Article Review 1

I. Overview/Summary

The top 10 eastern European countries in the European Union are not projected to bounce
back in 2010, nor in 2011 for that matter. Exports are not attractive, investments are way
down and their credit market has severely plummeted. Latvia, Lithuania and Estonia are
at the bottom of the list, and the Ukraine, in spite of numerous warnings by the IMF, is on
its way to the bottom as well. Of the $100 billion in bailout money that eastern Europe
has needed, the IMF has loaned them $65 billion. The struggle to payback their loans
will be eminent for some time.

II. Opinion/Analysis

Eastern Europe is certainly no stranger to economic crisis. Seemingly, when one war
ends, another begins and the economy plummets yet again. I cannot help but mention the
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inevitable psychological effects to the citizenry of these countries, and the establishment
of hope in the minds of the new generations.

III. Relevance to Financial Management

International Monetary Fund (IMF), international economic organization whose purpose

is to promote international monetary cooperation to facilitate the expansion of
international trade. Contrary to popular belief, it is not a world central bank that exists to
help the economic development of undeveloped countries, nor does it have any authority
over its member’s domestic policies and regulations. It is a mutual establishment with
voluntarily membership, which enables its members to benefit from consultations with
each other. Essentially, this provides a stable environment for exchanging payments
smoothly and quickly.

ARTICLE:

East Europe’s Recovery Faces Downside Risks on Credit (Update1)

By Katya Andrusz and Agnes Lovasz

Oct. 28 (Bloomberg) -- The European Union’s 10 emerging economies may face a weak
recovery as credit growth falters and exports and investment are slow to pick up, the
World Bank said.

“The outlook isn’t that great,” Kaspar Richter, a senior economist at the World Bank,
said an interview in Warsaw. “The recovery will be very modest in 2010 and won’t be
that sizeable the year afterward. Investment has plummeted, so productive capacities
have suffered, and credit growth is now negative across the region.”

Central Europe has been hurt by a sharp drop in exports, a mainstay of most of the
region’s economies, while fiscal austerity measures have crippled domestic demand, said
the World Bank, which contributed $6.6 billion to bailout efforts in the region. The Baltic
states of Latvia, Lithuania and Estonia have suffered the worst decline in the region after
a credit shortage halted a period of prosperity that followed EU accession.

The 10 eastern EU members will probably see their economies grow about 1 percent next
year and 3.6 percent in 2011, after a contraction of 4.2 percent this year, the World Bank
predicts. That compares with growth of 3.9 percent in 2008 and 6 percent in 2007.

‘Downside Risks’
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“The downside risks to the projections are likely to outweigh upside risks, as robust
growth is likely to return only once investment and exports rebound and consumer
confidence is restored,” the World Bank said in a report today. “The upswing in EU-10
exports could be sluggish as households in destination countries reduce their
consumption to cope with tighter budgets, rising unemployment and the need to rebuild
their assets.”

Future growth will probably be lower than in pre-crisis years because capital flows will
take time to recover, according to the report, while export prospects are hindered by
consumers in western destination countries reining in spending as unemployment
increases.

The outlook is worse for countries that had the largest fiscal and current-account
imbalances, fastest inflation and highest capital inflows to their banking systems going
into the crisis, such as the Baltic economies, Bulgaria, Romania and Hungary, the report
said.

IMF Bailouts

The International Monetary Fund needed to step in and finance rescue programs in
Hungary, Latvia and Romania as the countries faced defaults as they struggled to
refinance maturing debt and loans, many of them denominated in foreign currencies. The
IMF has provided about $65 billion of loans to eastern Europe, which required more than
$100 billion in bailout money.

The Baltic countries are contracting between 15 percent and 20 percent this year, the
World Bank said, as their fixed- exchange rate regimes confined them to deep cuts to
wages and prices to bolster competitiveness and rebalance the economy rather than
achieving those goals through a devaluation.

Poland is the only EU member expected to post positive economic growth this year.
Fiscal stimulus measures shored up demand in Poland, while an economic recovery in
neighboring Germany, the biggest buyer of Polish industrial goods, may boost growth
prospects further. The government forecasts the economy will expand 0.9 percent this
year, rising to 1.2 percent in 2010.

Polish Growth

“Poland’s economy will be among the fastest-growing in the region next year,” Richter
said in an Oct. 23 interview. “We’ll see a substantial improvement in the Baltics, with
their economies moving back to positive growth in 2011 -- there’s a chance they will
manage that next year, but that’s not our baseline scenario.”

Growth will also remain subdued by the limited availability of financing as western
banks continue to write down loans and assets, the report said. Even as the grip of the
financial crisis is easing, credit to the private sector is shrinking and the consequences of
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the crisis will be felt for a long time as it damages production capacity, according to the
report.

To boost long-term growth potential governments must focus on structural improvements

to labor markets, education and creating a better business environment, the report said.

Retrieved October 28, 2009 from Bloomberg news:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aBQbBeGWuNME#