Committee on Statistics of Uzbekistan (http://www.stat.uz/en/)

14

Source: State Committee on Statistics of Uzbekistan Source: State Committee on Statistics of Uzbekistan ((http://http://www.stat.uzwww.stat.uz/en//en/))

Export and import, million USD

2000

4000

6000

8000

10000

12000

14000

16000

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Export

Import

Source: Source: TrushinTrushin, , EskenderEskender and Francisco G. and Francisco G. CarneiroCarneiro (2013). Changing for the (2013). Changing for the Better: The Path to UpperBetter: The Path to Upper--MiddleMiddle--Income Status in UzbekistanIncome Status in Uzbekistan. . Economic Economic

PremisePremise, No. 119, June 2013 , No. 119, June 2013 ((http://siteresources.worldbank.org/EXTPREMNET/Resources/EP119.pdhttp://siteresources.worldbank.org/EXTPREMNET/Resources/EP119.pdff).).

15

Source: State Committee on Statistics (Source: State Committee on Statistics (http://http://www.stat.uzwww.stat.uz/en//en/))

Export to CIS and other countries, million USD

0

2000

4000

6000

8000

10000

12000

14000

16000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

non-CIS countries

CIS countries

R&D expenditure in selected countries, % of GDP

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Israel

Finland

Japan

Korea, Rep.

United States

Germany

United Kingdom

China

Russian Federation

India

16

Social PoliciesSocial Policies

InequalitiesInequalities BillionairesBillionaires Crimes, suicidesCrimes, suicides MortalityMortality HDIHDI

Fig. 12. Death rate from external causes (per 100,000 of inhabiFig. 12. Death rate from external causes (per 100,000 of inhabitants) tants) -- Russian Empire, RSFSR, RF, 1870Russian Empire, RSFSR, RF, 1870--2000 (log scale)2000 (log scale)Source: Source: DemoscopeDemoscope, , №№ 3131--32. August 2732. August 27-- Sept. 9, 2001 Sept. 9, 2001 http://demoscope.ru/weekly/031/img/nomer31.jpghttp://demoscope.ru/weekly/031/img/nomer31.jpg).).

11-- all external causes, 2 all external causes, 2 -- accidents, 3accidents, 3-- suicides, 4suicides, 4-- murders, murders,

55--unknown, 6 unknown, 6 –– work related accidents.work related accidents.

17

Human Development Index for China, Belarus, Russia and Ukraine

0.63

0.68

0.73

0.78

0.83

1990 1992 1994 1996 1998 2000 2002 2004 2006

Cuba

Belarus

Russia

Ukraine

China

Emissions of CO2 per $1 of PPP GDP, kg

0

0.5

1

1.5

2

2.5

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

China

RussianFederation

India

UnitedStates

EuropeanUnion

18

Privatization (state enterprises)Privatization (state enterprises)

China did not privatize until 1996, China did not privatize until 1996, afterwards afterwards –– very slowly, but growth rates very slowly, but growth rates were high.were high.

Financial sector Financial sector –– deregulation is not a deregulation is not a sine qua non for growthsine qua non for growth

M2 as a % of GDPM2 as a % of GDP

Рис. 3. Отношение М2 к ВВП в 1978–2006 гг. в некоторых странах в % 

0

50

100

150

200

250

300

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Гонконг

Япония

Китай

Швейцария

США

Польша

Россия

19

Bank credits as a % of GDPBank credits as a % of GDPРис. 5. Кредиты банков в % к ВВП в некоторых переходных экономиках в 1990 г. и 1995

г.

0

10

20

30

40

50

60

70

80

90

100

Китай Венгрия Словения Польша Румыния Молдова Эстония Монголия Азербайджан Армения

1990

1995

Bank credits (short term and long Bank credits (short term and long term) as a % of GDP in Russiaterm) as a % of GDP in Russia

Рис. 6. Кредиты банков в % к ВВП в СССР и России в 1985–96 гг.

0

10

20

30

40

50

60

70

80

1985 1986 1987 1988 1989 1990 1990 1991 1992 1993 1994 1995 1996

Долгосрочные

Краткосрочные

20

Stock exchange Stock exchange

in Kyrgyzstan in Kyrgyzstan –– since 1995since 1995in Tajikistan in Tajikistan –– no stock exchangeno stock exchange

Financial sectorFinancial sectorMarket capitalization and bank credits, % of GDPMarket capitalization and bank credits, % of GDPРис. 10. Кредиты банков и рыночная капитализация компаний в % к ВВП в

1995 г.

0

50

100

150

200

250

300

0 50 100 150 200 250

Кредиты банков

Малайзия

ЮАРСингапур

Чили Великобритания

СШАНидерланды

Гана

Филиппины

Швейцария

Япония

Западная ЕвропаКения

Пакистан

ШвецияТаиланд

Рыночная капитализация

> Кредиты банков

Рыночная капитализация < 1/2(Кредиты)

21

Russia's external debt, billion $

-2020

60100

140180

220260

300340

380420

460500

1.01

.199

8

1.01

. 19

99

1.01

.200

0

1.01

.200

1

1.01

.200

2

1.01

.200

3

1.01

.200

4

1.01

.200

5

01/0

1/20

06

01/0

1/20

07

01/0

1/20

08

01/0

1/20

09

01/0

1/20

10

01/0

1/20

11

Non-financialenterprises

Banks

CB (includinggov ernmentdebt to IMF)

Gov ernment

LESSONS FOR FUTURE LESSONS FOR FUTURE ECONOMIC POLICYECONOMIC POLICY

State capacityState capacity Macroeconomic policyMacroeconomic policy Industrial policyIndustrial policy Social PolicySocial Policy Privatization (state enterprises)Privatization (state enterprises) Financial sectorFinancial sector