1. Political, Economic and Social Impacts on Environmental Protection at the Spring of 1994
1.2. Economic Changes
ALBANIA
Inflation was very high early in the transition period (50% monthly). By the end of 1993, it had stabilized at 3 to 4% per month. The climate for foreign investments is just now becoming favorable. Foreign investors are attracted by the Government to develop tourism. The Government recently presented a Masterplan on Tourism and created a Ministry of Tourism. Tourism is expected to provide half of the country's income within a few years, but may pose some threat to the environment if not regulated.
Most of the enterprises in the chemical, metallurgical and mechanical sectors have been closed due to outdated technologies and inefficient production systems. These enterprises left legacies of past pollution and their closing has had disastrous effects on the economy and employment. On the other hand, air, water and soil pollution from industry has decreased markedly. The enterprises remaining open are still mostly state-owned (e.g., metallurgical, petrochemical and salt industries), and are facing severe financial difficulties. Thus, it is not surprising that they are not interested in investing in the environment. In the early stages of democratization no environmental law existed and there was no control on the formation of new companies. Thus, many illegal economic activities began at that time.
Privatization in the agricultural sector has redistributed about 70% of state-owned land. To increase the workable surface area, terraces are being cut into the mountainsides, with disastrous soil erosion resulting. The use of pesticides and fertilizers, however, has decreased recently because they are too costly for private landowners, and farmers are inexperienced in using them.
Open borders have led to the import of Western goods, with cars being a prominent example. Under the former system, cars were rare. Now old cars, usually ones written off by owners in Western Europe, are considered trophies, and air quality in cities is decreasing rapidly.
BULGARIA
Under the previous economic system, the environment was adversely effected by the focus of the economy on heavy industry. With the orientation towards world market prices for raw materials efficiency has become a motivating factor for industry. Many industries have simply not been able to survive and economic production has decreased dramatically (about 35%), resulting in a visible reduction of pollution. This economic decline has, unfortunately, also diminished the funds available for environmental investments as much of these funds come from fines and penalties on industry for environmental damages.
Moreover, the sudden changes have created a chaotic situation in which it has become very difficult to clearly identify needs and priorities. Some market reforms, such as privatization, have progressed only very slowly and have not yet had a major effect on environmental protection. While some experts believed that this has had negative effects, for example there still exist many large State enterprises which are virtual monopolies, and thus in a position to avoid the full effects of environmental regulation, the slow progression has allowed time for the development of needed related rules and mechanisms regarding the environment. Indeed, in 1992 the Parliament adopted an amendment to the law of privatization which guarantees revenue for environmental protection amounting up to 5% of the privatization transaction.
CROATIA
In Croatia the transition to a market economy has been somewhat different compared to other countries in the region. During the past three years the war has been the major decisive factor influencing all the political, economic, and social changes in the country. The situation caused by the war has contributed to the economic crisis and has led to a fall in the living standard and quality of life. Due to the war conditions, industrial production has fallen to 50% of the 1990 level, but some improvement is expected. Industry and agriculture were severely damaged during the war and occupation, and experts are hoping that the overall development process will be more dynamic in the near future.
In the fall of 1993, economic reform and developmental questions (including to some extent the environment) have come to the forefront. More attention is being given to obtaining Western assistance, reducing inflation, and opening development options. So far, privatization has only gone through its first phase, which includes small and medium-sized enterprises. The new privatization law, adopted in 1991, does not include environmental interests. A proper banking system has not yet been established but some efforts to improve the situation are ongoing. It will be difficult to progress with the economic changes if vital outside support cannot be gained. Presently, mostly humanitarian assistance is being received (e.g., EC funds like PHARE, and US support are not available to Croatia). Since April 1994 Croatia has been accepted as a participant in the Global Environment Facility.
CZECH REPUBLIC
Between 1989 and 1993, the decline in the GDP was more than 20%, mostly due to the decline in industrial production, which contributes a major portion of the country's pollution. However, the level of environmental pollution did not diminish to the same extent as the industrial production because the most polluting industries did not reduce their production significantly. An expert mentioned that this is because the largest enterprises are protected by the government due to social concerns and also these enterprises often earn some foreign currency. Therefore, as some experts mentioned, even the existing laws are not applied strictly to them.
