Events

The Impact of Global Crisis on Transition Countries With Special Regard to the Western Balkans

November 17, 2009 // 11:00am12:00pm

While the economic crisis that began in 2008 has had a global reach, the pain of the crisis has been disproportionately felt in the postcommunist transition countries generally, and in the Western Balkans in particular. Former WWICS public policy scholar Franjo Stiblar offered the simple explanation that poor countries, with their higher income inequality and high unemployment, are fated to feel the effects of the economic crisis more strongly. In addition to being relatively poor, the countries of the Western Balkans were particularly vulnerable to the crisis due to extremely high external debt to GDP ratios and high foreign currency reserves. Their economic performance also contributed to the countries' vulnerability to the crisis, since as Stiblar indicated, the region performs elastically in reaction to the global market, such that a global downturn spurred an even deeper downturn in the Western Balkans.

Stiblar laid much of the blame for the extent of the crisis in the postcommunist region on the growth model that these countries followed, which created huge current account deficits. The idea, Stiblar explained, was that governments would use deficit spending to purchase machinery and other goods that were necessary to increase domestic productivity. These deficits were meant to be covered by revenues from privatization as well as from exports and foreign direct investment. Because this model made transition countries dependent upon financial flows from abroad, once the crisis hit and capital flows froze, there were no foreign funds available to support these deficits and markets collapsed.

The so-called "misery index" (inflation + unemployment rates) are clearly much higher in the Western Balkans than in neighboring countries, especially those that are EU member states. Even in this period of early recovery, unemployment and government indebtedness are increasing in the region, and most of the countries continue to experience negative growth. The G-20 meeting has opened the door for more IMF loans to these countries, but the stigma associated with taking these loans may undermine the ability of these countries to garner foreign investment necessary for the recovery.

Vesna Copic described the impact on the severe economic downturn in terms of the cultural sphere, which is widely seen as particularly vulnerable to economic fluctuations. Culture, Copic explained, has always been an important sphere in communist countries, since the state sought to be its owner, ruler and censor of culture. Communists saw culture as part of the political apparatus, since it created the window dressing that extolled the regimes goals and achievements. At the same time, the cultural sphere served as a "free space" in which dissidents could operate and criticize the system. For all of these reasons, it was important to watch the transformation of the cultural sphere in the postcommunist period.

Despite the importance of the cultural sector, Copic's research reveals that in general, state cultural institutions have not been touched by the remarkable reforms that have swept through government bureaucracies since the end of communism. The system that was inherited by the new democracies has remained largely intact, and the paradox is that while the cultural elites of the old guard have maintained power, the cultural sphere as a whole has been socially and politically marginalized. Consequently libraries, schools, cinemas and cultural centers have been shut down throughout the region, not only for the lack of funding available but also because of the lack of integration between these cultural institutions and the societies in which they are based.

In the already neglected cultural sphere, the impact of the financial crisis represents yet another external pressure. Given the sharp reduction in public spending, culture is now viewed as a luxury rather than a social good. Copic predicted that this period might have the effect that "shock therapy" had on prices in the early transition period: as painful as it might be to endure this current period, perhaps societies will now be motivated to invest in reforming cultural institutions and their relationship to the state in order to better preserve the things that they hold most dear.

Drafted by Nida Gelazis, Program Associate, East European Studies.

 
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