Publication: Monitor Volume: 6 Issue: 69

Inflation performance in 1999 is probably one of the best indicators of the sustainability of economic growth in 2000. Countries with high or rapidly rising rates of inflation–a prime indicator of macroeconomic policy coherence–have lost the confidence of both domestic investors and consumers. Such economies are on a downward path with a likely crash in GDP and living standards. The highest rate of inflation reported in 1999 was in Belarus, where the average inflation rate ran at 294 percent and the December-on-December rate at 251 percent–rates which show little sign of slowing down. Although inflation in Russia remained high (consumer prices rose 93 percent on average), the year-on-year rate had fallen to 36.5 percent by December and is continuing to fall in 2000. The declining rate reflects the return of some modicum of stability to the Russian economy. Russian rates, however, remain high, with producer price inflation at over 60 percent.

Inflation rates in Central Asia reflect less-than-stellar economic policies. Kyrgyzstan, long considered the most reformist country in the region, has been backsliding as government interference in privatization and increasing corruption have reduced economic efficiency. The pernicious effects of government overspending and the inability to collect taxes has shown up in the country’s inflation rates. The average rate ran at 36 percent, with the December-on-December rate at 40 percent. Inflation in Turkmenistan and Uzbekistan also appears to be getting out of control.

In contrast, Kazakhstan and Ukraine have managed to keep their inflation moderate. December-on-December rates in those two countries were 18 percent and 19 percent, respectively. All signs point to even lower rates in 2000. The best performance in the CIS, however, was reported in the Caucasus. December-on-December inflation ran -0.5 percent in Azerbaijan and only 2.0 percent in Armenia. In Georgia, it was 11 percent, but still under control. Better fiscal balance in Armenia and Georgia is creating a more stable economic environment, which contributed to GDP growth of 3 percent in both countries last year. In Azerbaijan, inflows of oil money are propping up the currency and the budget, keeping inflation down (Sotsial’no-Ekonomicheskoye Polozhenie Rossii, January, 2000).