Hrvatska, SIE i tržišta u nastajanju:
perspektive, diferencijacija i izbor tečajnog
režima nakon krize?
Boris Vujčić
6. Godišnja skupština HUKR
Novi Vinodolski, 28, rujna 2009.
CEE – Immediate Economic Prospects
Current account
(as % of GDP)
Real GDP growth rate, annual
Inflation, consumer prices
(annual percentage change)
Country forecasts
Eurostat
Consensus
IMF
IMF
Consensus
IMF
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
Bulgaria
-1,6
-0,1
-4,0
0,4
-2,0
-1,0
-12,3
-3,6
3,6
3,0
3,7
1,3
Czech Republic
-2,7
0,3
-3,5
1,2
-3,5
0,1
-2,7
-3,0
1,3
1,9
1,0
1,6
Estonia
-10,3
-0,8
-13,5
-2,2
-10,0
-1,0
-6,5
-5,4
-0,5
-0,3
0,8
-1,3
Hungary
-6,3
-0,3
-6,4
-0,7
-3,3
-0,4
-3,9
-3,4
4,8
4,4
3,8
2,8
Latvia
-13,1
-3,2
-17,8
-4,0
-12,0
-2,0
-6,7
-5,5
3,4
-1,8
3,3
-3,5
Lithuania
-11,0
-4,7
-15,3
-3,1
-10,0
-3,0
-4,0
-5,3
4,5
1,0
5,1
0,6
Poland
-1,4
0,8
0,2
1,6
-0,7
1,3
-4,5
-3,9
3,3
2,3
2,1
2,6
Romania
-4,0
0,0
-6,4
0,5
-4,1
0,0
-7,5
-6,5
5,7
4,2
5,9
3,9
Slovakia
-2,6
0,7
-4,7
1,4
-2,1
1,9
-5,7
-5,0
2,3
2,6
1,7
2,3
Slovenia
-3,4
0,7
-4,6
0,5
-2,7
1,4
-4,0
-5,0
0,9
2,2
0,5
1,5
-
-
-
-
-3,7
0,8
-4,1
-3,5
-
-
4,6
4,2
-5,7
1,6
-4,2
-0,4
-1,1
-1,2
0,3
1,2
0,4
0,6
-4,2
0,0
Central and eastern Europe
IMF GAS 31 August 2009
Euro area
IMF GAS 31 August 2009
-4,0
-0,1
-4,3
0,6
CEE – Immediate Economic Prospects
Unemployment rate
total labor force)
Budget deficit (as % of GDP)
Country forecasts
Consensus
IMF
IMF
(as % of
WIIW
Credit growth, annual
IFS
Central banks
2009
2010
2009
2010
2009
2010
2009
2010
2008
June 2009
Bulgaria
-0,4
0,1
-
-
-
-
8,0
9,0
31,6
11,1
Czech Republic
-5,2
-5,1
-4,1
-4,2
5,5
5,7
6,0
6,0
14,9
7,2
Estonia
-4,2
-4,2
-
-
-
-
10,5
13,0
6,6
-0,3
Hungary
-3,9
-3,8
-
-
-
-
9,0
8,8
18,5
14,3
Latvia
-9,7
-8,2
-
-
-
-
12,0
15,0
11,8
1,1
Lithuania
-6,3
-5,3
-
-
-
-
8,5
13,0
18,1
-0,2
Poland
-5,4
-5,8
-
-
-
-
12,0
11,0
36,4
27,4
Romania
-
-
-
-
-
-
8,0
9,0
34,0
11,2
Slovakia
-
-
-2,9
-2,9
11,5
11,7
11,0
12,0
15,4
6,8
Slovenia
-4,7
-4,0
-4,2
-3,7
6,2
6,1
5,5
5,0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,1
11,5
-
-
Central and eastern Europe
IMF GAS 31 August 2009
Euro area
IMF GAS 31 August 2009
7,8
II. Crisis and risk perception in the CEE

CEE - since the beginning of the transition large capital
inflows, mainly from the EU

High penetration of foreign (EU/Eurozone) banks in
domestic financial markets (70-98%) served as the main
vehicle for large capital inflows

