Transition report press conference

Transition Report 2004 press conference, Monday 8 November 2004

JEFF HIDAY, HEAD OF MEDIA RELATIONS: I am Jeff Hiday from the Press Office.  Willem Buiter is the Chief Economist. Sam Fankhauser is the Director of Policies Studies and head of the team that produced this report. Alan Rousso is the Senior Political Counsellor. Julian Exeter is the Senior Economist in charge of Ukraine and Belarus, and he is part of the editorial team.

One obvious point to make is about the embargo of 18.00 hours GMT. We would appreciate your bearing that in mind.

Willem Buiter will make an introduction and then please feel free to ask questions – and please identify yourselves, if you don’t mind.

WILLEM BUITER, CHIEF ECONOMIST: I will keep this short because I know you want to ask questions. May I remind you that we are not just launching the Transition Report tomorrow but also celebrating the 15-year anniversary of the fall of the Berlin Wall, the event that kick started this whole process. Basically, during the past 15 years the Bank has been picking up pieces of the Wall and trying to make nice buildings out of them. It has not been easy, but in 15 years an enormous amount has been achieved, although the achievements are uneven across the region and across countries, both in the economic and political domains.

For the fourth year in a row the region is growing fast. The region as a whole is likely to grow this year at about 6.1 per cent, up from 5.6 in 2003.  Our expectations are for 5.5 per cent for next year for the region as a whole, with some deceleration in Russia and a slight topping off across the board, but still a very good growth performance – outgrowing the world economy, outgrowing the EU 15 and in fact outgrowing every region in the world, with the exception of emerging Asia. We cannot quite keep up with the Indias and Chinas of this world yet, but the region has done well this year.

The drivers of that growth have varied by region. In the CIS it has been high commodity prices across the board, not just in oil and gas but also in cotton and other minerals like gold. Of course, we have had strong growth in the world economy, which has pulled everybody along. I think we have had a return on past reforms. The kind of structural reforms we are talking about do not tend to have immediate effects. There is a lag and in countries like Russia and the more advanced countries, the eight that joined the EU on 1 May, we have seen the reward for past performance. 

Macro-economic vulnerabilities remain. Fiscal policy used to be a serious driver of domestic demand growth in the advanced accession countries. That has now been replaced by credit growth. Across the region, credit growth has been very strong. From some points of view, that is very desirable, since the financial sectors in these countries of operations are still underdeveloped and financial deepening is clearly desirable. One also has to worry, when one sees rates of growth in some countries of 30 to 40 per cent in credit, whether the quality of credit control in the banks doing the lending is up to the task of monitoring that rapid expansion. There are concerns about an explosive and possibly run-away credit boom.

The CIS growth is very heavily commodity dependent. The need for diversification in that region is stronger than it ever was. Despite some not insignificant growth, especially in Russia in the non-oil extractive sectors, the share of the extractive sectors in the total economy is not coming down.  In proportional terms, Russia is as energy, commodity and extractive industry dependent as it ever was.

For the region as a whole, reform has continued and in fact picked up a bit.  As you know, we have nine indicators referring to various dimensions of improvement of market performance and liberalisation: price liberalisation, foreign exchange liberalisation, industry liberalisation, banking sector reform, non-financial banking sector reform, infrastructure, governance, a whole bunch of indicators, nine of them. They range from 1, which is unreconstructed Stalinism, to 4+, which is Hong Kong, and we see that 27 countries have received collectively 27 upgrades, which is not bad compared with last year when we had about 20. There were no downgrades. We have had downgrades in the past. Some countries are doing very poorly but they are already so low that it is hard to downgrade them.

Upgrades have been concentrated in south-eastern Europe. The motivation for that is easy: it is the prospect and challenge of meeting certain standards of governance and institutional development to become EU members. This is most clear for the three countries in the anteroom of the EU today (Bulgaria, Romania and Croatia) and they had nine upgrades among them. The other Western Balkan countries such as Bosnia did not have quite as dynamic upgrades as the three frontrunners for accession, but they are also seeing upgrades.

There are very few upgrades in the advanced countries, the eight that have joined the EU.  There are reasons for that. The obvious one is the j’y suis, j’y reste – I am there, I made it; I have climbed over the hurdle; I will take a national breather before engaging on the next difficult stage of reform.  The reforms that are necessary are not getting any easier politically and socially.  Now that the spur of qualifying for EU membership has fallen away, these countries are taking a reform break – they have a few upgrades, but very few. It is the same in the CIS for different reasons. Of the CIS countries, only Kyrgyzstan with three upgrades stands out as a determined reformer last year. Russia gets just one for making initial progress in the transport sector, particularly the railways. It is modest – they have gone from having a ministry of railways run the railways to having a dedicated body do so. It is the first step towards commercialisation and possible privatisation much further down the road.

