The crisis zones of Euro-Asia affect all the 28 countries of Euro-Asia with a population of about 430 million (just less than 9% of the world's population).
All of these countries have faced serious economic decline which on average is about 40% in comparison with 1990 levels. This is a level of economic decline which is comparable and in most cases significantly worse than that experienced in the Great Depression of the 1930s, or during the Second World War. (1) Only a minority of these countries are showing any significant signs of recovery; most are continuing to decline or are stagnating after four or five years of major decline. The crisis zone covers at least seven countries in which the state has been challenged by mass military action and where warfare has contributed greatly to economic decline. In other cases military action has been restricted to only parts of the country. In several of these cases where economic decline has not, so far, resulted in mass armed outbreaks, the security situation is by no means stable.
To continue to refer to these economies as 'economies in transition' is somewhat misleading and tends to ignore the main distinguishing feature of these economies, which is no longer economic transformation, as much as economic decline and crisis. There is a considerable variation between the situation and the prospects of these Euro-Asian economies in crisis which is not easily understood by the way in which the data concerning them are presented.(2) There are also considerable problems regarding the statistical systems used to characterise these economies.
This article considers some of the problems associated with the classifications and the statistical indicators used to characterise the developments in these economies, and offers a simple overall reclassification of these crisis economies into groups which emphasise some of the common features within these crisis zones.
Indicators of Economic decline
Crucial to our understanding of the economic crisis is the method of quantifying economic development. Traditionally, analysts have made use of measures of national income or GDP deflated by the population to give an average per capita figure, which is then converted into its US$ equivalent.(3) Given market imperfections and the very great differences in purchasing power in different countries this has often produced very misleading results, and has led to attempts to calculate a purchasing power parity (PPP) index with which to deflate per capita GNP data. The PPP adjusted data for Euro-Asia produces slightly lower results for the rankings of most of the former Soviet Union (FSU), and higher rankings for Mongolia, Bulgaria, Czechia and Slovakia. A listing of the countries of Euro-Asia according to their World Bank GNP/Capita ranking and GNP/Capita (PPP) ranking is given in Table 2. The extremely high ranking for Turkmenistan should be ignored as a consequence of statistical errors.(4) We should also note the World Bank's warning that the values for the CIS are subject to more than the usual margin of error (see World Development Report 1995 (Washington 1995), pp.720-21).
Unfortunately the last year for which PPP calculations are available is 1993. Since then there have been two more years of serious decline which are not included in these figures. In our analysis below we will provide data for 1994 and estimates for 1995 based on figures for 10-11 months of 1995 production below.
A Note on the Quality of Statistical Data
Several commentators have suggested that the GNP indicators of crisis that emerge from the Euro-Asian statistics grossly underestimate economic performance in the transition economies. They argue that the statistical system designed to record changes in the centrally planned economy cannot adequately record the large amounts of development that are taking place in the new small-scale private sector. It is further argued that whereas earlier factory directors had incentives to exaggerate the scale of plan fulfilment to maximise their bonuses, now there were large incentives to under-record production to avoid taxation.
While there may be some truth in these arguments, it seems highly unlikely that the scale of under-reporting would be very large. The statistical services of FEE and FSU were generally far more sophisticated than often appreciated. The concept of 'the balance of the national economy' (a form of input output schedule) required consumption to be calculated in some detail. Soviet and East European planners were always aware that some of their production was unrecorded, and developed techniques to estimate the shortfalls. Since the collapse of Communism Western national income accounting specialists have been attached to FSU and FEE statistical services to help develop accounting systems comparable with the West. We are aware of gross errors in the Turkmenistan accounting practices, as indicated below, but there are no such obvious deficiencies in the other statistical services.
Some critics have pointed to the electrical power production data, which has generally fallen to a lesser extent than industrial production or GNP, and they have argued that this relatively high level of electrical power production and utilisation should be accepted as a more reliable indicator of general economic activity than the alleged faulty GNP data (see Tables 3b and 3c). I am disinclined to place very much weight in this kind of argument for the following reasons. An analysis of the general fuel balance indicates that as an act of state policy, in most Euro-Asian States, a larger share of fuel (oil, coal, gas) is now being used to generate electricity than earlier. This means that there will be shortages in other parts of the power balance that will require increased use of electricity. As can be seen from Table 3d, the FSU energy use per capita was rather extravagant for low to middle income countries, but there were structural reasons associated with climate as to why this should be the case. And the efficiency of energy use in generating GDP output in these economies was always notoriously low and continues to be so, as indicated in Table 3e. Several countries that were traditionally power exporters continue to maintain an extravagant use of power. Those that were importers are suffering the greatest (non-military-induced) level of decline (eg. Lithuania and Ukraine).
