The Economic Outlook for Eurasia: From Transition to Sustained Growth and Integration?

Introduction

15 years have passed since the start of the transition from Communism to democracy and market economics in the countries of the former Soviet Empire. Looking back, it seems like a short time span that has brought many and major changes to the region. One profound change was that as the Soviet Union and its political and economic empire disintegrated the divide which had stretched across Europe and through Turkey into South-Western Asia also disappeared. This permitted an old, long forgotten geographic concept — "Eurasia" — to gain new currency and meaning with profound economic and political significance. The peaceful and prosperous integration of the countries and economies of Eurasia is now a real hope after many decades of forced separation which had followed on many centuries of uneven economic and social development punctured by painful wars spilling across countries and continents.

The purpose of this paper is briefly to take stock of the economic outlook of the Eurasia region, with a special focus on the Former Soviet Union, Turkey, as well as Central and South Eastern Europe. These countries represent the part of Eurasia that was left behind in the spurt to prosperity and democracy which benefited Western Europe, North America and Japan during much of the 20th Century. The isolation and misdirected economic management under Communism and, in the case of Turkey, the legacy of the failed Ottoman Empire and the incomplete modernization and transition of the country under Ataturk and his successors had caused these countries to fall behind their Western neighbors. The question is now whether these countries have firmly embarked on a path towards sustained economic growth after a process of painful transition following the collapse of the Soviet Empire and the reintegration of economic space in Eurasia.

The short answer to this question is that after nearly a decade of economic collapse and social stress, there are now overall good prospects for this region and its population of about 500 million. It recently has been one of the most dynamic regions of the world in terms of economic growth with an average annual per capita income growth rate of about 4-5% over the last four years, even as recession gripped much of the rest of the world. Prospects for continued economic growth in the region remain also strong. At the same time, with a few unfortunate exceptions, there is now peace in the region. And democracy, while still a work in progress in many countries, has perhaps a greater chance to succeed in the long term than ever before. One of the main drivers of this positive development has been the great pull exerted by the European Union, with its prospects of enlargement for many Eurasian countries now much enhanced. And even for those that cannot or do not aspire to membership in the EU, the example of EU institutional and political development and many of the European, transatlantic and global institutions (the OSCE, the Council of Europe, NATO, WTO, the Bretton Woods Institutions, etc.) exert a strong pull on the countries in the Region for economic and institutional modernization, integration and peaceful democratic development.

Of course, there are many challenges and risks which the countries in Eurasia face in bringing about a prosperous, peaceful future. Since the region is highly heterogeneous, and hence since the opportunities and challenges vary significantly across countries, it is best to look briefly at individual countries and sub-regions to get a better sense of what is the outlook one-by-one and then assemble the pieces of the puzzle into one big picture.