Privatisation is not expected to have a negative impact on the environment, as there are regulations in place to prevent this: Environmental audits or EIAs ensure that the measures to achieve compliance with the environmental laws are identified (these regulations are only for the second wave of privatisation). At present, it is difficult to judge the impact of privatisation and the success of these provisions because the second wave of privatisation has not yet advanced much. In relation to financing the cleanup of past pollution, the responsibilities are unclear in practice; at present the rule is that the responsibility is with the new owner.
HUNGARY
From 1990 to 1994 efforts were focused on restructuring the economy. The sectoral structure of industry was the result of a voluntary development in neglect of the industrial traditions and geophysical realities of the country. Over 21 billion USD in foreign debt and the collapse of eastern markets made things worse. Once on the market, most outdated enterprises quickly went bankrupt. Industrial output has fallen by 30% in the past four years, with signs of recovery during 1993. The decline of agricultural production followed with some delay. This decline in production meant decreasing pollution, too. Main improvements were in air quality and industrial waste generation. In the agricultural sector, higher prices caused a decrease in the use of agrochemicals. During the past four years industrial production costs have doubled, and purchase prices in agriculture went up by 70%. The high inflation rate makes loans expensive, further discouraging investments in environmental protection. The privatization process was a missed opportunity from an environmental point of view. Regulations on bankruptcies and take-overs do not contain environmental safeguards, such as independent audits and subsequent duty of the owner for cleanup. Such measures are sometimes voluntarily carried out. At the same time, by promoting efficiency with energy and raw materials, privatization is expected to have some favorable results as well. Due to both the lack of loans and capital on the one hand and the lack of enforcement on the other, some small enterprises are importing obsolete Western technologies, and wastes for disposal. New companies dealing with environmental technologies and consulting firms have also emerged. However, there are no institutional safeguards as yet to exclude enterprises with low professional standards.
FYR MACEDONIA
Economic changes occurring in the FYR Macedonia in recent years have had major impacts on the environment, almost entirely for the worse. Nearly all of the interviewed experts explained that benefits expected to be gained from free market reforms have been overwhelmed by hardships resulting from political tensions with Greece and the war in Yugoslavia. Due to economic embargoes, markets have been lost in both of these countries, which represent two of the four neighbors of the FYR Macedonia. Moreover, pollution abatement equipment, critically needed by many factories, cannot be imported from these countries. A third neighbor, Albania, has dire economic problems of its own, leaving Bulgaria as the only bordering country with which to have normal trade relations. (And even here there are occasional squabbles.) The resulting sharp economic decline and weak economy have increased stress on the environment as short-term economic priorities now dominate decision-making in all sectors. Industry claims that it barely has enough money to pay salaries and that investments in environmental protection are simply not possible. The government says that it is doing all it can but that it too is severely hampered by the lack of financial resources. Members of the general public are experiencing increased threats to their economic welfare and thus the environment is seen as a luxury item. In such circumstances environmental protection is a very low priority.
POLAND
The profound economic changes of the past few years in Poland have had great impacts on environmental protection in the country. Market reforms have included the removal of price controls for raw materials, the elimination of State subsidies to producers, privatization of industries, international competition and foreign investment. The basic result, as noted by several of the experts, has been that "many of the most inefficient producers, which were also usually the worst polluters, have been shut-down." Producers now have to be more conscious of environmental issues from start to finish of the production cycle. With the lifting of price controls manufacturers must pay much more for their raw materials. The combined effect of competition and the elimination of State subsidies has caused producers to use resources much more efficiently in attempts to become profitable. Foreign investment has added to competition as well as made new methodologies and technologies available for production systems and environmental protection. Privatization has largely separated the State from the production sector, enabling it to truly regulate manufacturers and their environmental impacts. With the government in this new role, it is now able to effectively use various economic instruments, such as pollution fees and fines, which compel producers to make investments in environmental protection, as well as generate funds for the governments to make environmental improvements themselves.