I think the reason reforms have stalled in the CIS is, first, that commodities produced in these countries just have it too good. With growth high (effortless growth, easy growth because of the positive terms of trade shock), with government revenues buoyant without any structural measures, and indeed with the benefit of past reforms, there is considerable scope for growth.  Remember, too, that unlike the advanced countries, except for two of the Baltic States, which are now back at GDP levels above the peak reached under central planning, all the CIS countries, with the exception of Uzbekistan, Turkmenistan and Belarus where the official data are screwy, are still well below 1989. There is growth in the statistical sense in these countries but it is not growth in the sense of productivity-driven, sustainable, efficiency gains driven, private investment driven growth. It is therefore vulnerable.

The report also deals with a specific theme, infrastructure. Infrastructure is key. We have always worked in the infrastructure sectors. Unlike some of the other IFIs, we have not recently rediscovered the joy of investing in infrastructure; we have always done it. Clearly infrastructure is necessary both for sustained growth and for regional integration of our economies into the global economy. We look at regulatory challenges and private sector participation in infrastructure services. 

Regulators have a hard time of it. They are the favourite targets of the media and political complaint if anything goes wrong but they have many tasks and only one set of instruments, which is the tariffs and regulations they set. They must devise a tariff system that promotes efficiency, full cost and environmental sustainability, which is extremely important in the energy and water fields. They have to guarantee universal access to those parts of the services – water and sometimes telephony – that are considered to be social services of an entitlement nature wherever universal access is part of the picture. That raises affordability issues. They have to get returns sufficient to encourage investment in modernisation. They have to encourage competition, often in industries where this is difficult. How do you get competition in the distribution of electricity at the last stage? This is not trivial. They have to ensure that all operators, incumbents and new entrants, domestic and from abroad, have equal access to existing networks that create the element of monopoly.

Not surprisingly, a survey we did concludes that good regulation makes a real difference to the quality of the services being produced and that the quality of regulation is very uneven, ranging from pretty good to absolutely dismal in our 27 countries.

Private sector participation, of which PPP (public-private partnerships) is a special case, is playing an important part in infrastructure but the role has been changing over time. Increasingly we see a reduction in the amount of financial risk, equity risk especially, that private investors are willing to take in infrastructure outside telecoms. Telecoms they will still do. The reason is simple: they have not been able to earn an equity risk adjusted rate of return on investment and infrastructure outside telecoms, and even in telecoms it is dubious. There has been just one year where the rate of return on equity investment has made shareholders happy. You get returns at best of 5 to 6 per cent, 7 per cent if you are lucky over a period of years. Those are bond, granny rates of return and not equity rates of return. We see that risk capital is playing a smaller role. What capital goes in tends to be financed out of retained earnings or from bond issues and loans.

We also see that the nature of what the private sector is doing is changing.  There are fewer outright ownerships, more concessions where the private party has management of the assets and more restricted exposure to financial risk, and then just management contracts where there is basically no exposure to serious financial or equity risk and where the private sector is paid, hopefully, according to well-incentivised schemes to deliver services, management skills and the rest.

We also see that local investors – local meaning from the region and the country – are playing a growing role. There has been a certain withdrawal from large, western investors. The local investors can be either small or national and the large-scale operators, like RAO UES from Russia and Gazprom, may not be wholly commercial in their operations in parts of Central Asia and the rest of the CIS.

The team can answer any questions you may have.

TOM BUERKLE (Institutional Investor):  You talk about this pause in reform.  Is it just a pause or is there some backward movement in a lot of the accession countries, a serious slippage in fiscal progress, disputes over the Central Bank in Hungary and things like that? Is this just a blip or pause or is it something potentially worse?

DR BUITER: One person’s blip is another person’s pause. I do not think this particular blip or pause will last, no. It is true that it is not just in the structural reform field. It is also in the inability, especially in the larger of the recent accession countries, to keep the budget under control.  There is clearly no political majority capable of delivering either the spending cuts or the tax increases that are necessary to put public finances on a sustainable footing. But I think this will happen. There are pressures, both from the market and the political system, to get countries to focus on that. Once Estonia, Slovenia, Latvia and Lithuania are in the euro zone, the peer pressure, the shame factor, will weigh quite heavily on the larger countries who consider themselves in some way more advanced. Even the Baltics need to tighten up there. Also, clearly, since deficits are unsustainable, they cannot be sustained. It is just a question whether they are going to be solved elegantly or inelegantly, and I think within the next two years or so you will see the restoration of fiscal soundness.

