Financial Stability Report No1 20 December 2010 - Banka Qendrore ...

Financial Stability ReportNumber 1Table14. Doing Business in the SEE Countries, 2010Ease ofdoingbusinessrankStartingbusinessConstructionpermitsEmployingworkersRegisteringpropertyGettingcreditProtectinginvestorsPayingtaxesTradingacrossbordersEnf orcingcontractsClosingbusinessMacedonia 5 2 14 9 14 11 3 1 9 19 22Bulgaria 10 12 11 8 12 1 7 12 17 21 11Montenegro 15 18 19 6 24 11 6 19 8 26 5Albania 18 11 22 16 17 4 2 18 11 22 27Serbia 19 15 23 14 21 1 15 17 13 23 21Kosovo 22 27 24 4 16 11 27 6 19 27 2Source: World Bank, Doing Business 2010For the time being, the SEE countries exhibit relative macroeconomic stability despiteunfavourable developments in the current account and fiscal balances. Most of the financialsector is foreign owned which helps to maintain the financial stability in those economies,although temporary effects of the financial crisis are observed. However, the economicrevival of these economies is substantially dependent on development of marketinstitutions aimed to protect the rule of law and efficiency of market based institutions andprocesses known in developed economies. Table 14 provides an evidence that the SEEcountries are ranked the worst in terms of enforcing contracts among 27 countries inEastern Europe and Central Asia. While most of them rank higher in other categoriesaccording to the World Bank study, it is the legal framework of doing business that seemsto be temporarily detrimental in experiencing higher investment demand in the region.8.6. ConclusionsAccording to the general understanding of the transition process, the SEE countries shouldexhibit higher economic growth rates. They have all brought down inflation rates andimposed macroeconomic stability. The financial sectors in the region operate according tointernational standards and practices. Moreover, the health of the financial sector istemporarily better than in other Central and Eastern European countries and it does notseem to deteriorate despite financial sector difficulties in home countries where the motherbanks come from. Although interest rates are high in the region, the reasons for higherinterest rate stem from higher risks perceived by the financial sector. Those risks aremainly associated with weak legal protection of banks and other financial institutions inlaw enforcement of existing business contracts.For those reasons one could conclude that the SEE countries seem to lack the institutionalsupport to generate higher economic growth. Although most of those economies exhibitpositive growth rates which are mainly generated by public investment, it is important toacknowledge that higher growth rates can only be achieved by higher private and foreigndirect investment. For that to happen, the SEE countries should develop credibleinstitutional and legal framework which would protect those investors willing to invest inthe region, both private domestic and international investors, respectively. What seemed tobe taken for granted in other transition economies might take longer time to develop in the| 73