…BUT WHAT DO THE NUMBERS MEAN?

While the positive trends in these data are a hopeful sign, their preliminary nature and the imperfections which plague the official statistics argue against ascribing excessive importance to them. Attention should perhaps be focused on three deeper trends.

First, the CIS countries which have posted the most rapid growth continue to be able to run relatively large trade and current account deficits. The rapidly growing economies are benefiting from financing provided by foreign investors (Azerbaijan, Kazakhstan), the IMF (Kyrgyzstan), and diasporas (Armenia). By contrast, economies like Belarus and Georgia have slowed sharply because they have been unable to obtain external financing and have had to restrict spending on domestic production and especially imports. In the Belarusan case, the post-August 1998 refusal of Russian energy companies to accept shoddy Belarusan goods as payment for oil and gas forced Minsk to reduce its imports from other CIS countries (primarily Russia) by 32 percent during the first eight months of the year. In the Georgian case, tensions in Tbilisi’s relationship with the IMF and a slowdown in foreign investment in the energy and transport sectors precipitated a 30 percent reduction in imports.

Second, despite their GDP growth, virtually all of these countries have experienced sharp declines in imports and exports, both within the CIS and with the rest of the world. Moldova seems to have had the worst trade shock: Moldovan imports during the first nine months of 1999 dropped a stunning 55 percent over the same period in 1998. Only Azerbaijan and (surprisingly) Tajikistan were able to avoid sharp declines in trade during this time. The declining trade and output growth now being experienced by the CIS economies both result from large-scale import substitution caused by the currency devaluations that followed the ruble’s August 1998 collapse. Consumers and businesses are finding that they can no longer afford imports, and are purchasing cheaper (but often lower-quality) domestic goods instead. Import substitution can boost output, but it can also reduce consumer welfare and deprive companies of the imports they need to restructure and modernize.

Third, despite their positive growth trends, all CIS countries clearly remain a long way from sustainable economic growth. In contrast to transition economy success stories like Poland, Hungary and Estonia, the CIS countries have not managed to attract significant foreign or domestic investment into their manufacturing and banking sectors. Even resource producers like Russia, Kazakhstan and Azerbaijan are years away from developing world-class export sectors. The import-substituting character of their growth shows that, if the CIS economies are prospering, they are doing so in spite of, rather than due to, the international economy.

BAKU-CEYHAN OIL AND GAS AGREEMENTS SIGNED.