Eastern Europe Must Walk First, Then Run
Chandler, Beverly, Modern Trader
Eastern Europe must walk first, then run
Speculation about opening derivative exchanges in central and eastern European nations struggling to relaunch their economies is unrealistic at best.
Such developments are far into the future, says Jacek Brzezinski of Creditanstalt-Bankverein in Vienna. These countries have no real capital markets as yet, he points out, and some don't even have a legal framework to support a properly run market.
At a January conference in Switzerland, Brzezinski detailed the situation of the central and eastern European countries, leaving out the USSR, Bulgaria and Romania due to their uncertain political positions.
Hungary is the forerunner in the reform process, Brzezinski says. Since the early 1980s, it has been issuing bonds. By the end of the 1980s, Hungarians could create joint stock companies. In March 1990, the country passed a securities law setting up the legal framework essential for future development.
In addition, June 1990 marked the opening of the Budapest Stock Exchange which, while illiquid in international terms, at least is a day-to-day functioning market reported on Reuters. However, the country has the highest per capita debt in the region -- a total of $20 billion -- and has no intention of rescheduling its foreign debt. It prefers to rely on its good relations with the international financial community and to increase its foreign trade to add revenue, Brzezinski says.
Currently, Czechoslovakia can rejoice at having the best economic performance and lowest foreign debt of all the countries in the area. However, Brzezinski describes the industrial structure of the country as obsolete, with management of state-owned industries reluctant to change to a market-driven system. He says Czechoslovakia also depends too heavily on other Eastern European countries for export business -- surely a policy that will end in tears.
Poland has an extremely heavy burden of foreign debt. However, unlike Hungary, the Poles have opted for a rescheduling program. During 1990, the Polish government designed a policy of tight monetary control to try to curb soaring inflation and strengthen the currency. …