As for the reforms, we have not seen any great back-tracking. Kafuffles about central bank independence, as you know, are not uncommon even in the EU 15, and it is really a storm in a teacup; they cannot change the laws in a way that violates the treaties they have just agreed to on EU accession. They have very clear requirements for central bank independence, so whatever they change has to be within that framework. So there has not been any back-tracking on the reforms, just lack of progress. It is a pause, not a reversion, as far as I can see, so far.

GABRIEL PARTOZ (BBC World Service): Dr Buiter, do you see a division opening up in one of your three sub-divisions, south-eastern Europe, where I think the star performers this year in terms of reform – Romania, Bulgaria and Croatia – seem to be pulling well ahead of the rest of the region? Do you see that as a cause for concern?

DR BUITER: It is good that Romania, Bulgaria and Croatia are making such good progress. The concern is simply about the relative lack of progress in the next cohort: Albania, Bosnia and Herzegovina, Macedonia and Serbia & Montenegro. I am not yet unduly concerned. I am most concerned about the slowness of the reforms in Serbia & Montenegro, because they are only in their fourth year of transition, which started with the fall of Milosevic. Given the early stage of the process, they ought to be doing better than they are.  The current success stories were doing better in their fourth years of transition than Serbia & Montenegro are today.

We know the reasons for it. They are political and they have to do with internal division between the liberal reformist wing and their personal and other rivalries, and the attention-diverting issue of the constitutional link between Serbia and Montenegro and the unresolved status of Kosovo. These are the explanations. They are explanations but not excuses. They are really falling behind and this is worrying.

In the other countries the reasons are even clearer. In Bosnia, of course, we have a unique federal structure where the federal government has no powers that one knows of and the entities have all the budgets, and reform is slow and difficult simply because the real power is with the High Representative, Mr Ashdown. There is basically no governance structure that can deliver quick reforms. Albania, I think, is making progress from initial conditions that were worse than almost anywhere in the region. Yugoslavia was heaven compared to Albania and Hoja – that was a form of almost Pol Pot-type communist primitivism. So they have had to come the longest way. In Macedonia, again, there are special reasons. I expect that these countries will pick up, but they had better, because the euro-train is leaving. It is clear that Croatia is going to be on board and so are Romania and Bulgaria. It has been made clear that all the other countries in south-eastern Europe are potential candidates, although there is no formal commitment, but they have to do it, they have to deliver, and only they can do it. It is worrying, especially in the case of Serbia, but all four countries should do more than they are now; they should be catching up rather than falling behind.

SAM FANKHAUSER, DIRECTOR FOR POLICY STUDIES AND SECTOR STRATEGY: Just one observation. If you talk about the region splitting into various parts, an equal if not bigger worry is about some of the less reformed CIS countries falling behind and the end point of their transition being a middle-income developing country rather than a developed country that is part of the world economy. I think that is a real risk for Uzbekistan and Turkmenistan and some of the small countries in the CIS which are falling behind, both in terms of reform and in terms of other indicators as well.

ANDRZES SWIDLICKI (Polish News Agency): I wanted to ask you what impact expensive oil will have on the central European region and also the impact of currency fluctuations, specifically appreciation of the euro versus the dollar.

DR BUITER: The impact of higher oil prices will be good for net oil exporters and bad for net oil importers, and since eastern Europe is, I think without exception, a net oil and gas importer, they have an adverse terms of trade shock; they are worse off as a result of it. That is straight income transfer from the consumers to the producers of oil and gas. In addition, since oil and energy is an input cost into production of manufacturing goods and goods and services in general, there will have to be changes in the scale and composition of production as a result of this. It is always difficult. So you can expect greater unemployment, outside the oil and gas sectors of course, for all net oil importing countries in the short run. Labour markets are not particularly flexible and the needed real wage adjustments in response to these increasing energy costs are likely to take some time. It is not good news, but it is there, it is unavoidable, and they have to adjust to it.

Currency fluctuations? As long as you are not linked to the euro, basically, what happens to your currency is a policy choice. If you are linked to the euro or trying to maintain a fixed exchange rate or a narrow margin vis-à-vis the euro, then you appreciate with the euro, and that will be good for inflation and not so good for competitiveness. The countries that already have a de facto or de jure currency peg, like the Baltics, will feel the competitive effects of the euro appreciation.

