A New Curtain Rises Behind Ex-Iron Curtain
Where communism once separated East Europe from the West, an uneven pace of reforms now threatens to divide the region
FIVE years after the fall of the Iron Curtain, a new ''cultural curtain'' is descending on East Europe. Instability and underdevelopment, some financial analysts warn, will now divide tens of millions where ideology divided them in the past.Skip to next paragraph
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On one side, Poland, Hungary, and the Czech Republic could successfully complete the transition to free-market economies and gain entrance to the European Union and NATO.
But Romania, Bulgaria, Albania, Russia, and most former Soviet republics may continue to suffer through years of political instability and economic underdevelopment reminiscent of the third world.
''You can see the [cultural] curtain along the old lines of the Austro-Hungarian empire,'' says Werner Varga, head of East European Research at Creditanstalt Bank in Vienna. ''Those inside it had Western laws and a civil society in place [before World War II] and are reinstating it. It will be much, much slower and much more chaotic for the others.''
But Western observers caution that it is too early to start dividing East Europe between haves and have-nots. Reforms are being carried out by the region's economic tortoises and their cheap wages and abundant resources may allow them to catch up. ''The next five years are absolutely crucial,'' says one Western diplomat based in Romania. ''But I think things are generally optimistic.''
Analyst Varga sees the Baltic states, Poland, the Czech Republic, Slovakia, and Hungary on the developing side of this ''cultural curtain'' and Russia, Belarus, and Ukraine on the struggling side. The former Yugoslavia is split with Slovenia, Croatia, and government-controlled parts of Bosnia integrating with Europe, with Serbia, Montenegro, Macedonia, and the Serb-controlled parts of Bosnia remaining isolated. Romania, Bulgaria, Albania, Moldova, Ukraine, and most other former Soviet republics are also seen as unstable and underdeveloped and will be dominated by former communist leaders and entrenched bureaucracies.
James Lister-Cheese, a financial analyst with London-based Independent Strategy, says that if governments fail to enact reforms soon, such divisions could solidify in investors' minds.
''It's a perception thing. Investor confidence has dissipated very quickly in a post-Mexico world,'' he says, referring to Mexico's recent financial crisis. ''I think investors will be more and more conservative, more prudent, and more risk-avoiding now.''
Both Varga and Mr. Lister-Cheese cite clear foreign investment patterns as proof that a gap already exists between ''rich'' and ''poor'' East Europe. A potential ghetto -- with millions of poor eager to illegally emigrate West -- is forming in Europe's back yard.
According to Varga, of the $6 billion invested in the region last year, 70 to 80 percent of the investment has flown to Poland, the Czech Republic, or Hungary. The remaining $1 to $2 billion is spread among the region's approximately 20 other countries.
Even the total amount of investment in East Europe has been disappointing, according to analysts. Despite the hype that surrounded the fall of the Berlin Wall, East Europe with a population four times that of Mexico -- has received roughly the same amount of foreign investment as that Latin American country. By comparison, China received over $27 billion in investment in 1993.
Foreign investment is the only source of capital for nascent private companies. The danger is not of a Yugoslavia-style war in the region, analysts say, but of falling off investors' maps.
The Romanian model
Romania, with the region's second-largest population after Poland and rich national resources, is in many ways a case study of what has gone wrong and gone right on the wrong side of the ''civil curtain.''
Varga's definition of a ''civil society'' -- a functioning democracy, a middle class, and a legal system supporting property and human rights -- has been slow to evolve here, and foreign investment has been far lower than expected. A total of only $1.2 billion has been invested in Romania since 1989.
''There's been so little investment because of fears of political instability, the bureaucracy, and some obstructionism on the part of the government,'' the Bucharest-based diplomat says. ''Trying to get a telephone installed here without greasing the necessary palms is impossible.''