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Economic crisis threatens young democracies

By Thalif Deen, IPS,  Asia Times, 3 August 1999

UNITED NATIONS - The political stability of the new democracies in former Soviet republics and elsewhere in Central Asia and eastern Europe is being threatened by widespread poverty, rising unemployment and declining growth rates, according to the UN Development Program (UNDP).

Ten years after the fall of the Berlin Wall, the gains in political democracy in the region are significant, but they remain vulnerable to reversal, the UNDP warns in a new study released Monday.

The 113-page Human Development Report, which focuses on Russia, Slovenia and Georgia, Kyrgyzstan, Kazakstan, and other Eastern European and former Soviet nations, says that, despite the many political advances after the end of the Cold War, the losses in human security have been severe.

There is an urgent need to focus on the social fall-out and inequalities that the transition has brought if we want to see the countries-in-transition turn into a success in the 21st century, noted Anton Kruiderink, director of UNDP's Regional Bureau for Europe and the Commonwealth of Independent States (CIS).

Titled Transition 1999, the study points out that gains in freedom have been accompanied by the loss of many of the basic economic and social rights that the population had come to enjoy and expect over the course of the decades.

Millions of people in the region are unemployed or underemployed. Huge number of workers have been driven into low-paying and insecure employment of the informal sector, the study stated.

Moreover, says the report, even those still formally employed are not guaranteed the payment of their wages. Average cash incomes have plummeted and many non-cash benefits, such as subsidies for consumption staples, have disappeared or been radically diminished, the UNDP report acknowledged.

During 1990-1997, in the Russian Federation alone, gross domestic product (GDP) shrank by 41 percent, industrial output by 38 percent and capital investment by 75 percent. By 1998, foreign debt was about 30 percent of GDP, while capital flight during 1991-1998 stood at a hefty $150 billion. In Tajikistan, about 80 percent of the population are poor and real wages are about 44 percent of the wages in 1990.

In 1989, about 14 million people in the former Communist bloc lived on less than $4 a day. By mid-1990s, that number had risen to about 147 million, the World Bank said.

The UNDP study says that the political transition from authoritarianism to multi-party democracy has literally been lethal for a great many people.

Most strikingly, the biggest single cost to struggling countries has been the loss of lives among young and middle-aged men. This is reflected in an abnormally low ratio of men to women in the total population.

According to the study, there are nearly 5.9 million missing men in the Russian Federation alone, another 2.6 million in Ukraine. The total for the entire former Soviet bloc is nearly 9.7 million people. The causes are multiple and complex, including rising suicide rates, declining life expectancy, health care, and an increase in self-destructive behavior, the study noted.

Recorded drug crimes increased fivefold in Russia between 1991 and 1996. Many diseases which could be contained by standard immunization programs - including tuberculosis, polio and anemia - are re-emerging as a result of a crisis in the health care systems in most of the countries.

Also dangerously tipping the balance in many nations is the huge increase in corruption. The study notes that corruption has become a customary means of carrying out political and economic transactions. And the black market has become the only source of income for many of the region's unemployed.

Currently, the underground shadow economy makes up 25 percent of the GDP in Russia and as much as 40 percent in Yugoslavia, Armenia and the former Yugoslav Republic of Macedonia. But the report admits that a shadow economy is better than no economy at all.

On the positive side, the report says that hyperinflation has been eliminated entirely, with only five countries having an inflation rate in excess of 50 percent. And despite increses in inequality, some of the countries in the region remain among the most egalitarian in the world.

In some of the countries, the report says, the share of public spending allocated to the social sectors has been maintained and sometimes slightly increased, indicating that many governments have tried as much as they could to protect social spending when their countries collapsed.

In pursuit of uniform economic policies to achieve more efficient allocation of resources, free market mechanisms are vital, but so are mechanisms for social equity, said Kruiderink. Reforms to build thriving, sustainable market economies will only succeed if built on successful investments in people.