DUNCAN HOOPER (Bloomberg): On the pause or the blip in reform in the new EU members, do you think that will have an impact on growth or on foreign investment in the near term? Also, do you think there is a case for delaying euro entry for Romania, Bulgaria and Croatia? Is the same sort of thing likely to happen there?

DR BUITER: Our report contains evidence to show that structural reforms of the kind that are needed and are now on hold have an effect on growth. This is a lagged effect. Last year’s absence of institutional reform will be next year’s diminution in growth. How big it is is anybody’s guess but it certainly will not help. Yes, I do believe that more rapid reform, especially if it is market-friendly, encourages FDI, so as a result of failure to reform, FDI will be lower than it might otherwise have been. You have seen a comeback of FDI to the region, in fact. Net FDI flows were about 30 billion in 2002 and then they plummeted to 19 billion or so in 2003 and they are expected to be around 30 billion again this year. That is net. The net figures, incidentally, are becoming increasingly less informative because the richer countries in our region are becoming significant growth exporters of FDI as well. CEZ, a Czech company which is still state-owned, has been investing serious amounts abroad, and there are Hungarian companies investing in the region. There are several companies investing in south-eastern Europe. 

The gross flows are as interesting as the net flows. In fact, if you have a lot of gross out-flows, it may in effect strengthen both the host and the source economy, and so it would be interesting to have more data on gross investment. I think the region is still attracting the advanced countries to investment, but it is becoming increasingly competitive. They are not just competing with each other, but they are competing both with the advanced industrial countries on equal terms now – no more state aid or differential state aid – and they are competing with the Indias and Chinas of this world.  So you cannot take a breather, even if you just want to stand still.

MR HOOPER: Do you think the same thing is likely to happen in Bulgaria, Croatia and Romania as we have seen in the new EU Members?

DR BUITER: Quite the contrary. They are not in yet. The big relaxation, the fatigue, may have been felt beforehand but it did not show up in terms of diminished reform efforts until after EU membership had been achieved. I cannot see these countries relaxing now. Certainly the Romanians have barged ahead. They were way behind. 

MR HOOPER: When they joined –

DR BUITER: After they joined, yes, but you delay because certain criteria for admission have not yet been satisfied. It is clear which hoops they have to jump through: the closing of the chapters and then a more qualitative judgment about whether they are ready economically and politically. Bulgaria has already provisionally closed all the chapters. They still need to strengthen public administration, the judiciary and various other dimensions, but they have over two years in which to do it. I do not see any reason for delaying simply because keeping them out would cause them to reform longer. That would be moving the goal posts after the ball has been kicked.

ROBERT KERTESZ (Hungarian News Agency): Dr Buiter, you mentioned private sector participation in infrastructure and it is also extensively discussed in the report, which calls it controversial in many countries. Actually, it has become so controversial in Hungary that the Opposition is seeking a referendum to halt the whole process. What do you think will be the consequences if this should be successful and the Hungarian Government eventually has to stop the privatisation process in infrastructure? What do you think the consequences will be for Hungary and the region as a whole?

DR BUITER:  The private sector can participate in the infrastructure sector in many ways. The minimal involvement is management contracts, where they do not take any financial risk, they do not take the investment decisions but are simply given a licence to manage the assets and provide services for a number of years. There may be yardsticks that they have to meet, and presumably, one hopes that, if there is a monopoly element in the provision of these services, there will have been open competitive tendering for that licence. That will continue; in fact, it will expand. The public sector, civil servants, make lousy administrators of real assets. They cannot produce goods and services to save their lives so they should not do so.

Then you have concessions where, in addition to managing assets that are financed by the government, there is some element of exposure of the private sector to financial risk. It may be that if it is a toll road, you take part of the traffic risk, or it may be that you find the working capital or whatever. I think in those industries where a regulator can credibly commit himself to set tariffs, now and in the future, that will guarantee an adequate rate of return, that form of private concession, with an element of private finance, will also continue, if for no other reason than that the government does not have the money. Hungary is a country, of course, where the government is desperate to get things off budget and off balance sheet. That is not a good reason for doing PPPs but it is one reason why they will not go away. Full private ownership, where you own the assets, invest in them and manage them on a private basis, but are still regulated in terms of tariffs, we will see less of outside the telecoms sector. We are already seeing less of it, and the reason is that in these industries the policy makers and the regulators cannot commit themselves to allowing private sector participants to earn an equity-type rate of return. We have seen that in the power sector and we have seen it elsewhere, and I think there will be a reduction in private sector involvement there. But to legislate for no private sector participation of any kind would be the height of idiocy.

