[MUSIC] Now we look where transition countries are in early 2010s, after more than 20 years of transition. Firstly, let's put fundamental question, whether the transition has been completed, and whether we can consider transition as history. When we look for the content of systemic changes in the region? Actually, we may conclude that basic transition-agenda was completed already 10 years ago in early 2000. And when we look for the entire process from historical perspective, we may say that it was the largest, fastest and the most complex level, episode, in the contemporary economic history. Actually it lasted approximately 15 years, to move economies from centrally planned economy to some sort of market system. In most of former communist countries, centrally planed economies, market mechanism coordinates most of production and investment decision. Private sector contributes between 60 and 80% of GDP with few exception. Turkmenistan where it is only 25%, Belarus where it's only 30% and Uzbekistan 45%. There are choice of private sector in GDP. And of course we have two other countries which actually we didn't discuss yet and probably will not discuss more extensive in this, in, lecture site. North Korea and Cuba. Cuba started some sort of transition under Raul Castro, but still is very much behind our region, while North Korea seems to stay, it's still very much studied, this model, some sort of studying this model. But we know actually very little about this country. Most of countries are open to international trade and participate in international division of labor. They are open to financial flows. But on the other hand, the market system are far from being perfect. And there are present various levels of market distortion and various quality of governance. In the previous part we discussed that countries. Which became EU members, overpaced other countries, and we'll come back a bit later to this topic again. And most importantly, after the decade of 1990's, which was period of adaptive output decline. Deep economy restructuring, sometimes very painful economically and politically. The decade of 2000s brought rapid economic growth, actually all former centrally planned economies. Much lower, or moderate in worse case inflation, remonetization, rapid increase of international reserve, improvement of fiscal balances. And this was the result of the post-transition growth can vary. Which we discussed in one of the previous parts. But also it was a result of global economic boom. And unfortunately part of these achievements have been reversed during the five first phase of the global financial crisis, 2008, 2010 which quite heavy effected, former transition countries in Central and Eastern Europe and in former Soviet Union. Most of them. And some of them like Ukraine, like Armenia, Russia, Baltic Countries, part of the Balkan Countries, have been quite severely affected by this shock. Then, came back later on them. Route of economic growth, but this growth is on average much slower than it was before the crisis. And here let's look how they progress in their economics. Let's start from cross sectoral analysis. We average score for all countries, so this graph presents, figure presents, average picture for the entire region. And we see that there are areas where this are called the EBRD. Four plus maximum score. There are areas where progress was achieved relatively early and almost completed like price liberization or small scale privatization or trade and foreign exchange deliberation. Here the achievements are quite impressive and actually from this point of view this confines that the entire region already can be considered some sort of market economy. In other areas the progress can be considered as intermediate such as large scale privatization. And this is also by key reforms. Some countries went quite quickly forward but some countries still lag behind and then there is several others progress results is lot of work to be done. There are non-banking financial sector. There is infrastructure liberalization, reform privatization, there is competition policies. So these are areas and enterprise is restructuring, where still is a lot of work to be done. There is continuous progress that is slower and slowing down. And still we are some way in half a way to the mature market economy standards. And here there are scores, country scores and there are very, score maximum is 430. And we see that there is number of countries which out of three so they can be considered as relatively advanced in transition. But there is a number of other countries, mostly Heritage Foundation Index of Economic Freedom but also some Western Balkan countries, like Montenegro, Montenegro, Serbia. We still have a lot of things to do to speed up the process of structural microeconomic reforms. And basically we also see some kind of parts dependence that countries we started early. Radical reforms older than 19 90s like Estonia, like Hungary, like Poland, like Slovakia, they keep the leadership position in this ranking. Here are some another ranking which try to reflect the degree of economic freedom. This is Heritage Foundation Index of Economic Freedom, which take account on several areas like fiscal policy, monetary policy, exchange rate, foreign exchange regimes, property rights, foreign corruption and several others. And here we see that there is only few countries which are considered by this ranking as mostly free. This Estonia, Lithuania, Czech Republic. And perhaps surprisingly, Georgia, which made a great progress in their area of economic reforms in 2000 after their revolution. Then we have a quite large group of moderately free countries, which include remaining parts of new member states, but also some countries of the former Soviet Union like, like Armenia. Or some countries on the Western Balkans like Croatia, Montenegro, Slove, Slovenia is a new member state. And then we have countries which are considered mostly unfree. And here is Azerbaijan, Serbia, Bosnia and Herzegovina, Moldova, Tajikistan and Russia and countries which represent repressed model. And here interestingly apart from three countries that I already mentioned before as less advanced in privatization and transition Belarus, Uzbekistan, Turkmenistan. This other Ukraine backtracked in the end of 2000 beginning of 2010. Several areas towards more repressive administrative solution and less micro-economic ability. And here let's see how political progress looks like. There is freedom house, freedom in the world, scores and they lower the more free a country is and there are actually two categories, political rights and civil liberties. And overall start to summarize both categories. And we see this part of the table presents new EU member states, and we see that all of them, apart from, Croatia and Romania, are considered. Were considered already free in 1995, and all of them are considered free in 2010. And basically the rating, in most cases, improved or definitely