Risk perception trends slowly reversed since the second
half of 2007, with spreads skyrocketing post-Lehman
Capital inflows to European emerging market
countries
300
250
billion EUR
200
150
100
50
0
-50
2004
2005
2006
2007
2008a
2009b
Investment of commercial banks, net
Portfolio equity investment, net
Direct equity investment, net
Investment of other private creditors, net
a Estimate. b Forecast.
Sources: International Institute of Finance, Capital Flows to Emerging Market Economies,
January 2009 and Bloomberg.
BIS reporting banks' claims on CEE
countries
170
Index
December 2006=100
160
150
140
130
120
110
CEE countries (BG, CZ, HU, PL, RO, SK, SI)
Source: BIS
Croatia
3/09
12/08
9/08
6/08
3/08
12/07
9/07
6/07
3/07
100
1/1/08
1/2/08
1/3/08
1/4/08
1/5/08
1/6/08
1/7/08
1/8/08
1/9/08
1/10/08
1/11/08
1/12/08
1/1/09
1/2/09
1/3/09
1/4/09
1/5/09
1/6/09
1/7/09
1/8/09
1/9/09
basic points
CDS spreads, selected CEE countries
900
800
700
600
500
400
300
200
100
0
Bulgaria
Hungary
Source: Bloomberg
Czech R.
Poland
Croatia
Romania
Have the CEE region decoupled from
the rest of the EM during crisis?

In the seven post-Lehman months rating agencies
(Moody’s, Fitch), IMF, Nobel Laureat (Krugman: Austria
is the next country to go bankrupt) and the press
(Financial Times) all pointed to the Central and East
Europe as the most vulnerable/risky region

Main argument: unsustainable external positions will
have to correct as the large capital inflows of the last
decade reverse – the CEE will be the most affected

Were the CEE countries really decoupling from the rest
of the EM?
CDS Variation percentage of Emerging
Countries Explained by the first Principal
Component
100
90
80
%
70
60
50
40
30
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
20
Note: Analysis of Principal Component is made on 12 Central and Eastern Countries
(Bulgaria, Croatia, Czech R., Poland, Romania, Russia, Slovak R., Slovenia, Serbia,
Turkey and Ukraine) and also 12 countries of Latin America and Asia (Argentina,
Brazil, Chile, Columbia, Mexico, Peru, Philippines, Indonesia, Malesia, Thailand,
Vietnam).
Sources: Bloomberg, CNB.
Correlation with Principal Component
1.0
0.9
0.8
0.7
0.6
0.5
0.4
Note: Correlations with Latin America and Asia are not showed.
Sources: Bloomberg, CNB.
Ukraine
Turkey
Serbia
Slovenia
Slovak R.
Romania
Poland
Hungary
Croatia
Czech R.
Bulgaria
0.2
Russia
0.3
Changes in Yield on Countries Debt from
Emerging Markets and VIX Index
1200
70
1000
60
50
800
40
600
30
400
20
200
10
Hungary
Poland
Lithuania
Turkey
Source: Bloomberg, JPM.
Czech R.
Slovak R.
Croatia
Bulgaria
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
0
Jan-00
0
Romania
VIX-right
Regression Model Results
Independent Variable
Coefficient
GDP gap
-5.7
Inflation
20.3
Exchange Rate (HRK/EUR) % Change
7.1
External Debt/International Reserves
0.3
% Change of Export/GDP
EU and EMU accession progress
-9.2
-45.7
VIX Index Change
6.6
Constant
93
Adjusted R2
* Significant at the level of 5%
Sources: CNB calculations
0.58
Residuals from the model by country
500
400
300
200
100
0
-100
Bulgaria
Source: CNB calculations.
Croatia
Hungary
2008Q3
2008Q1
2007Q3
2007Q1
2006Q3
2006Q1
2005Q3
2005Q1
2004Q3
2004Q1
2003Q3
2003Q1
2002Q3
-300
2002Q1
-200
Lithuania
Residuals from the model by country
600
500
400
300
200
100
0
Czech R.
Source: CNB calculations.
Poland
Slovak R.
2008Q3
2008Q1
2007Q3
2007Q1
2006Q3
2006Q1
2005Q3
2005Q1
2004Q3
2004Q1
2003Q3
2003Q1
2002Q3
-200
2002Q1
-100
Turkey
Model residuals by country
BULGARIA_ Residuals
CZECH_ Residuals
CROATIA_ Residuals
400
150
600
300
100
400
50
200
200
0
100
0
-50
0
-200
-100
-200
-100
-150
-400
00
01
02
03
04
05
06
07
08
00
01
HUNGARY_ Residuals
02
03
04
05
06
07
00
08
01
LITHUANIA_ Residuals
300
02
03
04
05
06
07
08
07
08
07
08
POLAND_ Residuals
600
200
400
100
200
0
0
-100
200
100
0
-100
-200
-300
-200
00
01
02
03
04
05
06
07
08
-200
00
01
ROMANIA_ Residuals
02
03
04
05
06
07
08
00
01
SLOVAKIA_ Residuals
800
03
04
05
06
TURKEY_ Residuals
200
600
02
600
100
400
400
0
200
200
-100
0
0
-200
-200
-400
-300
00
01
02
03
04
05
06
07
08
-200
00
01
02
03
04
05
06
07
08
00
01
02
03
04
05
06
…and what about banks?
Share of Bank Assets by the Bank Group which
implies for the branches in SIE
50
40
%
30
20
10
0
Bayerische
Landesbank
Erste Group
Bank AG
Intesa Sanpaolo
Raiffeisen
Zentralbank AG
Société
Generale
Unicredit SPA
Bulgaria
Czech R.
Croatia
Hungary
Poland
Romania
Russia
Slovak R.
Slovenia
Serbia
Turkey
Ukraine
Source: Bankscope
CDS spreads for parent banks
600
basic points
500
400
300
200
100
Unicredit S.p.A.
Intesa Sanpaolo S.p.A.
Société Generale
Source: Bloomberg
8/09
7/09
6/09
5/09
4/09
3/09
2/09
1/09
12/08
11/08
10/08
9/08
8/08
7/08
6/08
5/08
4/08
0
Erste Group Bank
Raiffeisen Zentralbank
CDS Variation percentage of Emerging Countries
Explained by the Principal Component
100
90
80
%
70
60
50
40
30
European banks
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
20
American banks
Note: Analysis of Principal Component is made on 4 Parent Banks (Erste Group Bank AG, Intesa Sanpaolo,
Societe Generale i Unicredit SPA), 4 biggest european banks (Credit Suisse, HSBC, HBOS i Royal Bank of
Scotland) as well as 4 biggest american banks (Bank of America, JP Morgan, Wachovia i Wells Fargo).
Because of the missing data for Bayerische Landesbank and RZG AG for previous periods, they were not
included in the analysis.
Sources: Bloomberg, CNB.
Correlation with Principal Component
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
Unicredit
SPA
Societe
Generale
Raiffeisen
Zentralbank
AG
Intesa
Sanpaolo
Erste Group
Bank AG
Bayerische
Landesbank
0.2
Note: The biggest correlation of european and american banks are not included. Correlation Mean
is taken with Principal Component of the biggest european nad american banks on the sample of
week CDS change from 27th June 2008 to 15th May 2009.
Source: Bloomberg, CNB.
III. What exchange rate (monetary) policy
options?

