Rising fragilities in post-Soviets risk for under-pressure Turkish economy

MUSTAFA SÖNMEZ - mustafasnmz@hotmail.com

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The global crisis-fuelled economic straits being experienced in countries classified as “Eastern Europe and the Commonwealth of Independent States” by the IMF and World Bank, (which includes Turkey), is leading to political outbursts – as has been seen in Ukraine in the most-recent case. It is further feared that Ukraine-like cases will be seen in Balkan countries soon.

The former “People’s Republics” in Eastern Europe and former Yugoslav countries, all of which are referred to as “post-Soviet” countries – apart from Turkey – all experienced problems while returning to capitalism in the 1990s, although some were able to capture a development path due to different reasons.

Only a few of the “post-Soviet” countries - those that became European Union members and the lucky ones that have natural resources - were able to rank among the top countries in terms of national income, according to International Monetary Fund (IMF) data. The remaining ones are still going through remarkable economic problems, in particular insufficient growth and high unemployment. These economic setbacks can cause political outbreaks in these countries.

EU members

The Czech Republic, Slovakia and former Yugoslavian Slovenia, stand out among “former Soviets,” as the annual national income per capita is at around $20,000 in these countries. Lithuania and Latvia, meanwhile, catch the eye as EU member Baltic countries. Russia, which has been seeking to become a world power again with its natural resources, has a much more distinct position with its annual income per capita at $14,000. Kazakhstan also deserves attention as a country managing to remain standing thanks to its natural resources.

Among the latest members of the EU, Croatia, Hungary and Poland, Poland comes to the fore as the only one posting a stable country outlook, as Hungary is undergoing severe economic and political crises. Romania and Bulgaria are also EU members, but they have been badly affected by the global crisis and have also suffered political quakes.

In the meantime, with its $10,000 national income, EU member candidate Turkey ranks 11 among Eastern European countries.

Ukraine’s inability to overcome the 2008 crisis and the recent uprising of the pro-EU part of society have put the region’s future in considerable uncertainty, particularly with the Russian intervention in Crimea.

Bottom ranks

The Commonwealth of Independent States members Kyrgyzstan, Tajikistan, Armenia, Georgia, Turkmenistan and Uzbekistan are the poorest of the group and their national income per capita ranges between $1,000 and $3,000.

Meanwhile in Europe, Albania, Bosnia and Herzegovina, Macedonia, and Serbia also all suffer from chaotic economies and political upside downs.

Turkey affected as well

The economic and political turmoil in Eastern Europe provokes further risk perception for the Turkish economy, which had been already under pressure. The recent value losses seen in the Turkish Lira are partly associated with conditions in Eastern Europe.

The economic panorama in Eastern Europe consolidates the negative perception about Turkey, which is considered as being among those countries.

The recent weakening of the lira and the U.S. dollar’s jumping above the 2.25 level on some days have been linked to the West-Russia tension emerging from the Ukraine-Crimea rift, causing political risks attributed to the country to rise further.

The economic problems that climbed with the 2008-2009 global crisis cannot be overcome in Eastern European countries, most of which are “post-Soviet” countries that went for integration with the European Union and the global economy after the 1990s. The economic fragilities lay the ground for an occurrence of outbreaks resembling the one in Ukraine and some other countries as well.

According to the IMF data, Croatia, which has become the latest problematic Eastern European country to become an EU member, has recorded negative growth for the past three years and the unemployment rate in the country is 16 percent. Still, full EU membership enables Croatia to save its politics from being affected by these problems.

In two EU member candidates, Serbia and Bosnia and Herzegovina, average growth over the past three years is below one percent. The unemployment rate in these two small former Yugoslavia countries is a huge headache at around 25 percent. Moreover, the current account deficits of these countries are very high and the ratios of the current account deficit to growth are around 9 percent.
It’s a similar story for two other EU-member Eastern European countries; while the growth of Romania cannot reach 2 percent, Hungary has not grown for the past three years.

Georgia is another country that has eyes on the EU amid soaring problems. Georgia’s current account deficit to growth is almost 11 percent, while unemployment in the country is approaching 16 percent.
Macedonia, Kosovo, Montenegro and Albania are also small Balkan countries with growing economic problems.

Ukraine, whose current account deficit is similar to Turkey, is in search a way to pull away from both the Commonwealth of Independent States and Russia. All eyes are watching the pro-EU uprising and where it will take the country, and whether Russia will permit that direction.