Good news for world economy

To economists, the world economy is crying, "Surprise! surprise!"

Pleasingly, most of the economic surprises are welcome, notes the Bank for International Settlements (BIS), an odd institution in Basel, Switzerland, that serves as a kind of central bank for central bankers.

One of the biggest surprises is Russia. In its annual report that came out Monday, the BIS notes that Russia has snapped back from its mid-1998 crisis more quickly than "had been generally expected."

The rebound from East Asia's financial crisis of 1997-98 also has been "much stronger than generally expected," the BIS notes.

After several years of economic tumult, the world economy does look better.

Horst Khler, the new German managing director of the International Monetary Fund (IMF), talks of a "particularly noteworthy" rebound in the emerging market economies and "quite favorable" conditions in the world economy.

Among the Russian surprises is the fact that gross domestic product rose at a fast 7 percent rate in the last half of 1999 and first quarter of this year, slowing a bit in April.

"This is to some extent a bouncing-off-the-bottom phenomena," says Ben Slay, an economist with PlanEcon Inc., a Washington consulting group reporting on the economies of Central Europe and Russia. "It is not clear the economy will keep growing."

But Russia could just as well forge ahead. The Russian economy is already basically capitalist; though, as Mr. Slay says, one that "has not been functioning well." There are signs of growing free enterprise vitality.

Russia certainly remains a long, long way from "burying" the US economy, as Nikita Krushchev threatened years ago.

Fresh from a visit to Moscow, President Clinton has no reason to fear Russian economic might. Russia's 150 million people have about the same output in dollar terms as the Netherlands. So he mostly talked with Russia's young and active president, Vladimir Putin, about the US goal to set up a national missile defense system.

Nonetheless, the economic news that Slay and other analysts see is encouraging.

*About 55.2 million Russians were living in poverty at the start of 1999. By the end of that year, that number had shrunk to 38.5 million, according to the Center for Russian Studies at Harvard University, Cambridge, Mass. But the poor still number more than the 33 million before the economic collapse of Black Monday, Aug. 17, 1998.

*With a devalued ruble and higher oil prices, Russia has its largest trade surpluses on record. Slay says it could reach $35 billion this year. This is a dramatic change from the time of the 1998 crisis when Russia defaulted on billions in debts.

*Like the US, Russia's federal government has a budget surplus. The government has had considerable success in collecting revenues, just as the IMF and other foreign experts had urged.

Tax revenues in the first quarter amounted to 15.5 percent of gross domestic product. Washington collects a larger percentage - 20.4 percent this fiscal year.

Though few citizens love taxes, they are necessary to cover expenses - such as pensions for the elderly. Russia's budget surplus is about the same as that of the US as a proportion of GDP - 1.8 percent.

*The Russian outlook has turned favorable enough to attract some investment capital from abroad. Presidential adviser Andrei Illarionov says $10 billion of foreign money was invested in the first quarter of this year.

Slay suspects much of that money was being returned from abroad by Russians themselves. The second largest source was Cyprus, a refuge for frightened capital.

Russia's economic troubles are far from over. But the economy's troubles could reverse the grim trend toward poor health and high mortality rates for Russians.

That has happened in other countries making the "transition" from communism to free enterprise, notes Slay. Things get worse for most people, and at last they get better as the new system begins to work.

Russia may be next for this good news.

*David R. Francis is senior economic correspondent of the Monitor.

(c) Copyright 2000. The Christian Science Publishing Society

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