For the CEE, the current, medium or long run option is the
Eurozone

Two countries have already joined – Slovenia and, recently,
Slovakia

This, however, is a double-edged sword – on the one hand it
lowers risk perception and, thus, costs of financing, increasing
the potential rate of growth, but on the other hand, government
or EU/Eurozone shelter might increase the likelihood of poor
policy performance

In the future the name of the game will be unit labor costs,
more than the exchange rate
Current: exchange rates in CEE
120
Index, January 2004=100
110
HUF
SKK
100
CZK
90
PLN
ROL
80
HRK
70
Source: Bloomberg
7/09
4/09
1/09
10/08
7/08
4/08
1/08
10/07
7/07
4/07
1/07
10/06
7/06
4/06
1/06
10/05
7/05
4/05
1/05
10/04
7/04
4/04
1/04
60
... exchange rate policy choice largely depends
on currency substitution …
Share of F/c loans in total loans, 2007
90
80
70
60
50
40
30
20
10
Source: IMF (2009)
Czech Republic
Russia
Poland
Bulgaria
Ukraine
Romania
Lithuania
Hungary
Croatia
Bosnia & Herzegovina
Serbia
Estonia
0
Latvia
%
Medium to long run: Intra-Eurozone
real exchange rates
120
Ireland
115
Spain
Netherlands
110
Italy
Portugal
Greece
105
France
Bel / Lux
100
Finland
95
Austria
90
85
80
Germany
Index 1999 = 100, ULC Total
Economy
1999
2000
2001
2002
2003
Note: A rise in the index means a loss of competitiveness.
Sources: Eurostat
2004
2005
2006
2007
2008
Real exchange rate
120
110
90
80
70
60
BGN/EUR
CZK/EUR
HUF/EUR
PLN/EUR
SKK/EUR
HRK/EUR
Note: The fall in the index denotes an appreciation of the currency.
* deflated by consumer prices
Sources: CNB; Eurostat; Bloomberg
2008
2007
2006
2005
2004
2003
2002
2001
50
2000
2000=100
100