Regional Classifications
In this study we will consider separately the economies that have split up from the former Soviet Union (FSU), and those of the countries of the former Eastern Europe (FEE). Mongolia, which was earlier a Soviet puppet state, will be considered with the FSU economies. This obvious division is generally but not always accepted by the major international agencies, although they tend to use different terminology.
The IMF classifies the countries in the world into 'Industrial', 'Developing' and since 1991 a group known as 'Countries in Transition'. The 28 'Countries in Transition' are themselves divided into three groups:
a) the central and east European countries (18 countries including Ukraine, Byelarus, Moldova and the three Baltic countries);
b) Russia alone; and
c) Transcaucasus and Central Asia with Mongolia included (9 countries) (see World Outlook October 1995, p. 109).
China is included in the 'Developing' category, and Cuba is excluded altogether.
The United Nations Economic Commission for Europe (UNECE) covers 55 countries of which just under half (27) are termed 'central and eastern Europe and CIS countries'. These include:
a) four Central European Transition Economies (CETE-4): the Czech Republic, Hungary, Poland and Slovakia;
b) eight South Eastern Transition Economies (SETE-8): Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Slovenia, The Former Yugoslav Republic (FYR) of Macedonia, and Yugoslavia (Serbia & Montenegro);
c) the Commonwealth of Independent States (CIS) comprising 12 countries including Russia, Ukraine, Byelarus, Moldova, the three Transcaucasus Republics (Armenia, Azerbaijan and Georgia), and the five Central Asian Republics (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan); and finally
d) the three Baltic States: Estonia, Latvia, Lithuania.
Although this definition of Europe has been stretched as far as Kyrgyzstan in the CAR, and to Vladivostok in Russia, it does not include Mongolia.
The World Bank has a classification according to average per capita income as well as by region. Its 27 countries of Eastern Europe and Central Asia are the same as in UNECE Europe, ie. it excludes Mongolia.
In the 1995 classification four of these countries, Byelarus, Estonia, Hungary and Slovenia, were classified as Upper Middle-income countries with a per capita GNP above 2,800$US per year. 18 Euro-Asian countries were located in the Lower Middle-income bracket (with per capita GNP between 700 and 2,800$US per year; and 5 Euro-Asian countries were located in the Low-Income bracket (with per capita GNP below 700$US per year): Albania, Armenia, Bosnia and Herzegovina, Georgia and Tajikistan. As mentioned above, this 1995 classification was, however, based on estimates for the level of GNP in 1993, which of course was far higher than in 1995 for most of Euro-Asia (see Table 4).
The use of the category 'Countries in Transition' to refer to the crisis economies of Euro-Asia clearly relates to the earlier political status of these countries as former socialist or centrally planned economies, rather than to their economic or developmental status. The classification is not applied to the Chinese economy, which is certainly undergoing a transition from centrally planned to market, but with the preservation of more socialist elements.
The Chinese economy is currently one of the most dynamic of all economies with a GNP growth rate of over 11% per year for the last three years. By contrast, the most distinguishing feature of the Euro-Asian countries 'in transition' is the catastrophic nature of economic decline, and the great degree of uncertainty, as to precisely what these economies are turning into. These crisis economies of Euro-Asia certainly need to be distinguished from the more successful economy of China. China's experience seems to be indicating that a fall in economic development is not a necessary stage in economic transition from centrally planned to market.(6) The reasons for the crisis decline in the economies of Euro-Asia have to be seen as something more than simple transition costs. The crisis may have begun as a simple economic transition crisis, but it has clearly developed into something else, which is ultimately threatening the possibility of a successful outcome.
In both FSU and FEE the economies that have experienced the sharpest decline, and that are continuing to experience sharp declines, are generally states in which there has been a break-down in law and order resulting in serious warfare. These 'warring states' represent a distinctly different type of economy, which could so easily be another and a somewhat more likely destination of the 'transition economies' than stable economic development through liberal democratic market economies.
A Reclassification of the Economies of Euro-Asia according to state of economic crisis (see Table 4).
a) The 'warring states' of Euro-Asia
Within the FSU there are five warring states which, with the possible exception of Lithuania, have experienced the greatest degree of economic decline in the FSU. They have all experienced a decline in GNP by more than 60% since 1989. Within FEE, Bosnia-Herzegovina has almost certainly suffered more than this although no data are available, and the new Federal Republic of Yugoslavia (Serbia and Montenegro) is recorded to have experienced a fall of more than 55% in its GNP level. The level of economic decline in the Chechen Autonomous Oblast' in the Russian Federation will also be significantly larger than this 60%, but no data are available.
