How many economists does it take to secure the recovery?

By Axel  Reiserer

The aftermath of the global financial crisis and the lessons to be learned remain at the centre of attention for participants of the 2011 EBRD Annual Meeting. On opening the first panel discussion of this year’s Business Forum on “Securing the Recovery: Economic Reform after the Crisis”, Chief Economist Erik Berglöf, said in regards to the EBRD region: “Growth is back, but it remains fragile and it is impossible to know what really to expect.” 


Outlining the conclusions Kazakhstan had drawn from the crisis, Prime Minister Karim Massimov underlined his government’s determination to lessen the country’s dependency on natural resources. “We need to broaden the sources of growth, we must move towards value-added production and we must improve the business environment,” he said. He underlined that “securing the recovery is not a foregone conclusion, but needs a vigorous response by policy-makers.”

For the future development of Kazakhstan, Mr Massimov particularly emphasised the importance of what he called “green growth.” He acknowledged that “some times there is serious pressure from industry” to soften environmental protection but: “If the ecology is damaged, the economy cannot prosper.”

This view was shared by Russia’s Deputy Minister of Finance, Sergey Storchak, who announced that Russia expects annual growth of 4.5 per cent until 2015 and expects to boost its GDP from US$ 1.5 trillion today to US$ 2.3 trillion by the end of the same period. While expanding the size of the economy, Russia also sees its budget deficit being reduced to zero in four years, Mr Storchak added.

To secure the recovery he named five priorities identified by the Russian authorities: improving the investment climate, supporting innovation, creating a more open economy, modernisation of the financial sector and making Russia part of the international division of labour. “We are facing a unique moment in the history of the Russian Federation and there is no way we will stay away from globalisation.”

While most countries of the EBRD region were hit hard by the global crisis, Poland remained the only country of this group which, despite a fall in output, avoided the slump into recession. For the country, an EU member since 2004, the key future challenge will be the adoption of the euro. The position of the country towards the single European currency has undergone substantial changes as the impacts of the crisis unfolded, said central bank governor Marek Belka.

However, Mr Belka also added: “It is a non-option for a country like Poland not to join the euro. The costs for the economy would be too high and who wants to continue with the convergence process must be inside the currency union.” But before this can and will happen substantial (home)work remains to be done – on both sides, according to Mr Belka: “The eurozone has to become attractive again.” Asked by Mr Berglöf when Poland could join the single currency, Mr Belka responded: “I am not going to speculate, but I hope strengthening the eurozone will happen faster than Poland’s fiscal consolidation. And we will be quick.”

At the other end of the spectrum China clearly emerged as a winner from the global financial crisis. Not only was the country able to continue its rapid economic expansion, China also won recognition as a key global economic power. Zhang Tao, director for international relations at the People’s Bank of China, explains how his country withstood the crisis: “Our response was firm and timely and our first lesson is: timing is of the essence. Thus our stimulus programme was effective before the big shock hit the world in the second half of 2008.”

Mr Zhang not only impressed the audience with China’s performance, he also took some by surprise when he answered a question about his country’s future relationship with the EBRD by saying: “We want to be a member of the EBRD. China has changed hugely over the past 30 years. Today the EU is about to become our largest trade partner. As we become a more open, more democratic and more integrated society, the EBRD experience would be beneficial for us and vice versa.”

Summarising the discussion, Chief Economist Berglöf said: “Although the experiences are different, there is a common thread. One of the key challenges is strengthening the financial sector and repairing public and private balance sheets.” As opposed to the joke “How many economists are needed to change a light bulb? – “One to prepare the proposal, an econometrician to run the model, an MS and a PhD student to write the theses and dissertations, two more to prepare the journal article (senior authorship not assigned), four to review it, and at least as many to refine the model and replicate the results”, for once on this there was complete consensus among all panellists.