MR FANKHAUSER: Perhaps I can add something to that as well. I guess you are asking about the performance of the private sector in running these assets compared to the public sector, which would be one of the consequences if you go the public route. There is no universal evidence on that but there is a fair amount of anecdotal evidence that the private sector has been capable of running some of those assets better; productivity has gone up in the electricity sector, collection rates have usually gone up, and losses have come down. It is true that the expectations of the private sector have often been too high, and relative to those expectations there have been failures, but relative to where they started off, there has been improvement.

What we also see is that it is not just the ownership that matters. What matters more is the competition. Changing hands and creating a private monopoly instead of a public monopoly does not do the trick. What you need is competition.

Finally, it depends on the sector you are looking at. I guess the reason why PPP is controversial in Hungary has a lot to do with M5 and the toll roads, and it is true that the roads sector is the one sector where private sector participation has been least common and perhaps also least successful, but there are probably inherent road characteristics in there, and as Willem said, there are different types of private sector participation. What is happening in Hungary is a classic example of the move from a private sector operator, reducing the amount of risk they take and finding a different risk allocation between public and private that makes it easier to run these assets still as a public-private partnership but with a different risk allocation.

SABY MITRA (Reuters): You expect growth in Russia to slow down next year because of institutional inefficiencies, capacity constraints and appreciation of the rouble. How serious do you think the slowdown will be? At the moment Russia is also grappling with foreign exchange in-flows which are leading to the appreciation of the rouble as well as trying to fight inflation. What should the focus of the Central Bank be at the moment: fighting inflation or fighting the appreciation of the currency?

DR BUITER: Growth was down to 6.9 so that is really not a significant deceleration. If they make 6.9 next year, they will be well served, because all the factors that you are talking about, the lack of reform effort in this past year, or rather lack of reform result – the effort may have been great but the results were not there – and the real appreciation of the rouble, are all taking their toll. What the Russian monetary authorities want to make a priority - the exchange rate or inflation - is for them to determine. One can point out that they cannot have both lower inflation and a stable rouble.  They may want to lean on inflation, which is picking up slightly at the moment; instead of going into the high, single digits that they were hoping for, it is now in the low double digits, probably about 11 now. But keeping it there will not be a trivial effort because the massive in-flows through the balance of payments, which are reflected in reserve stocks that are at an all-time high, of US $110 billion plus, have led to enormous liquidity throughout the banking system, throughout the economy and to upward pressure on prices. That is not going to diminish at any time soon. 

You can take that pressure in one of two ways. You either let it feed through to domestic inflation or you choke it off and it will come through in a stronger rouble, so you will lose competitiveness either way. The question is, do you want it more quickly, in which case you do it through the exchange rate, in which case you may have some gains on the inflation front, or do you want to do it more gradually, in which case you take the loss of competitiveness through inflation, but you then of course pay the inflationary price? It seems clear there is not going to be a radical change from the policy thus far. The Russian Ministry of Finance has made it clear they do not want to see any serious increase in the rate of inflation. If they can keep it around 10 per cent next year I think they would be reasonably satisfied, and I think that is the best that can be hoped for.

ROBERT KERTESZ (Hungarian News Agency): What is your forecast for the growth rate for Russia next year?

DR BUITER: Six. It is a slowdown, but it is pretty good for an economy that is already being blessed by the external environment to an extent that is unlikely to be replicated. World demand is growing quite rapidly on the whole, although we expect a slowdown there, and of course, the oil price is not at an all-time high in real terms but at a serious high compared to the last 15 years or so. So yes, Russia’s growth will, we anticipate, next year not be at the level required to achieve Mr Putin’s doubling of GDP by 2010 but it will still be a handsome rate, largely driven, I think, by non-domestic factors.

YAMATO SATO (Nikkei): You are expecting 6.1 per cent growth this year and 5.5 per cent next year for the whole region. What is your estimate in that case on the world economy? I think this 5.5 per cent is quite high.

DR BUITER: We have outgrown the world economy.

MR SATO: How much do you expect for the world economy next year?

DR BUITER: I think it must be about 3.5. I can look that up. It should be something like that.

MR SATO: Is it in here? I do not think so.

DR BUITER: No, we do not normally present it.

