Can Eastern Europe “sweat” it?
Interesting to see that Poland wants to squeeze out more income from its state-owned enterprise (SOE) sector in the face of slowing economic growth and financing pressures.
Warsaw wants to double next year’s dividends from stakes in firms ranging from copper mines to utility providers to banks.
Fellow euro zone aspirant Lithuania has also embarked on reforms aimed at increasing dividends sixfold from what UBS has dubbed “the forgotten side of the government balance sheet”. It wants to emulate countries such as Sweden and Singapore where such companies are managed at arm’s length from the state and run along strict corporate standards to consistently grow profits.
The impetus isn’t entirely ideological. Poland and Lithuania are desperately trying to balance their books and under European Commission rules, privatisation proceeds cannot be taken into account when calculating the budget deficit but SOE dividends can.
But “sweating” government assets to yield higher profits doesn’t always come easy for central and eastern Europe. After all, this is a region where state ownership has been synonymous with inefficiency and stagnation.
Even so, the track record of emerging European governments on privatisation is mixed.
The haste at which state resources were sold off following the collapse of the Soviet Union had disastrous repercussions for economies such as Russia and Croatia. Recent efforts at state divestment from Poland to the Czech Republic to Romania have run aground on unrealistic price expectations, corruption or regulatory obstruction.
Zeitgeist check
Some more bits and bobs to capture the current mood among investors.
– So far, 2009 is worse than 2008 for stock investors. MSCI‘s main world index is down around 17 percent in January and February. A year ago, it had lost around 8 percent.
– Eastern and central Europe are the new worries because of bank exposure to troubled economies. ”The travails in the east, like the vampires of folklore, are sucking the lifeblood from European markets and investor sentiment,” State Street suggests.
– Cross-border flows into the euro zone hit record lows in February, the same firm says.
– Denmark and Sweden join the gloomy gang. Year-on-year Swedish GDP lost 4.9 percent in Q4 2008 and Denmark’s was down 3.9 percent.
– We have just had the worst month ever for global corporate earnings revisions, according to Societe Generale number maestro Andrew Lapthorne. “Earnings estimates for 2009 saw a 14 percent cut last month, a rate of downgrades twice that seen during the worst moments of the early 1990s recession,” he says.
