REGIONAL COOPERATION AND ECONOMIC INTEGRATION

PART I:
and world trade in goods and services is expected to drop 6.1 percent in 2009, with sharper
contraction in trade volumes of manufactured products (World Bank, 2009). Commodity
prices have halved, generating sizable shifts in terms of trade and current account positions,
while rapidly lowering domestic inflation across the world. Large financing gaps on balance
of payments are emerging in number of countries, which are increasingly likely to require
large-scale support from official sources. The crisis is already taking its toll:
a) The rates of growth are becoming negative. The growing integration of the SEE into
the global economy, in spite of the benefits, has also increased the global exposure to
world recession. Europe has been most negatively affected by recent developments, with
an expected 2 percent contraction of GDP in 2009, compared to 4.2 percent growth in 2008
(World Bank, 2009). Slower growth in response to falling demand from the developed
countries in the 2008 and 2009 will effect growth in the SEE. In the foreseeable future
SEE countries will be facing a difficult tasks of having to obtain the same growth rate with
smaller foreign credit infusion, while being based mainly on the domestic resources. That
implies a considerable change in the economic policy.
b) The exports are falling. The structure of exports in the transition region is dominated by a
lower value –added goods and commodities, which may be less sensitive in the conditions of
global slowdown. The adjustment process in the SEE countries will be especially difficult,
because the exports to the EU area are declining, and remittances from the European Union
are falling. Some countries of the region will continue to run excessive current account
deficits combined with higher proportion of domestic debt in foreign currencies. The
balance of payment deficit in some countries of the region demonstrates their weakness by
tighter external financing, lower consumer confidence and declining asset prices. It may be
supportive that in the global crisis SEE will have access to EU pre-accession and structural
funds in the context of adjustment process of EU candidate countries.
c) The levels of FDI in the world are considerably lower. The financial stress should be the
highest among those countries which have been drawing foreign capital for a long time,
in order to provide growth and domestic lending. Some countries which have entered the
global financial crisis with current account deficits in excess of 8 percent of GDP would be
especially vulnerable to a reversal of capital flows.
d) Credits are scarce and the costs of borrowing are and will be much higher.
Conclusion
The world economic crisis poses new challenges to the economic policies of South
Eastern Europe. Stronger mutual ties of SEE countries might alleviate some troubles lying
ahead caused by rising protectionism in the developed countries. Government countries
of the region should create a new economic viable policy to respond to the new global
circumstances.
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