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The Western Balkans: 15 Years of Economic Transition

Oesterreichische Nationalbank, Otto-Wagner-Platz 3, 1090 Vienna, Austria

March 10, 2015


While the collapse of communism 25 years ago marked the start of the transition to market economics for all Emerging Europe, the economic transformation of the Western Balkans really got going at the turn of the century. Over the last 15 years, the countries of the Western Balkans have undergone a major economic transformation, and many are unrecognizable compared with where they stood at the turn of the century. However, convergence has stalled, and without a courageous reform push, Western Balkan countries cannot expect to attract the scale of investment flows that is needed to finance rapid sustained growth. They risk staying stuck at income levels less than one-third of those of their richer European neighbors.

The International Monetary Fund (IMF), the Joint Vienna Institute (JVI) and the Austrian National Bank (OeNB) are co-hosting this high-level conference to review the region’s achievements and examine the challenges that still lie ahead. Please note that attendance is by invitation only.

March 10, 2015


Welcome remarks

Peter Mooslechner, Executive Director, OeNB


Introductory remarks on the region

Poul Thomsen, Director of the European Department, IMF


Presentation of the IMF book

Presentation by Aasim Husain, Deputy Director of the European Department, IMF


Session 1: Growth, Convergence and Inclusiveness

Presentation by the IMF (Ivanna Vladkova Hollar)

The Western Balkan States (WBS) economies have improved living standards after the dislocations of the 1990s. However, the pace of convergence has been slower than in the New Member States (NMS), and has stalled since the onset of the crisis. What factors have affected the speed of convergence? How important was factor accumulation relative to the growth of total factor productivity? How do these findings compare with those of NMS? What policies should foster growth?

Presentation by the World Bank (Gallina Vincelette)

Has growth in the WBS been inclusive? Did the 2008 global crisis take a bigger toll on poverty in the WBS than in NMS? To what extent are the social insurance systems in the WBS capable of dealing with shocks? How to enhance inclusiveness going forward?

Presentation by the OeNB (Isabella Moder)

To what extent have the business cycles of the Western Balkans economies converged to the business cycle of the Euro area? To what extent are business cycles synchronized within the Western Balkans region? To what degree are demand and supply shocks synchronized? Are cyclical fluctuations in external trade synchronized? To what extent have idiosyncratic macroeconomic policies promoted (or reduced) business cycle convergence? Since the onset of the financial crisis in 2008, has the convergence process halted or even reversed into a decoupling of business cycles?

Roundtable Policy Discussion

Discussants: Avdullah Hoti (Minister of Finance, Kosovo), Maja Ivanović (Special advisor, Montenegro), Prof. Michael Landesmann (Scientific Director, The Vienna Institute for International Economic Studies)

Open Discussion


Coffee Break


Session 2: Macroeconomic and Structural Policies

Presentation by the IMF (Zuzana Murgasova)

What progress in macroeconomic stabilization was achieved over the last 15 years? To what extent were high inflation and large public debt tackled successfully? How fast was external sustainability strengthened? What policy tools were applied? What are the key macro challenges going forward and how should they be addressed?

Presentation by the European Bank for Reconstruction and Development (Peter Sanfey)

What structural challenges has economic transition posed for the WBS? Did the WBS inherit bigger (or different) problems than the NMS at the start of the transition process? How have the WBS progressed in the structural transformation of their economies since 2000?

Presentation by the Joint Vienna Institute (Maksym Ivanyna and Norbert Funke)

How do the WBS compare to peers in implementing structural reforms? How do WBS compare to the average EU country? In which areas are the reform gaps largest? What are reform priorities at the aggregate level? Which reforms are key at a more disaggregated level?

Roundtable Policy Discussion

Discussants: Arben Ahmetaj (Minister of Economic Development, Albania), Dušan Vujović (Minister of Finance, Serbia), Peter Bekx (ECFIN, DIR D, International Economic and Financial Relations)

Open Discussion




Session 3: Financial Sector Development and Stability

Presentation by the IMF (Nadeem Ilahi)

Median credit-to-GDP ratios in the WBS have nearly doubled since 2000. The deposit base has also expanded rapidly. Have financial access and efficiency also expanded as fast? Have the WBS been successful at maintaining financial stability? How did the credit boom and bust in the WBS compare to that of the NMS? How was this affected by a different starting point, or pursuit of different policies? What explains the rapid recent run up in NPLs? To what extent does it indicate financial instability, and how should it be addressed?

Presentation by the World Bank (Johanna Jaeger)

Has financial inclusion matched financial deepening? What are the factors constraining access to finance for enterprises, in particular SMEs? What role does the availability of external financing sources play for firms’ growth possibilities? How have SMEs been affected by the credit crunch since the crisis and what policies have been used to enhance access to finance for enterprises?

Presentation by the OeNB (Elisabeth Beckmann)

How did demand and supply of foreign currency loans evolve over time in WBS? How does this compare to CESEE EU Member States? How are households’ preferences for foreign currency loans related to individual expectations about inflation and the exchange rate? To what extent is foreign currency borrowing a legacy of past financial crises and historically high ratios of deposit substitution? Does foreign currency borrowing explain high and increasing NPLs of households in WBS?

Roundtable Policy Discussion

Discussants: Dimitar Bogov (Governor, National Bank of the Republic of Macedonia), Boštjan Jazbec (Governor, Bank of Slovenia), Francisco Ramon-Ballester, ECB

Open Discussion


Coffee Break


High Level Panel Discussion – Policy Challenges and Solutions Ahead

Božidar Đelić (Managing Director, Lazard)
Ewald Nowotny (Governor, OeNB)
Jeffrey Sachs (Director, Earth Institute, Columbia University)
Zoran Stavreski (Minister of Finance, FYR Macedonia)
Boris Vujčić (Governor, Croatian National Bank)


Closing Remarks