Russia and EU expansion were the topics at the forefront of
debate and discussion at this year’s Central and Eastern European
Economic Summit in Salzburg. While there was disagreement on the
best course to develop the Russian economy, European Union enlargement
was universally welcomed.
Russia was in the spotlight early in the opening session after
Grigory Yavlinsky, member of the State Duma and leader of the
Yabloko party, accused president Vladimir Putin of not respecting
the rights of the individual. "The most important institutional
change needed in Russia is human rights," he asserted. Yavlinsky
claimed that the trend since Putin’s election is alarming. He
cited the Kremlin’s suppression of independent sources of information,
which contributes to a climate in which it is "impossible"
to get positive economic results. Yavlinsky described the government
as corrupt and oligarchic, a poor successor to the previous regime.
"Pinochet is not an alternative to Yeltsin," he said.
"Sometimes we think we’re the only ones paying taxes in
Russia," Ruth Harkin, senior vice- president, United Technologies
The Yabloko leader called for a series of sweeping changes, including
reform of the tax, banking and transport systems. He claimed Russia’s
macroeconomic policy has failed because the institutions needed
to support it just don’t exist.
Kurt Biedenkopf, minister president of the eastern German state
of Saxony, picked up on Yavlinsky’s remarks. "A market economy
can only exist with guaranteed human rights," he said. Biedenkopf
also echoed concerns about the free flow of information in the
region and indicated that news services on the Internet were more
vital to the region than any opportunities for commerce.
Calls for the west to open up more to Russia were numerous. Yavlinsky
urged a consistent policy towards the Kremlin with more emphasis
on human rights, and less on realpolitik. There were also warnings
against putting all the eggs in one basket. The relationship with
Russia should be broadened to embrace opposition parties, associations,
journalists and students. It should not, as in the past, focus
almost exclusively on the executive. To great applause, Yavlinsky
advised visa-free travel for Russians going west. He questioned
the fears of western governments on this issue. "The Mafiosi
don’t stand in line for visas," he said.
"There is a role for national policies to prevent a rise
in nationalism," Danuta Hubner, executive secretary, UN Economic
Commission for Europe Open borders and free movement of peoples
was the hot topic picked up later by Gunter Verheugen. The enlargement
commissioner for the European Commission sees his portfolio as
a historic mission. He calls the EU’s opening to the east "the
first effort to unite Europe", and a necessary attempt to
ensure lasting peace and stability on the continent. But Verheugen
acknowledged there were threats to that mission and urged that
no further obstacles be put in the way of membership. "Do
not delay the process. Do not impose new conditions," he
Verheugen’s position was enthusiastically supported by a host
of high-ranking regional officials. Macedonian president Boris
Trajkovski said that "[EU] enlargement is the most effective
tool to promote European values in south eastern Europe".
Latvian prime minister Andris Berzins announced with pride that
his country is holding to a commitment to complete accession negotiations
by 2002. His counterpart in Lithuania, Andrius Kubilius, described
EU membership as an "absolute priority" for his people.
And Austrian president Thomas Klestil – with an eye to comments
uttered by members of his country’s right-wing Free Democratic
Party – voiced his steadfast dedication to enlargement: "Austria
will remain fully committed to European expansion and integration."
Unanimity was also achieved on the need for western investment
in central and eastern Europe. The role of foreign direct investment
was deemed crucial, given the shortage of human and financial
resources, especially in know-how and managerial skills. Zsigmond
Jarai, Hungarian finance minister, said small and medium-sized
enterprises play a significant role in acclimating the region
to the process of globalisation.
"There are winners and losers when you open up the markets,"
Kurt Biedenkopf, minister president, Saxony For Russia, Duma legislators
agreed that they needed to create strong and transparent tax and
judicial systems to protect foreign investments. Yevgeny Yasin,
director of Russia’s Expert Institute, argued that there are no
serious disputes among the political parties on this issue. What
is in dispute is the role and the influence of the executive branch
of the government in the process, and how the changes are to be
implemented. But Yasin was certain that a fundamental re-orientation
in Russia is already underway. "We have experienced tectonic
changes," he said.