MR SATO: But, of course, you have to estimate it.

DR BUITER: Yes. About 3.5 per cent would be a reasonable benchmark figure.  Some slowdown for the world as a whole.

MR SATO: Is that 3.5 per cent for 2005?

DR BUITER: Yes.

MR SATO: Also you have a table on foreign direct investment but, as you pointed out, do you have the growth figures?

DR BUITER: I do not have them here but we have them somewhere. 

MR SATO: Is it available? As you pointed out, it is hard to understand the number, especially for Russia.

DR BUITER: As regards the big fall in FDI in 2003, a large part was repayment of inter-company loans from daughters to mothers, which counts, for reasons known only to statisticians, as negative FDI. It should be no such thing because FDI is meant to be about ownership and control, and so repaying inter-company loans should be a completely separate category, but a large part of this $11 billion drop in 2003 was just that particular phenomenon.

EMILY BARRETT (Dow Jones): I just wanted to ask if you consider next year that oil prices may moderate or that the CIS might somehow lose its edge on the basis of how hard it has been driven through commercial price increases, et cetera. Which economies among the transition countries do you feel will step up and show the strongest and most resilient growth?

DR BUITER: We expect to see some slowdown in the world economy next year.  That should be reflected in a weakening of the oil price, but to what level is anybody’s guess. I certainly do not expect that oil prices, when we sit here next year, will still be $50 a barrel. That would really surprise me.

There are all kinds of risk. If you make enough assumptions about supply-side interruptions – from Iraq to Iran to Russia – you can get the oil price at any level, but I think the sensible forecast must be for a declining oil price.  That will undoubtedly depress the growth performance of the net oil exporters, but in fact, most of the region is a net oil importer, so for the region as a whole I think this might be, on balance, good news. For the net oil and gas exporters – Russia and the Caspians basically, Kazakhstan, Azerbaijan, Turkmenistan – and for the countries that are very dependent on the CIS/Russian market – and we are talking here about Kyrgyzstan, Tajikistan, even Ukraine to a certain extent – will see some negative impact. If the oil price comes down, I expect to see the main benefit in south-eastern Europe and also in the advanced countries. 

Remember, globally, oil seems to have been much less of a factor than it was in the Seventies or in 1980-81. It is undoubtedly not helping the oil importers, but it is not the kind of bone-crunching recession-starter that it has been in the past. We have become much less energy-intensive than we were even 20 years ago, and that is good news. The vulnerability to oil price increases is lower.

MR SATO: Do you think that this $50-a-barrel range will be sustained for the foreseeable future and the world economy will have to cope with it in the long term?

DR BUITER: No, I do not think so. $50 a barrel, once supply has time to adjust, means that everything becomes profitable. I will start prospecting for oil on my patio if it stays at $50 a barrel. No, I really think that is unlikely to be even a medium-term outcome. If things are sufficiently disrupted on the supply side, you can get any price for the short term, but all over the world marginal fields have suddenly become profitable again.  People are looking in corners of the North Sea that had been abandoned for years. In the United States they are looking for oil again. At $50 a barrel there is a lot of oil, especially given a bit of time to bring it out of the ground. This is not a long-run equilibrium price, just as $10 a barrel was not a long-run equilibrium price, because at that price half the fields that were producing oil would not have been brought on stream in the first place.

MR SATO: When and where do you see oil going back to where it used to be?  Where do you see the bottom line?

DR BUITER: I expect it to weaken next year because I expect the world economy to slow down. The real drivers of the oil price increase have been the growth of world demand and the short-run inelastic supply in oil. But in the longer run, especially when you add time to put pipelines and refining capacity in place, which takes 3 5 years, you could have a period of low oil prices. I do not know where it is going to go down to in the immediate future. I do not want to speculate. The normal range at the reversion value that we used to refer to not long ago as normal was $20 a barrel. So if you talk about $30 a barrel now as being the normal range, then that is already a serious increase, and I am not even sure of that, or that that really is what the new benchmark will be in the long term. Time will tell.

MR HIDAY: Anything further? If not, thanks for coming. 

DR BUITER: Your data requests will also be honoured. We will get you the FDI data.

MR HIDAY: We do have the official launch tomorrow, if anyone is super-keen to hear even more about the Transition Report. Also, in connection with the Fall of the Wall, there is going to be a photo display tomorrow of the Wall coming down in 1989 and what the Wall looks like today. It is an interesting exhibit.

Otherwise, one last plea to mind the embargo, and thanks for coming.