Central and Southeastern Europe in Transition: Perspectives on Success and Failure since 1989

By Hall Gardner | Go to book overview

countries where structural reforms lagged behind received the bulk of short- term capital. Growing dependence on foreign investors also meant sharp trend reversals if investors lost confidence in the stock markets. Risks became obvious in the wake of Russian financial turmoil. The August 1998 crisis also revealed increasing internal differences within the former communist bloc and unequal vulnerability to financial shocks.

Following the Russian devaluation, stock indexes collapsed throughout the region, share prices fell, international reserves were depleted, and local currencies came under pressure. In countries with a floating exchange rate, substantial depreciation was registered (the Polish zloty and the Czech koruna lost about 10% of their value in a week). Confronted with speculative attacks on its currency, Slovakia had to abandon its fixed exchange rate in October 1998. Portfolio preferences shifted to more stable stock markets. Most sensitive to Western investors' withdrawal were the states that had accumulated shortterm liabilities and that presented large budget and current account deficits. Romania and the Slovak Republic financial markets were the most destabilized. Already in the first half of 1998, the Slovak stock index had decreased by 41% and the stock exchange had come to a standstill as a result of poor market liquidity and severe financial imbalances. Against this background, Russia's crisis precipitated a resource outflow.

One can only hope that lessons will be drawn from the Russian crisis and, in particular, that CEE authorities will think about their debt structure and reduce dependency on foreign bank lending to local financial institutions. Western capital is highly volatile and may withdraw brutally. Aside from these considerations, in order for Eastern European capital markets to achieve balanced and stable growth, several measures should be implemented. First, CEE stock exchanges need to do away with low transparency and violations of minority shareholders' rights. Second, contracts and information need to be improved. Finally, it remains to be seen whether and under what conditions bank involvement in the capital markets should be encouraged. Actually, tight interaction between banking and securities markets may favor a rapid spread of financial crises to the real sector. In 1998, firms were partially protected from market instability by their weak ties to the stock exchanges. There is no doubt that the effects of the Russian devaluation and foreign capital flight would have been more dreadful if banks and stock markets had been more closely intertwined.


NOTES
1.
For further information, see Transitions économiques à l'Est (1989-1995), Etudes de la documentation française: Paris, La Documentation française, 1996.
2.
See the illuminating Dezsö Kovacs and Sally Ward Maggard, "The Human Face of Political, Economic, and Social Change in Eastern Europe," East European Quarterly, 27( 3), Sept. 1993, pp. 317-345.
3.
Recent investigations into the dynamics of institution-building have similarly emphasized the role microeconomic practices play in embedding "abstract" laws and rules in a given society. This is one among many insights that can be derived from the

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Central and Southeastern Europe in Transition: Perspectives on Success and Failure since 1989
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Foreword vii
  • Acknowledgments xi
  • Introduction 1
  • Chapter 1 in Search of East-Central Europe: Ten Years After 5
  • Notes 19
  • Chapter 2 the Balkans: A Distorted, Third World Reflection of Europe 21
  • Notes 28
  • Chapter 3 Rusty Ottoman Keys to the Balkans of Today 31
  • Notes 42
  • Chapter 4 the Role of Culture Under the Communist and Post-Communist Eras 43
  • Chapter 5 the Transformation of the Media in Post-Communist Central Europe 51
  • Notes 60
  • Chapter 6 the Media in Transition in Southern Central Europe 61
  • Notes 73
  • Chapter 7 a Balance of Economic Reforms in Central and Eastern Europe 75
  • Notes 92
  • Chapter 8 Ulysses and the Lotus Eaters 97
  • Notes 110
  • Chapter 9 Environmental Security and Civil Society 113
  • Notes 142
  • Chapter 10 the Genesis of Nato Enlargement and of War "Over" Kosovo 151
  • Introduction 151
  • Notes 181
  • Name Index 199
  • Subject Index 203
  • Contributors and Editors 209
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