Europe and Central Asia
The impact of the Great Recession on Latvia was severe. Between 2008 and 2010, GDP fell by 21 percent, 11 percent of the workforce lost their jobs, and poverty nearly doubled, to 18 percent. This was no ordinary recession, it was a deep crisis.
This is the story of how Latvia successfully cushioned the inevitable blow--to at least some workers--through a World Bank-supported public works program.
"Once upon a time in the faraway Baltic region was a tiny nation of Estonia. Newly independent, with a population of 1.3 million, and with 50 percent of its land covered in forests, it was saddled with 50 years of under development. While it was operating with a 1938 telephone exchange, it’s once comparable neighbor across the gulf, Finland, had a 30 times higher GDP per capita and was waltzing its way into new technological advances. Estonia was faced with the challenge of catching-up with the rest of the world. It too embarked upon the technology bandwagon, but revolutionized it’s progression, by creating identity, secured digital Identity for its citizens. And finally, Estonia became a country teeming with cutting-edge technology. The end. “
Last week, the World Bank's Europe & Central Asia region published Diversified Development, a highly readable report written by Indermitt Gill, Ivailo Izvorski, Willem van Eeghen, and Donato De Rosa. The subtitle, making the most of natural resources in Eurasia, indicates that the report focuses on countries that are currently highly specialized as a result of their comparative advantage in natural resources. It addresses the question to what extent these countries have to diversify to ensure long-term prosperity. Clearer than ever before, the authors show that that is the wrong question to ask. That question gets the causality backwards. A diversified economy can result from successful development, but forced diversification is unlikely to lead to successful development.
Last week I attended the Gaidar Forum in Moscow. Yegor Gaidar was an economist who became the architect of the Russian market economy as deputy prime minister of the Russian Federation in 1992. Like Leszek Balcerowitz in Poland and Vaclav Klaus in Czechoslovakia, Gaidar was a pioneer of the shock therapy: rapid liberalization of prices; opening up of borders to allow free international trade; and privatization of capital. Gaidar died in 2009 at an age of 53. In his memory the Gaidar Forum was organized for the first time in 2010. This was the fifth time the Russian Presidential Academy of National Economy and Public Administration organized this annual conference that brings together ministers, academics, and business people.
For those of you who are not interested in soccer and for our young colleagues who are growing up with Messi and Ronaldo: Johan Cruijff was the best soccer player ever. At least according to his Dutch fans; skeptics can convince themselves here. As a player and coach he has won every conceivable prize for club teams, but he has become even more famous as an analyst. His judgments are so inscrutable for mere earthlings that his utterings are considered without exception as deep philosophical wisdoms. One of his more transparent quotes might give you already an impression: Soccer is simple, but it is difficult to play simple soccer. There must be deep insight also in Italians can't win the game against you, but you can lose the game against the Italians. People have collected over the years many more examples, but I want to discuss one of his more recent observations.
A New Year traditionally comes with upbeat thoughts. New resolutions will make life better. Past mistakes will not be repeated. And calamities are seldom predicted. These positive thoughts are not always justified, but they provide necessary energy during the first cold months of the year all the same.
At the beginning of 2014 some economic optimism actually seems defensible. Five years after the start of the global financial crisis, Europe is finally exiting their recession, albeit slowly and hesitantly. The U.S. economy is accelerating and so is growth of global production and trade. True, the BRICs are no longer as vibrant as they have been for a long time, but growth in China (a key concern of markets in recent days) is still expected to be three and a half times growth in high income countries.
Given the tradition of New Year’s optimism it is salient that the EBRD starts the New Year on a rather gloomy note with their new Transition Report. The title of this year’s report is "Stuck in transition?." But in the text they change the question mark into a firm exclamation mark, even as the report contains some suggestions of ways to escape the current impasse.