Economic growth in emerging markets has recorded very high acceleration from 1995 onwards and more particularly so since the outset of the millennium. Not only has economic growth in these markets acquired unprecedented buoyancy, but also the variation in the rates of growth across most emerging markets has exhibited a tendency to narrow considerably. Nevertheless some differences still prevail in the patterns of structural reform between various emerging markets at more or less advanced stages in the transition process to a fully-fledged market economy.
Despite these differences, a fairly clear pattern emerges upon analysis of developments exhibited by various countries, as regards the transition process. Indeed, most of the countries of the Black Sea Region, and Central and Southeastern Europe most notably Russia, Romania, Bulgaria, the Slovak Republic, Lithuania and Latvia have made some considerable progress, as regards privatization as well as price and trade liberalization. As far as privatization is concerned in the majority of cases, this has been accompanied by a considerable degree of managerial rationalization, which has in turn brought about added competitiveness and enhanced efficiency in resource allocation. It must be acknowledged however that considerable further action still remains to be taken, in the area of enterprise restructuring in the private sector, as well as in what concerns reforming the fiscal system and the financial sector, improving corporate governance and further increasing the resource allocation efficiency of the public sector, vis-à-vis the rest of the economy. Transition countries that aspire to European Union membership, and make this a priority of their macroeconomic programs and policies; (most notably – but not exclusively – Poland, Hungary, Bulgaria, Romania, Slovenia, the Slovak Republic, Latvia and Lithuania) have stood out amongst the other economies in transition. Generally speaking, the EU accession process is prompting these countries to make adjustments to their legislation, while improving enforcement in the areas of competition policy, financial regulation, as well commercialization of infrastructure and establishment of sound, long-term environmental policies.
The process of transition to market-driven economic systems has substantial associated costs. While such costs vary considerably between different countries; one can safely assert that the more challenging the initial conditions, with respect to distortions in the economic system, the nature of political structures and the social imbalances that exist; the larger are the costs of adapting to the conditions and requirements of a fully-fledged market economy system.
The Black Sea Region is located in a geography, which abounds in rich natural resources and high quality human capital, all of which provide sizeable potential for producing world class, tradable goods and services. This potential for greater trade flows at present, remains constrained however, by the presence of non-competitive institutional structures and excessive market fragmentation, which together impose serious impediments to cross-border trade flows and capital transactions, while at the same hindering competition limiting the realization of economies of scale, as well as imposing barriers to efficient industrial restructuring.
When considered against the backdrop of the economic potential offered by the Black Sea Region, these obstacles to further enhancing trade flows; the pressing need for more efficient and comprehensive cooperative arrangements between the individual export promotion institutions of the Black Sea Region countries becomes obvious. In fact, calls for establishing export credit and insurance system or further developing such systems that already exist; have become more vociferous in recent years and the possibilities of developing export credit and/or insurance systems, particularly, designed for small countries with limited domestic markets, has become a topic of great interest.
Such interest is rooted in the fact that for many of the countries bordering the Black Sea, access to state-of-the-art trade financing products would significantly improve the international cost competitiveness of their exports. This would directly translate into higher levels of foreign exchange inflows, larger export markets and increased output.
It goes almost without saying, that the steps towards creating any export credit or insurance system should be well calculated and taken within a systematic and well-structured framework. Accordingly, a necessary first step prior to the creation of such systems would be; to thoroughly analyze the context in which the companies in each of the countries of the Region operate and at the same time to explore the options that are available as regards the institutional arrangements through which export credit and/or insurance services would be delivered. The coverage of such services would vary depending on the state of institutional development of each country. The essential commonality that would remain, however, is that each national credit insurance scheme would be designed with the common underlying objective of facilitating intra-regional trade flows across the whole of the Black Sea Region, in a manner that is consistent with the operating principles of an open and market-oriented economy and not only takes due account of the key administrative and infrastructure-related bottlenecks facing the further development of export capacity, but also seeks realistic ways to address them.
