Despite the different rhythms in the economic development of countries in the Black Sea Area, the challenges concerning the economic growth or drop are the same for each country. Among these challenges, the economic and financial downturn has deeply affected the entire area and no country has escaped. Currently, the Black Sea Area doesn’t have an integrated economy that will permit shaping common tendencies in economic development. Under the circumstances, a problem raised is the fact that the region is not homogenous as it includes different types of economies, such as those of the EU Member States (Bulgaria, Greece, and Romania), post-communist non-EU Member States and Turkey, in negotiation for EU accession. The key challenge for post-communist non-EU Member States is to certain general European economic standards and to improve their economic growth rates. Thus, economic consolidation should be the outcome of market-oriented reform implementation.
These are several aspects that the International Centre for Black Sea Studies (ICBSS) mentions and the foundation of the analysis “Complex Economic Development in the Black Sea Area: the impact of the financial and economic downturn”. The document is aimed to underline the economic development difficulties and to examine the major problems of the sector that affect the countries. The first sign of the financial crisis appeared in the US financial system in 2007. Later on, it expanded towards Western Europe and Japan and included all developed countries and transition economies by the end of 2008. The financial accelerated globalisation has spread the crisis globally. The crisis evolution can be simply described through a chain which included all areas of activity: it started with a credit crunch which generated the banking crisis which affected the industrial sector. The financial crisis is also known as a demand crisis. These are the roots of the financial and economic downturn which caused economic difficulties for the countries in the Black Sea Area.
Bulgaria…pulls through
As many other countries, Bulgaria was optimistic in 2008 thinking the global crisis will not plunge the economy into chaos. Things were a little bit different: the economic crisis has strongly hit Bulgaria. While the 2008 GDP increased by 6% (compared to 2007), in the first three quarters of 2009 the Bulgarian GDP dropped by 4.7%, the annual inflation was 7.8% in 2008 and 0.6% in 2009. 95% of the Bulgarian companies recorded drops in sales in 2009 and the industrial sector was seriously hit. In 2008, the gross added value increased by 3%, compared to 2007, while in the first nine months of 2009 it dropped by 8.3% compared to 2008. In the first 3 quarters of 2009, total incomes of the first five largest companies (activating in the chemical industry) dropped by 4.2%. During the economic crisis, there has been a clear tendency of financing different types of business from the state budget, but this tendency has been more justified as a populist trend than a sustainable economic measure. However, in July 2009, the economy was pushed forward by facilitating financings. The measures implemented and the challenges imposed by the financial crisis have determined Bulgaria to be one of the countries which cope with the current economic situation.
Romanian economy in trouble
Like Bulgaria, Romania became EU member in 2007. Consequently, the Romanian economy has not been fully integrated on the EU market when the international crisis hit Europe. With a significant foreign capital (90% of the banking system works on foreign capital), the first signs of the crisis’ negative impact appeared in the autumn of 2008. This was mainly due to the financial difficulties of foreign companies. The economic problems became obvious in 2009, when the industrial sector dropped by 7.7%. In 2008, the GDP had dropped by 7.1% compared to 2007, while in the first three quarters of 2009 the drop went to 7.4%. Moreover, the annual inflation rate stagnated to 6.3% (2008), while in the first seven months of 2009 the inflation went to 4.7%. Significant problems were noticed in the mining industry and the extractive industry where production dropped by 10.9% in November 2009. The heavy industry was also seriously damaged with drastic drops in production. However, the overall industrial production increased by 4.4%. Given the current crisis situation, seven out of ten SMEs have financial problems, more than 15% of them being on the verge of bankruptcy.
Currently, Romania has serious problems. The Government decided to cut budget salaries by 25% to reach the 6.8% GDP deficit in 2010. However, the IMF believes that “the Romanian Government was recommended to increase the VAT, the single interest share and to introduce the progressive interest in order to cope with the economic downturn”, the chief of the IMF mission for Romania Jeffrey Franks declared in May 2010.
For Russia, “the recession…has come to an end”
After the financial crisis in August 1998, the Russian economy has taken an impressive turn. In the past ten years, foreign investors have become more and more interested in the Russian economy. Also, considering the global growth in oil prices, the country’s international reserves have reached nearly USD 600 Billion, leaving behind China and Japan. Russia has begun to feel the impact of the financial crisis in the summer of 2008. The situation was the result of the fact that almost half the Russian stock exchange assets came from foreign investors (including a significant number of Americans) who began to withdraw capital which resulted in a significant drop in price security. Moreover, the tariff drop on the international market of oil, gas and metal caused the drop of the GDP rate.
In regards to the situation of companies, many have managed to escape debts, even during the crisis, without governmental aid. This determined the government to elaborate an anti-crisis programme at large scale. The programme aimed to support the economy by using a significant package to stimulate the fiscal sector.
The Russian anti-crisis policy aims at increasing financial liquidities, providing social support and supporting leader-companies. In addition, the government granted guarantees for bank credits and direct financing to large companies. It also elaborated a list of 300 large companies which receive budget aid and financing from national banks.
“The situation was quite complicate. The recession in our economy has ended and we will also have favourable conditions to go on”, the Russian Prime Minister Vladimir Putin declared adding that the government has spent USD 100 Billion to overcome the crisis.
Turkey: the SMEs are priorities
The impact of the international financial crisis on the Turkish economy was obvious even since the first months of 2008, when the GDP dropped by 6.5%. In 2009, the situation got worse and the GDP dropped by 8.4%. The annual inflation rate reached 10.4% (2008) and 5.9% in 2009. Turkey’s industrial production has significantly dropped, especially because of lower demand on international markets. The authorities would have expected to a drop in production by up to 9.8%. The banking system, however, adapted to crisis following reform measures, which enabled the consolidation of the banking system. The Government’s anti-crisis programme focused on a great implication in the economic sector. In March 2009, the Government issued the USD 3.2 Billion package which went to reducing interest rates. The Government divides the country’s territory in four according to the level of economic development (the first category is the most developed and the fourth the poorest). Consequently, the 20% profit interest was cut by half for the most developed region, while for regions 2, 3 and 4, the profit interest was reduced to 8%, 4% and 2% respectively.
The Government also supports the energy sector, the automotive industry and mining by granting funds for these sectors. Turkey has developed a series of initiatives such as granting credits for undertakings, especially to the SMEs, to strengthen the country’s economy during crisis. The Government also plans to maintain this policy for 2010-2012, when the Treasury is expected to allocate the guarantee for the SMEs to expand the credit system and to satisfy the SMEs financing needs. The Turkish Government permits the restructuration of unpaid interests to reduce the effects of the crisis on the social and economic sector.
by Pamela Luică
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