Ninth Meeting of the OSCE Economic Forum “Transparency and Good Governance in Economic Matters”
Prague, 16 May 2001
Opening address by Ms. Danuta Hübner
United Nations Under-Secretary-General
Executive Secretary of the UN Economic Commission for Europe
Ladies and Gentlemen,
UNECE has traditionally prepared its contribution to the debate on economic issues of importance to the OSCE mission in the region. Any debate like this one should begin with the recognition of tremendous achievements of the economies of our region in the last decade. However, only few of those countries that have embarked twelve years ago on a process of building democracy and market economy have graduated from the group.
There are also countries like Yugoslavia that suffer from having stayed for a decade outside the process of democracy building, of market reforms and international cooperation. The role of the international community today is to assist Yugoslavia to embark forthwith upon the process of catching up in all crucial areas with the rest of the region. We know today much better than a decade ago how to do it efficiently and effectively.
We know today that in spite of a lack of transition theory, in spite of very diversified experience and lessons, there are some fundamentals of transition. The major one is about the role of institutional change and consequences of institutional failure. We have learnt that it takes time to establish them, also to learn them – this takes even more time. We know today that in the meantime the institutional vacuum emerges and illegal activities get institutionalised. In the meantime therefore policies matter strongly, and they continue to do so when institutions are already in place and fully-fledged.
Proper policy management in terms of timing, sequencing, choosing instruments, coping with risks, trade-offs and side effects is the major challenge of a transition policy. The need for seeking proper proportions in policy making, matching structures of labour and capital markets, applying a large measure of pragmatism – these are other lessons of transition so far.
Continuity matters, much depends on political leaderships and on vigorous private sector. Successful economies are those where international commitments were high on the agenda and played a role of an important external anchor, where confidence developed facilitating inflows of foreign direct investment and where the rule of law and good governance were a rule.
It is true that transition has been taking place in a deeply changing world and in a changing Europe, and that an essential dimension of transition is the opening up of economies. Therefore, the international environment matters for transition. We know today that globalization generates tremendous opportunities thus benefiting those who have capacities to take advantage of those opportunities, but globalization also generates risks. When they dominate, globalization acquires that dimension of exclusion rather than inclusion. Good governance is an asset essential for this process.
The European economy, the stabilization role of EMU and the inclusive character of enlargement have been providing stability environment for transition.
Today countries of our region need high growth rates. They all need high growth to be able to create new jobs as unemployment level is skyrocketing (15% on average, up to 40% in some areas), to be able to continue or to complete major structural reforms for which overall economic stagnation would be a major stumbling bloc, to achieve visible improvement in living standards as poverty and income inequalities have spread in some countries.
Only few transition economies managed so far to pass the GDP level of the pre-transition period. Even though the last year was exceptionally good for this part of our region, with an average of 6% growth of GDP, it should be seen as growth from a very low level. In case of many countries, these statistics are distorted, as there is a high level of unrecorded economic activities, reaching sometimes up to 40% of GDP. With the current level of the advancement of reforms, taking into account uncertainties in the international environment, last year’s high growth rates, so badly needed, might prove unsustainable. To make them sustainable, macroeconomic stability is of importance. Much progress has been achieved in this regard and there is definitely much better understanding and stronger commitment to macroeconomic stabilization. We have countries with economies in transition that really meet the Maastricht criteria, but the majority is far from safe levels of macroeconomic stability.
Institutional advancement also contributes here. It facilitates stabilization and the choice of a good policy mix. Most of the countries, however, still face the need of public finance reform. There is hardly any controversy in understanding that macroeconomic stabilization, essential as it is, does not replace institutional, structural and social reforms. In many countries social security systems remain unsustainable. Reforms of health and education systems are not high on the agenda which makes the long-term perspective not at all bright. The awareness of the importance of and policies for science and technology development are part of government agenda in only few countries. There has been a major progress in the role of private sector in those countries in terms of its contribution to growth, structural change, developing market culture, institutional advancement, in providing job opportunities. Further progress is, however, needed in establishing institutional, legal and financial infrastructure conducive to enterprise development.
In the course of the whole decade of transition, but with even more strength recently, the regional integration has played a meaningful role in building market system, democracy and in strengthening cooperation. Today nearly all of 26 countries are - in one or another way - linked with the European Union, from accession negotiations in the case of Luxemburg and Helsinki group of 10 countries to stabilization and association agreements at different stages of development – in case of South East Europe – to cooperation agreements in case of the Community of Independent States.
Experience shows how essential this kind of an external anchor can be to accelerate reforms and growth, and to enhance economic cooperation in Europe, particularly if accompanied by packages of assistance.
Another factor contributing to reforms, policies, growth and cooperation has been the membership in other regional and global institutions and organizations: WTO, OECD, Council of Europe, OSCE, international financial institutions, and also the UNECE.
A better use of mechanisms of internationally binding legal instruments and guidelines, particularly of importance in the environmental field, but also with regard to trade, investment, energy and transport, are an already tested instrument facilitating cooperation, access to markets and improving investment climate.
In most countries of the region, awareness of the need for governments to work closely with such partners as non-governmental organizations and private businesses has matured. At the national level there is certainly a need to be more open to non-governmental organizations. Transparent public-private partnership is increasingly needed not only to address economic tasks but to share responsibilities in the social sphere, including poverty eradication and protection of the vulnerable.
Rise of poverty has become a serious concern in our region. Its upsurge undermines stability and transition, capacity to reform, but also affects access to education and health. It is not a temporary phenomenon. Its persistence calls for poverty eradication programmes and protection of the vulnerable in particular, but first of all children and youth and ethnic minorities who, in most countries, are most affected by the erosion of welfare services provision.
The issue of environmental protection will be discussed separately but as I am coming from the UNECE, where so much work is being done in this regard, let me just stress the need to promote a comprehensive approach to sustainable development. I hope that the Johannesburg process and our regional preparatory forum in September will be of help to OSCE.
Last week in the UNECE, we had our annual seminar and session on institutions’ role and the consequences of institutional failure. We also had a debate on regional dimension of the Millennium Declaration. We discussed how to better address in our region the challenges of poverty and the vulnerable, of the environmental problems, of good governance, of peace building. All that is of fundamental relevance to OSCE concerns. I hope we are now better poised to address together concerns that the economic dimension of OSCE will focus on in the years to come.
Let me conclude by expressing my gratitude to all delegations that expressed their recognition of and appreciation for the UNECE’s contribution to the OSCE Forum. We have always responded with great interest and responsibility to all requests coming from the OSCE to contribute to your work. On various occasions we have also offered our views on how to make the best use of the OSCE mandate in the field of economy and environment in the context of stability and security. We are ready to hold jointly an expert level seminar in Geneva that would take us closer to a blueprint of the new strategic role of economy and environment. I would also like to mention that we have already developed close cooperation with some of OSCE field offices with regard to the promotion and implementation of our conventions. In the UNECE we count on it very much.
Thank you very much for you attention.