Within the general framework outlined in the foregoing discussion, these are a number of avenues for inter-country cooperation aimed at an enhancement of trade flows, within the Region as well as with countries outside the Region. In fact, free circulation of goods and services within the Black Sea Region still remain hampered by numerous tariff and not-tariff barriers, both of which should be removed in a synchronized, coordinated and purposeful fashion. To this end, a two-tier strategy might be developed amongst the BSEC member countries. Such a strategy should, in the first instance, entail a thorough analytical consideration of trade relations to date, with a view to harmonize not only practices but also the legislative frameworks, between the different countries of the Region, while simultaneously reviewing trade practices in each country all with the underlying aim to remove existing barriers to intra-regional trade. The second tier of the strategy should involve an in-depth comparative analysis of no-tariff barriers in force within the Region with a view to eradicate them without incurring net losses to any of the countries or undermining the economic interests of the Region at large.
Altogether, elaboration of an advanced economic and legal framework to serve as a reliable and durable foundation for the growth of intra-regional and intra-industry trade and investment flows appears as a necessary condition for enhancing and sustaining intra-regional trade and investment flows. Given the fact that a close correlation exists between trade flows and investment activity efforts to enhance intra-regional trade flows should not, and indeed cannot be limited to technical or legislative measures to encourage the growth of international trade. In view of the geographical proximity of the Black Sea Region to the EU, intensive efforts should be spent by governments and private sector entities, towards attracting investment flows into the Region. On the side of the Black Sea Region countries, such efforts should include both the adoption of effective legislative and administrative measures to ensure the security of foreign investments—including guaranteed repatriation of investment proceeds—as well as the implementation of measures to create a transparent business environment. While enhancing the institutional standards of their money and capital markets, to bring them to levels commensurate with those in industrialized countries. On the part of EU countries, the development of appropriate financial instruments and expansion of existing programs with a view to address the needs of the Black Sea countries, would complement the efforts of the latter, to attract trade and investment flows into the Black Sea Region.
The foregoing discussion carries significant implications for the commonalities between the macroeconomic stabilization policies to be implemented in emerging market economies. Perhaps most importantly, macroeconomic stabilization policies in emerging markets should target realistic and sustainable long-term GDP growth rates. The sectoral distribution of this growth should be in line with each country’s natural endowments with respect to economic factors of production. Fiscal and monetary policies, as well as policies related to high-tech investments, should be established and implemented with a view to transfer economic resources, to those sectors which possess competitive advantages. In this context, it is important to further democratize and reform political processes; to ensure that they do not constitute impediments to the implementation of sound macroeconomic policy measures. A challenging issue in the implementation of such policy measures is to ensure that in addition to their income growth effects, they at least contribute towards achieving any income redistribution effects that may be deemed as desirable. In many emerging countries, this aspect of macroeconomic stabilization policies has turned out as the most difficult one to achieve and in many cases has paved the way to exacerbating existing social imbalances, which have culminated into political instability.
The issue of achieving sustainable macroeconomic stability in emerging markets is a complex one. It embodies a variety of factors, and implications that range from economic growth to social cohesion, in each country.
Governments of industrialized countries as well as international political organizations and multilateral financial institutions, all have important responsibilities, and should play effective roles in assisting emerging markets towards assisting them in playing more active roles in the global economy. The role of international financial institutions (IFIs) merits special emphasis, in this respect. Such institutions should not only ensure an adequate flow of investible resources from industrialized countries with surpluses of investible funds, towards those countries that are constrained by a deficit of such funds. They should also ensure optimal allocative efficiency by seeing that such funds are channeled to those sectors of economic activity in emerging countries, which provide the highest economic development impact.
The externalities argument acquires particular relevance in this respect. Especially, in cases like the Black Sea Region where many countries whose economies exhibit similar characteristics; it is important to establish a set of specialisms by country and to ensure that effective inter-country trade flows, which ultimately result in rapid regional growth and development, are created. In this respect, regional IFIs assume the crucial role of devising and using custom-made financial instruments that promote effective flows of trade and capital across countries, both at the regional and global level. Concerted and targeted support from the international financial community at large, is an indispensable requirement to enable regional financial institutions to perform this task, in the most effective manner possible.
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