i) The five warring states of the FSU
Within the FSU the country in deepest crisis is Georgia where GNP is recorded to have fallen by more than 80%. Georgia was already experiencing a serious decline of 15-20% in 1990 and 1991, before entering a period of precipitous decline (by 40% per year in both 1992 and 1993) when Georgia became embroiled in a series of Civil Wars. Following the deposing of Gamsakhurdia in January 1992 there was a prolonged civil war between his supporters and those of Shevardnadze. In addition to this a civil war broke out in the north following attempts by Abkhazia to gain its independence. The death of Gamsakhurdia in December 1993 brought some slight relief to part of these military conflicts and the rate of economic decline slowed slightly to 30% per year. The severity of the decline has certainly led to disruption of much of the social system and naturally the economic system. Latest available data for industrial production indicates a continuing decline by 17% in the first ten months of 1995.(7)
Azerbaijan currently records an economic decline of 64% in comparison with 1989 and GNP is continuing to fall. It began its catastrophic economic decline later than Georgia when war broke out in 1992 with the Armenian enclave of Nagorno-Karabakh supported by Armenia. Since late 1993 the conflict in Chechnya has resulted in the blockage of Azerbaijani oil exports. Latest data on the economy indicate an estimated fall in GNP in 1995 by 17% and a six fold annual increase in consumer prices.
Armenia also currently records an economic decline of 64% in comparison with 1989, but has been slowly recovering at 5% per year since 1994. The drastic decline in GNP by over 50% in 1992 was associated with the war with Azerbaijan in support of Nagorno-Karabakh, and the subsequent blockade of Armenia. The slight recovery in GNP is being accompanied by continued growth in consumer prices that increased by a factor of 3.1 in 1995.
Moldova also currently records an economic decline of 64% in comparison with 1989, and is continuing to fall, but at a slower rate than for Azerbaijan. Again the problem here is associated with a series of ethnic disputes leading to Civil War. In August 1991 a dispute flared up with the Turkic Republic of Gagauze in the South that wanted greater independence, and later with the Russian population in the Transdnestr Republic in the East, who wanted to maintain their ties to Russia and who were supported by the 14th Army. The economic position here seems to be stabilising with the rate of economic decline falling to 5% and the annual rise in consumer prices only 30%.
The final economic disaster in the FSU is Tajikistan which currently records a decline of 60% in comparison with 1989, and is continuing to fall at 14% per year in 1995. The largest fall came in 1992 and appears to be associated with the spill-over of anti-communist forces following the fall of the Communist government in Afghanistan and opposition to Nabiyev. Towards the end of 1992 Nabiyev was replaced by Iskandarov, who was unable to maintain control of the country and called on UN and CIS forces to stop the rebellion of local forces supported by Afghans and allegedly by Uzbeks. With Russian, Uzbek, Kazakhstan and Kyrgyzstan forces attempting to police the Afghan/Tajik border, the rate of economic decline was reduced but continues at about 14% per year. This is accompanied by an annual rise in consumer prices by a factor of 3.3.
ii) The warring states of former Yugoslavia
The collapse of central power within the former Yugoslavia led to warfare between Croatia and Serbia in 1991, as Croatia attempted to secede from the Federation dominated by Serbia. In 1992 the conflict spread to the most ethnically mixed state of Bosnia and Herzegovina that declared independence and was engulfed in Civil War when the minority (but well-armed) Bosnian Serbs attempted to remove the Bosnian Muslims from many areas through genocidal 'ethnic cleansing' and to create a 'Greater Serbia'. The Civil War in Bosnia and Herzegovina destroyed much of the economic infrastructure in the country, including the statistical system. No estimates of GNP are available for Bosnia and Herzegovina, but this devastated state must have experienced the greatest economic decline of all the crisis zones.
Partly for military reasons, but also as a result of a general embargo, the Yugoslav Federation of Serbia and Montenegro was the second worst affected country in FEE with a registered fall in GDP in 1994 of 54% in comparison with 1989. The economic position in the Yugoslav Federation (Serbia and Montenegro) did, however, improve in 1994.
By contrast the situation in the Former Yugoslav Republic of Macedonia, which had fallen by 45% in 1994 was continuing to fall. The position in Croatia with a fall of 27% in 1994 was better and beginning to improve, and the positions of Albania and especially Slovenia were significantly better.
b) The Slavic Heartland in Crisis
The three Slavic states of Russia, Ukraine and Byelarus have a level of GNP in 1995 which has fallen by 43-55% since 1989 and which is continuing to fall. In 1995 the rates of fall were continuing to be very high in Ukraine (-12%) and Byelarus (-10%), and both these countries were continuing to suffer high inflation rates (a 9.7 fold increase in consumer prices in 1995 in Byelarus and a 5.3 fold increase in Ukraine). By contrast the situation in the Russian Federation appears to be stabilising with an annual estimated fall in production of only 4% and an inflation rate of 3.1 fold. However, these statistics do not reflect the disastrous economic situation in Chechnya, which will require considerable development assistance in the future, and which is continuing to threaten the destabilisation of the rest of the country. The expected Communist and Nationalist victory at the coming Presidential Elections in June cannot be expected to ease the situation.
