Syndicate: financial report

["lisa haskel" <lisa@lisa.demon.co.uk>]

Following is from the Financial Times last week. Not exactly a 
conspiracy theory, but perhaps a version of reality that could help 
fuel some.

Meanwhile I have heard murmurings that a large private US cultural 
foundation is in talks with the world bank about future 
collaboration.

Greetings from London,

Lisa

__________



ECONOMICS: Shadow falls over region

Investor confidence has been seriously eroded, write Stefan Wagstyl,
Kerin Hope and Arkady Ostrovsky

>From the spas of Slovenia to Bulgaria's beaches, the Kosovo conflict
is casting a shadow across the economies of the Balkans.

Outside Yugoslavia, the most serious economic disruption is occurring
closest to Kosovo, in Albania and Macedonia, which together have been
flooded by nearly 500,000 refugees.

Bulgaria is also suffering badly, mainly from the closure of direct
transport routes through Serbia to the rest of Europe.

Across the region, tourist companies report cancellations. Bankers
warn of a likely decline in foreign investment, an increase in
borrowing costs, and difficulties for governments with privatisation
programmes.

"A number of neighbouring countries are already being quite severely
affected," says Nicholas Stern, chief economist at the European Bank
for Reconstruction and Development. Muravey Radev, the Bulgarian
finance minister, put it more bluntly. "Investors' confidence has gone
and there might be quite a time lag before it is restored."

Beyond the Balkans, the war's impact is slight. Last year's Russian
crisis had already blown away the economic froth from the region. Both
in central Europe and in the former Soviet Union, economic ties with
the Balkans are limited. As Leszek Balcerowicz, the Polish finance
minister, says: "We have few economic ties with the former
Yugoslavia."

Within the Balkans, the damage is difficult to quantify but could be
of the order of 1 per cent of gross domestic product for Bulgaria,
Bosnia and Croatia, assuming the conflict lasts to the end of the
year. For Albania and Macedonia, the negative effect of disruption is
offset, at least partially, by economic activity generated by the
refugees. Albania's 3m population has been swollen by 15 per cent. The
estimated $800m cost of caring for the refugees until the end of the
year - to be met mostly by foreign aid - amounts to almost a quarter
of GDP. The figures for Macedonia are smaller but still sizeable.

However, this extra demand could do as much harm as good by distorting
the economy, for example, by driving up prices for some services such
as road transport. Meanwhile, normal business is being depressed by
uncertainty. Banks say hard currency is running short as Albanians
transfer holdings overseas. Macedonian bankers report a similar rush
for the door.

Manufacturing in Macedonia is particularly badly hit as it was closely
tied to Serbia, which accounted, for example, for 65 per cent of
output in metal processing.


Agricultural exporters are also suffering. Producers in Macedonia and
Bulgaria are hard hit by the closure of roads through Serbia, which
forces drivers to take a long detour through Romania. Gjorgi Icevski,
a Macedonian vegetable exporter, said: "The cost of shipping a truck
load of early tomatoes has doubled and quality's suffering because of
the longer journey time." His produce travels through Bulgaria and
Romania, where the waiting time at the only bridge across the Danube
is seven days.

Macedonia sent 65 per cent of exports to Serbia or via Serbia to more
distant European markets. For Bulgaria, the figure was 50 per cent.
Air is an expensive alternative, possible only for high-value goods.
Alexander Bozhkov, Bulgarian deputy prime minister, says the country
is losing up to $1.5m a day in exports, or about 10 per cent of the
total.

The Danube river route is impassable, blocked by the wreckage of
bridges bombed by Nato. The closure particularly affects Romania,
which has a substantial heavy industry producing metals, chemicals and
other bulk goods. "Exports to western Europe will be seriously
affected," says Panagis Vourloumis, chairman of Banca Bucuresti, a
Greek-controlled Romanian bank.

North of the war zone, the war's biggest effect is on tourism. Marko
Skreb, Croatian central bank governor, estimates the drop in tourist
revenue could cost 1 per cent of GDP. Western European tour operators
report cancellations along the Adriatic coast, and in the Slovenian
mountains. First Choice, the UK travel company, says Slovenian
bookings have "virtually ground to a halt".

Bulgarian operators are more optimistic. "People are calling and
asking lots of questions. But Bulgaria is clearly a much safer place
just now than the Adriatic coast," says Boyan Manev, managing director
of Bulgaria-based Sunshine Tours.

Foreign investment programmes are being hit. Bulgaria, which is in the
midst of widely praised economic reforms, is bracing itself for a
sharp drop. Mr Bozhkov estimates direct investment could be less than
half the $1bn planned for 1999. Negotiations on the sale of a 51 per
cent stake in BTC, the state telecoms operator, to KPN of the
Netherlands and Greece's Ote, are back on track after a slowdown of
several weeks. But an Ote official said: "The deal is running behind
schedule, and the war doesn't make for a comfortable negotiating
situation."

Bosnia is already seeing delays to post-war reconstruction projects as
key western officials postpone visits. Like Bulgaria and Croatia,
Bosnia has an ambitious privatisation programme in which foreign
investors were expected to play a key role.

In Croatia, where the government is hoping to secure up to $1bn for 25
per cent of Hrvatske Telekomunikacije, the telecoms utility, advisers
say the Kosovo war could affect pricing.

The only relief in external financing is that the International
Monetary Fund and other multilateral agencies have pledged to look
sympathetically at crisis-induced pleas for help. They also seem to be
treating "normal" requests more favourably. Last week, Romania secured
agreement in principle for a much-delayed $500m standy credit.

Longer term, companies in the Balkans can look forward to
internationally financed reconstruction, running into billions of
dollars. Europe's poorest corner could the secure the capital it
desperately needs. But, with the bombers still overhead, that prospect
seems a long way off. 
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