EBRD reassesses role state can play in supporting reform process in emerging Europe

The EBRD is reassessing the role of the state in supporting reforms in emerging Europe as part of a major overhaul of the way it measures the transition process. The moves are aimed at breathing life back into a reform drive that all but stagnated during the global economic crisis and at preparing economies for long-term robust growth. In its Transition report, the EBRD says the Transition Indicators it has used up to now to measure reform put too much emphasis on reducing the role of the state and on encouraging private ownership and market forces wherever possible

“…markets cannot function properly unless there are well-run, effective public institutions in place,” the report says. The new indicators also place a much greater emphasis on progress in reforms in specific sectors, in a move that will make it easier to identify priority areas for reform and to target those industries and services that need to be brought up to speed in a bid to raise standards in line with the most advanced market economies. In reviewing the need to achieve a greater balance between simply reducing the role of the state and boosting the role of the market, the EBRD report draws lessons from previous privatisations and stresses the importance of effective institution building.

“For example, selling off a large state-owned enterprise or utility to private ownership will not necessarily lead to greater efficiency and ultimate benefits to consumers unless there is a regulator in place to enforce rules and ensure fair competition,” the report says. By the same token, rapid growth of lending and the introduction of private banks and new financial products is not necessarily a demonstration of progress if such developments are not matched by institutional safeguards to prevent excessive and imprudent lending.

This year’s Transition Report focuses strongly on the need to learn lessons from the crisis and to implement reforms that will secure long-term sustainable growth in the future and it points out that progress in structural reform over the last year has been limited. “The low number of upgrades and near-absence of downgrades (in transition indicators) suggests that the past year has been generally one of reform stagnation (or slow reform at best) rather than reform reversal,” the report concludes. However, it also notes that even in the most advanced economies of the region, in Central Europe and the Baltic States, where the transition indicators are highest, reform challenges still persist. Hurdles in these countries remain in business start-up bureaucracy, bankruptcy procedures and access to finance, especially in the context of constrained liquidity.

News source: EBRD link: article