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. Last Updated: 07/27/2016

Cautious Optimism At EBRD Conference




RIGA, Latvia -- Russia has recovered surprisingly quickly from its 1998 economic collapse, but Willem Buiter, the European Bank for Reconstruction and Development's new chief economist, said it had been exceptionally lucky and would need policy changes to progress.


After Russia devalued the ruble and defaulted on Soviet-era debt in August 1998, many had expected it to slip into the abyss, instead of which the economy grew at a robust 3.2 percent in 1999, the fastest rate since the end of communism.


A trebling in oil prices, low world interest rates and massive import substitution powered the Russian gains.


"Even the world economy cannot be expected to grow forever," Buiter said.


President Vladimir Putin's new administration would have to start delivering in quick order, he said.


"He has a window of opportunity. ... We have to see the program and then we have to see implementation," said Buiter, who was until recently a member of the Bank of England's monetary policy committee.


Buiter said he was generally optimistic on the leading economies of Central Europe. Poland, whose current account deficit has ballooned to 8 percent of gross domestic product, had the right policies in place to deal with the problem, he said.


The deficit was sustainable in Poland's case, albeit not forever, he said.


He praised the decision last month to float the zloty but warned that more attention would have to be paid to fiscal policy instead of depending on high interest rates, now 17.5 percent and up.


"Relying exclusively on monetary policy does not seem desirable," he said, noting that parliamentary elections in 2001 meant it would be difficult to take decisions on cutting state spending.


But like Russia, Poland could be vulnerable to shocks in the global economy.


Buiter said the next issue facing the leading Central European economies would be progress toward European Union membership, which would require reforms from both the EU and the accession countries.


Unlike other officials who have been warning that accession could be in doubt, Buiter said he expected a champion to emerge for the cause from within the EU.


"It is such an epochal issue that anybody who would want their name in the history books for the right reasons will emerge," he said.


He had a warning, however, for those accession countries who believe that EU membership would automatically lead to membership of the euro zone, or even early entry into some form of exchange rate mechanism.


"European Monetary Union membership is going to be very difficult. ... You would have to revise the inflation criteria for many of the candidate countries," Buiter said.