didn't deteriorate. Then we have other groups. Either free, Serbia and Montenegro, which went quite quickly from Milosevic's dictatorship to, to really solid democrat, democracy, or partly free. But again, actually all of them improved. Seriously improved in this rank. And again we can here see the impact of EU accession perspective on political consolidation and creating more stable democratic regimes. And finally we have group of CIS countries. And here, unfortunately, we see opposite direction. Most countries deteriorated. There were many partly free countries in mid 1990s, and now there are only few of them remaining. They are Armenia. Georgia, Kyrgyzstan, Moldova, and Ukraine considered as partly free. And some of them recorded small progress, some deterioration. All other are non-free and most of them deteriorated. More visibly Russia which heavily deteriorated since 1990s where it was actually democratic countries which on the way of building more solid political institution now move back towards totalitarian system. And here, I might again, I show you before in, previous part of the attempts to correlate economic freedoms and political freedoms. But this previous one, EBRD based on EBRD economic reforms indicators on Heritage Foundation index of economic freedoms regarding political freedom, freedom house ranking. They were done for the end of 1990's and mid 2000's. And now, this one is done for 2011 and we see it still, there is a correlation, but much much weaker correlation than before. Actually, you have more dispersion as a result, especially on the site, I would say. market, some sort of market autho, authoritarians. Does it contradict to what I taught in previous part about interlinks between economic and political reforms and several arguments which I. Presented in favor of political and economic freedom going hand in hand, especially in the specific post-communist environment. We'll see. Actually, I suspect, based on individual countries' stories, that deterioration in political freedom ranking will mean also deterioration in economic freedom ranking, and other regression in reforms and forward progress. And this is actually observed in the Russia, and some way also countries like Kazakhstan or Azerbaijan so basically there is suspicion that authoritarian trend in CIS may be also counter productive for economic reforms in this region. And let's now sum up. Where these countries are, in terms of the level of economy development income per capita. They place in the wold economy geography. Here we have gross national income per capita, according to world bank Atlas method estimation. And we can distinguish four categories of countries according to World Bank income classification. Who have group of high-income countries, and those are countries which are already EU members. Slovenia, Czech Republic, Slovakia, Estonia, Croatia, Hungary and Poland. Then we have group of upper middle income countries and we have here a mixture of over new member states like Latvia, Lithuania, Bulgaria. Romania and also Western Balkans most of the Western Balkan countries and some CIS countries like for example Russia or Kazakhstan or Azerbaijan. Then we have group of lower middle income countries. And here's lower income countries of Balkan region. And lower income countries of Central Asia, of Caucasus region and Moldova. And finally we have two low income countries, Tajikistan and Kyrgyzstan, which represent the lower river in not look at countries in central Asia. When we look for changes, we can see that in 1995, there were still enormous income differences, actually they even were bigger, because they between Slovenia and Tajikistan, basically. Rank equals more or less similar in terms of GNI per capita and difference was more then 40 times. Now this difference is thirty times and we know 2,000 and is quite large, and the question is, big question is, whether it has chance to convert, converge where the central Asian countries are excluded from very many forms of economic integration which are used for Central East and Europe. And here we see how the entire region states, entire region showed in the Global GDP increase from the mid-90s when there was a period of corrective output decline transition related. Since that ties you to rapid economic growth, the region improves its ranking, especially in 2008. In 2010 it was noted some deterioration which I already mentioned in part of financial crisis. But we also must understand that the joint share of both sub-regions CIS and Central Eastern Europe is around 8% of world output, is a bit more in terms of world trade. But still it's not the dominant region like, for example, United States. So called developing, they are much larger and more important regions. So, this role of them is not so powerful. Out of this 4.3% for CIS of the world output, more than 3% is Russia, which still is smaller than two other bricks, China and India, but the same, more or less the same share represented as Brazil and other bricks. All other countries are smaller. Those countries which joined the EU in 2004 and 2007. They increase their share in the EU GDP from 5.4% in 2004 to 7.4% 2010. That is certain progress but still that is rather peripheral EU economic benefit of the EU. And among those countries, approximately half its false for Poland, and then Czech Republic, and Romania. All other countries are smaller. What are challenges and problems ahead? Faced by former transition, formerly centrally planned economies, emerging market economies, we can call them. In this way of central Eastern Europe and CIS. Short-term challenges related to post-crisis environment. Definitely growth is slower, and more for There are higher debts plus government and private more volatile commodity markets which many of these economies especially CIS is very dependent. And small inflation pressures. There is a big problem for countries of CIS, and also Western Balkans. Which remains very much unsolved, according to all this ranking of economic freedom. How improve business climate and governance, and increase the degree of economic freedom? Another challenge is how to avoid marginalization in global economy. And this is a challenge for CIS, which remains outside major integration blocks, especially of Central Asia, which is landlocked and remaining even. Outside of those four economic corporation, with the usual for Europe and CIS countries. From domestic policy front, substantial part of the region. New member states, Western Balkans but also western CIS countries like Russia, Ukraine, Belarus, they face the challenge of unsustainable welfare states. Excessive social expenditures. Too low retirement age, too many values kinds social privileges which don't necessarily. Decrease in quality and sometimes increases inequality. We'll come back later on to some of these challenges. In the next part we'll move outside Central Europe and former Soviet Union, and we'll discuss, start to discuss Chinese transition [MUSIC]