c) The Central Asian Crisis Zone
The situation in the Central Asian Zone is rather mixed, with the Kazakhstan and Kyrgyzstan economies experiencing a decline of between 50 and 55%, which is much worse than the Slavic States. Meanwhile Uzbekistan and Turkmenistan, with declines of about 20%, are clearly doing much better. The GNP data for Turkmenistan are the ones which have the greatest degree of unreliability and the Turkmen statisticians are clearly providing non-comparable statistical data with oil and gas production in current rather than constant prices. The UNECE series present the uncorrected Turkmen figures, while the IMF series present a revised and more comparable series.
d) The Baltic Crisis Zone
The Baltic crisis zone also presents a very mixed picture, with Lithuania registering an enormous decline of 65% in comparison with 1989 figures, while Latvia registers only a 50% decline and Estonia only 32%. The Lithuanian economy had earlier been more closely integrated into the economy of the USSR for the supply of its fuel and raw materials, which were largely subsidised. The break in these relations and removal of subsidies (especially for oil) resulted in the greatest decline in 1992. Recently all these Baltic economies have begun to experience the beginning of a recovery.
e) The South East European Crisis zone
The economies of Bulgaria and Romania began their decline relatively early by 1989 and fell by 25% by 1992 and 1993. By 1995 they have both begun their recoveries, especially Romania, where the economy has grown at an increasing rate for each of the last three years.
f) The Central and East European Crisis zone
The economies of Central and East Europe are the only moderate success stories in this overall picture. Slovakia, Czechia, Hungary and the ex-GDR Lander are all now growing and registering an overall decline of 15-20% in 1995 in comparison with 1989. The main success story is Poland, where the economy has been growing since 1992 and now registers a fall of only 3% in comparison with 1989 levels. The Polish performance is quite remarkable, and possibly shows a greater recovery even than that of the ex-GDR Lander.
Conclusions
The economic crises currently experienced by the economies of Euro-Asia are unprecedented in their depth, longevity and spread. They are significantly more serious than the 'Great Depression' of the early 1930s and represent a level of economic decline more equivalent to that experienced by occupied Europe during the Second World War. For the international development agencies to continue to refer to these economies as 'economies in transition' rather than 'economies in crisis' is most misleading.
After six years of crisis, the economies of Central and Eastern Europe (especially Poland and the ex-GDR Lander) are the only ones that are now beginning to resume economic development. The largest economies of the three Slavic States, Kazakhstan and Kyrgyzstan are continuing to decline after halving their GDP, and their prospects for recovery are frankly not much greater than the alternative of their dissolving into political unrest and civil war. Unless major international assistance is provided, the number of the warring states and their situation is probably more likely to grow and deteriorate rather than improve.
Stephen G. Wheatcroft
Endnotes:
(1) The least affected countries, Poland and Hungary, managed to limit their economic decline to 18-20%; the worse affected, Bosnia and Herzegovina, the Yugoslav Federation (Serbia-Montenegro), Georgia, Azerbaijan, Armenia, Moldova and Tajikistan, have all experienced declines of more than 55% (see Table 4). By contrast, the American economy experienced a fall of about 30% in 1929-33 and the Soviet economy experienced a fall of just over 20% in the Great Patriotic War 1941-45 (see Table 1).
(2) The convention of excluding data from areas suffering the most catastrophic decline is natural enough, given the impossibility of obtaining reliable data from them. But it does have the effect of presenting an excessively optimistic picture for other areas. We should note for instance that for several years statistical data for the Russian Federation has excluded figures for the Chechen Autonomous Oblast', which is of course the most serious war-zone in the Russian Federation. UNECE also excludes data from Bosnia and Herzegovina.
(3) Development Economists are increasingly using more complex human development indicators (HDI) to provide a more meaningful indicator that incorporates educational and literacy levels, health indicators, and life expectancy rates, as well as per capita GNP deflated in terms of purchasing power parity (PPP). However, in the short term educational and literacy levels are unlikely to change rapidly and may be ignored in analysing crisis efffects.
(4) The Turkmenistan Statistical Service has consistently refused to evaluate the production of gas in fixed prices, and consequently part of the effect of increased fuel prices is recorded as increased production.
(5) Anyone who, like myself, regularly visits Moscow and Kiev will report that buildings are still floodlit in Moscow, whilst Kiev is surviving at night in gloom, with half its public lighting not switched on.
(6) This is not to deny that it has political and social disadvantages.
(7) Mezhgos. Stat. Kom. SNG Statisticheskii biulleten', no.135, Moscow, December 1995, p.5
Stephen Wheatcroft - Contact Details
"Re-Visiting the Crisis Zones of Euro-Asia - Part One: Alternative Views of the Success of Transition" - Russian and Euro-Asian Bulletin March 1997