Yasin’s optimism was only tempered by a need to remain patient.
He reminded participants that change needs time, and president
Putin was still new in office.
BRIGHTER THAN EVER BEFORE
The positive outlook was shared by others. Andrei Piontkovsky,
director of Russia’s Centre for Strategic Studies, believes "the
economic prospects are brighter than ever before". But he
admitted that there is a need to resist "dangerous political
tendencies" of the kind that Yabloko’s Yavlinsky brought
to the summit’s attention. Alexander Zhukov, chairman of the State
Duma Budget Committee, added to the optimism with a prediction
that reform guaranteeing property rights would be in place in
the near future.
"What we are witnessing today in Russia is a true tax revolution,"
Alexander Zhukov, chairman, Duma Budget Committee The view of
Russia among foreign business executives was also positive. Ruth
Harkin of United Technologies acknowledged that her company "sometimes
thinks we’re the only ones paying taxes in Russia". But she
also admitted that "the Duma has become more centrist and
more willing to work with the executive on economic reform".
The professionalism of Russian legislators was welcomed by many
western investors. There was general agreement that relations
between the Duma and the president have improved markedly since
Boris Yeltsin’s tenure, and that legislators are more aware of
the problems facing the country and the practical steps needed
to overcome them.
So why isn’t investment flowing more freely into Russia and the
rest of central and eastern Europe?
Charles Harman, managing director at Donaldson, Lufkin and Jenrette,
blamed investors’ miserable past experience, especially the collapse
of emerging markets in 1998-99. He said investors are afraid of
being burned again. Then there’s the herd mentality – no one wants
to be the first to go back in, but as soon as someone does on
a large scale, others are likely to follow. Finally, according
to Harman, investors have been able to score higher returns for
their money in other regions of the world, notably western Europe
and North America. The strength of the US dollar and local devaluations
have meant that even when local currency gains are high, the return
in dollars remains low, if not negative.
"The majority of managers in Russia doesn’t understand
what a company looks like," Ruben Vardanian, president, Troika
Dialog Ron Freeman, vice-chairman of Schroder Salomon Smith Barney,
highlighted the role of domestic savings to increase investment
in the region. He called for privatisation proceeds to be placed
in pension funds which would in turn invest in domestic companies.
A sobering voice of reality was injected into the debate by Yuri
Ponomarev. The CEO of Vneshtorgbank, Russia’s second largest after
Sberbank, cited Russia’s continuing inability to participate significantly
in international capital markets, the illiquidity of local markets
and an absence of foreign banks in the country as the three factors
causing foreign investors to shun Russia. Ponomarev claimed it
will be "a while" before there are any changes to current
market conditions, and until then Russians will have to suffer.
Finally, the participants addressed the threat posed by globalisation
to increasing regional nationalism. Yabloko’s Yavlinsky again
cited the need for the free flow of information to curb nationalist
trends. He called for Euronews to broadcast in Russian as a gesture
of inclusion from the west. He warned that the common European
currency could mean replacement of the Iron Curtain by a "Golden
"Pinochet is not an alternative to Yeltsin," Grigory
Yavlinsky, member of the State Duma, and leader of the Yabloko
movement Milan Panic, chairman, president and CEO of ICN Pharmaceuticals,
summarised the discussion by saying all peoples in central and
eastern Europe needed EU membership as a goal. He called for a
date to be set for Russia’s accession to the body even if it’s
20 years from now, ignoring the fact that no Russian government
has ever approached Brussels officially about joining. With the
recent history of his own Serb people in mind, he lamented "those
people who have no hope truly have nothing". And hope, he
added, comes with carrots, not sticks.
All in all, the majority of participants pressed for a new mode
of thinking to stem a rise in nationalism – a mode that transcends
the Cold War mentality of spheres of influence and exclusion.