U.S. Department of the Treasury

(Archived Content)

FROM THE OFFICE OF PUBLIC AFFAIRS

I am very happy to be here. As a member of the OPIC Board and as co-chair, along with Under Secretary of State Al Larson, of the government's Interagency Steering Group on Southeast European Economic Strategy, I have a deep interest in the rebuilding of the region and the continued progress, both political and economic, of all its countries.

This is a signal day for OPIC, and a testament to the sterling leadership of George Munoz. With the completion of this important agreement, it has fulfilled all of the assignments it was given by President Clinton after the Sarajevo Conference a year ago, including providing over $200 million in credit and insurance for projects ranging from power plants to agribusiness installations. And OPIC is very fortunate to have, as its partner in this enterprise, someone with the financial acumen, the dedication to democracy and the commitment to the economic empowerment of the individual that George Soros has exhibited. This is a strong combination. We expect great things from it, and we wish you well as you proceed with your work.

The twelve months since Sarajevo have been a period of relative peace and busy reconstruction for the Balkan countries. The region has recovered in large measure from the ravages of war. According to the IMF, generally prudent macroeconomic management in most countries has provided a stable environment in which economic growth should rebound quite strongly in 2000, perhaps by as much as 3.5%. This is due in no small measure to the fortitude of the people and the generosity of the international community, which has pledged over $6 billion to the full array of postwar assistance programs in this year alone. The region can now get on with the work of economic stabilization and structural reform that war interrupted. Its goal now, as it was then, is to be able to enter fully into the European and the global economic mainstream with all the benefits that accomplishment will bring.

A central prerequisite to this is the establishment of a climate conducive to increased investment. The launching of this fund today is a challenge to each of the countries of the region. This fund is not a charitable enterprise. It is a business proposition. Its resources will only flow if there are good investments to attract them: companies that can make a fair profit, and legal and regulatory structures in which those who are taking investment risks can feel confident.

Since signing on to the Investment Compact last February, the countries of the region have taken the first steps to create this climate. Among the specific steps pledged were:

• Fair and equitable treatment of domestic and foreign investors, both in policy and in practice;
• Reducing the barriers to starting-up and registering businesses;
• Combating corruption among public officials;
• Developing and applying modern and internationally accepted accounting standards;
• Improving corporate governance;
• Overcoming administrative roadblocks to investment;
• Adopting international norms for business taxation; and
• Encouraging strong and well-regulated financial sectors and capital markets.

Broad structural reform is never easy. Enlightened leadership, with political skills and popular support, is necessary to deal with the dislocations that often arise. Nations that are being asked to give up existing customs and established ways of working, often at some pain, need to be assured that the resources their countries are getting now are only a small fraction of the amounts that will be invested once structural reform takes place. If they have doubts, they have only to look to the north. The nations of Central Europe have made substantial progress in accomplishing the same transition from command economies to the free market. They are now solidly on the path that leads to convergence of their structures and economic performance with those of their West European counterparts. In the last decade, these nations' commitment to liberalization and reform has dramatically expanded the productive potential of their economies, improved the standard of living of their citizens, and attracted high levels of foreign investment. Poland, Hungary and the Czech Republic have, collectively, received more than $50 billion in net foreign direct investment since 1989. That path is open to Southeastern Europe as well.

It is truly encouraging to see the progress that has already been made along that path. The year since Sarajevo has seen significant improvement in the general economic situation in the region, as well as progress on specific reforms of the business environment:

• All the countries in the region have convened Country Economic Teams and have developed specific work plans and timelines for investment climate improvement
• Romania is making significant progress in restructuring its banking sector by closing down Bancorex, the largest state-owned bank, and allowing foreign participation. Its government is also in the final stages of privatizing Banca Agricola, the remaining largest state-owned bank.
• Macedonia has opened a one-stop shop for registering foreign companies, passed a revised Bankruptcy Law (including setting up a central registry of bankruptcies), brought strategic foreign investors into their insurance sector, and amended its accounting rules to move towards international standards.
• Bulgaria has also made very significant progress on privatization, streamlined business licensing and registration, and substantially liberalized foreign exchange operations.

Investment from abroad is a powerful stimulant to growth and prosperity-not just in terms of mobilizing resources, but because of the expertise and new technology that often comes with it. And the same structural reforms that stimulate foreign investment can also catalyze domestic investment, which is an even more powerful tool of growth because all of its benefits remain at home and feed back into building the economy. Thus, reform of the investment climate is not simply a concession made to attract outside funds, or fulfillment of a condition imposed from abroad. It its fullest sense, it is the key that can unlock the full growth potential of an economy.

We are very hopeful that with the assistance of the world community, the nations of South Eastern Europe will be able to accomplish something they have never done before: rise above religious and ethnic differences and join hands in bringing themselves into the world economy. These nations are ripe for modernization and progress, if they can show the will to work with the world community on restructuring their economies, and if we in turn can furnish the resources they need for reform as well as reconstruction. The fund that is getting its start here today will serve as a catalyst. resources we are making available through it can and will multiply, if the countries of the region take up the challenge. Progress and stability require no more. The people of the region deserve no less.