Soviet Breakup Impels Tough, Uneven Transition In E. European Economies

THE Eastern European economy is beginning a slow recovery after a near total collapse in crucial trade links with the former Soviet Union.

The recovery is most noticeable in the three Central European countries of Poland, Czechoslovakia, and Hungary. All three are making headway in redirecting exports to markets outside the old communist trading block, known as the Council for Mutual Economic Assistance, or Comecon.

"There's been improvement for [Poland, Czechosloviakia, and Hungary], but in Romania, Bulgaria, Albania, and Yugoslavia it's still a deteriorating trend," says Eugenio Lari, a senior advisor on Eastern Europe for the World Bank in Washington.

The region was thrown swiftly into economic chaos when the Soviet Union decided, as of Jan. 1, 1991, to conduct all trade in convertible currencies and at world market prices. This was the first year that the Soviet Union had no central trade plan, and the political turmoil and economic disruption there added to the chaotic trade situation in Eastern Europe.

According to a report by the International Monetary Fund last October, the drop in trade among the European Comecon countries was "much more severe than originally expected."

The IMF estimates Soviet exports to former Comecon nations in 1991 declined by 35 to 45 percent for Hungary; 50 to 65 percent for Bulgaria, Czechoslovakia, and Romania; and about 75 percent for Poland. An IMF spokesman says more recent data indicate the real declines are closer to "the upper end" of these estimates.

The trade collapse, meanwhile, started a chain reaction of severely lower production and ensuing unemployment. Output in Eastern Europe dropped 17 percent last year, according to the IMF.

Not all the Eastern European countries have been affected in the same way by the trade collapse.

Bulgaria, for instance, has been "hammered," as one European economist describes it, because it depended most heavily on trade with the former Soviet Union. Although trade trends are still downward for the worst-case countries, some economists watching the region believe the bottom has just about been reached.

Poland, Hungary, and Czechoslovakia, meanwhile, are on the way out of the valley, redirecting their exports to Western markets.

* In 1990, Polish exports to the European Community jumped 60 percent, and in 1991 rose another 30 percent, according to the Organization for Economic Cooperation and Development in Paris.

* Hungary, because it began economic reform earlier than its neighbors, has had more time to search out alternative markets.

* Czechoslovakia made similar gains. Jaroslav Verner, of the Federal Ministry of Foreign Trade in Prague, says the drop in exports to the former Soviet Union still has a "severe impact" on certain industries. Nevertheless, he says, there has been a "partial improvement" in overall trade because of increased exports to capitalist countries.

The three cleared a major hurdle when they were granted associate status in the EC last year. The new status granted them bigger export quotas and lower tariffs, but excluded raw agricultural products from the deal - an area the three considered critical.

Individually, the three are striking trade deals with the European Free Trade Association (which includes such countries as Austria and Switzerland). Poland, Czechoslovakia, and Hungary also want to form a free-trade zone among themselves this year, so they can present a united front to the West.

Mr. Lari, at the World Bank, says that the West needs to open its markets wider to Eastern Europe.

"The trade policy which the West is going to follow is crucial - even more important than aid," says Lari. "If the EC tries to keep certain goods out, they will have no choice but to accept substantially higher immigration" of people fleeing economically depressed Eastern Europe.

A bigger boost for Eastern Europe than associate membership in the EC would be the successful completion of the General Agreement on Tariffs and Trade (GATT) world trade talks, economists say. But with the talks having just missed yet another deadline, trade relief on a world-wide scale does not look realistic for the near future.

It is another question, however, whether Eastern Europe is prepared to compete in open markets in the West. According to a report by the British Broadcasting Corporation, Hungary could not even fulfill last year's EC quota on textiles because its goods were of such poor quality.

Still, companies can often improve their products, says Ian Hume, director of the World Bank's office in Warsaw. Last year he says, state-owned concerns in Poland, managed to switch about a third of their exports to markets outside Comecon.

"The dinosaurs have not been that passive," he says. "There is a nimbleness there, a capability" that is beginning to manifest itself.