The experts noted that market reforms have also had some negative effects on environmental protection. With increased competition and higher production costs, there are strong incentives for producers to cut costs wherever possible. In some cases this results in manufacturers foregoing the expenses of environmental protection and externalizing such costs onto society. There is also concern that with the pressure to privatize State enterprises environmental concerns are ignored or inadequately dealt with by the responsible State authorities. Also with privatization, forest areas previously under State protection are now vulnerable to being mismanaged and cut by private owners. A few experts also noted that some foreign investors, having little vested interest in Poland, are only concerned about maximizing their profits and disregard matters of environmental protection to the extent possible.
ROMANIA
Economic changes have had major impacts on environmental protection, and indeed society as a whole. Like the situations in other CEE countries, the market reforms in Romania brought significant reductions in heavy industrial output and thus a reduction in air and water pollution from this sector was generally experienced. International trade was also noted by one expert as having the positive effect of making modern, more environmentally friendly, technologies available now in Romania. Privatization has also had impacts. It was noted that property ownership is sometimes unclear and thus working of lands for agricultural production has diminished. One expert mentioned that with privatization, property owners are also beginning to appreciate how contamination diminishes the value of their property, and thus some owners have begun to pressure polluting sources for compensation. (It was noted, however, that the wider effect of privatization has been very minimal because the number of enterprises and properties actually privatized has been low.)
Indeed, the experts did not cite many positive effects of the economic changes on the state of the environment. Negative effects were more commonly described. There has been a general collapse of the economy due to closing markets (Russia and the former Yugoslavia) and non-competiveness of some Romanian industries. The dire state of the economy has created a situation of chaos. There is little to no monitoring or regulation of industrial activities and the pressure to produce as cheaply as possible is strong. In such circumstances the environment is often abused. The grave financial situation has also resulted in a much lower budget for environmental protection expenditures. One expert reported that currently less than 0.5% of GNP is devoted to environmental protection, thus pollution abatement equipment goes unrepaired and needed new technology is not purchased. At the same time, with the national borders being opened for trade, the number of second-hand automobiles in use has risen, adding to air pollution problems, and the amount of solid waste has increased.
SLOVAK REPUBLIC
The restructuring of the economy has resulted in a reduction of the volume of industrial production to about 50-60% of the 1989 level. Most branches of industry have been affected, except for the metallurgy and other secondary production industries. Energy production did not decrease. Most companies are in debt, with the exception of energy producers. Partially because of the decline in industrial production, the emissions of pollution have diminished. For instance, the national SO2 emissions decreased by about 40% between 1989 and 1992. Some major polluting sources have been partly or totally closed. Social concerns and powerful industrial lobbies play a major role in not taking such steps.
Restructuring agriculture means that 80% of the land will be privatized, which will result in a change in the structure and practices of agricultural production. Experience so far has shown that the new owners are mostly concerned with short-term profits, often regardless of environmental concerns. Pesticide and fertilizer use has decreased largely because of the high costs.
The concept of restructuring the economy was elaborated in the former Federation. The Slovak Republic, after gaining independence, did not change the concept in essence. However, in practice there are differences, for instance the privatization process has slowed down considerably. Privatization has not yet had a strong impact on the environment in Slovakia. Though, experts mentioned that once it is known that a factory is going to be privatized, often the current owner (the State) is no longer concerned with its environmental statutes, resulting in the neglect of its environmental responsibilities. The 1992 law concerning the second wave of privatization (includes the privatization of the biggest point sources of industrial pollution) mandates that an environmental audit has to be conducted for each of the privatization units. However, the information required by the audit has disputable and relative value. It serves, first of all, the purchaser of a firm, and to regulate the price. There are no regulations that address the time in which a clean-up has to be completed.
SLOVENIA
The previous structure of production, which was characterized by an emphasis on energy intensive heavy industry, has changed to a great extent. The current economic program includes rehabilitation and restructuring. There is still a decrease in industrial production. In 1991 the growth of GNP was 9.0 %, in 1992 7.2%, and in 1993 was between -1.0 and 1.0%. Successful restructuring of industry has started, proven by the 35,000 new jobs that have been created in new factories. Pollution is decreasing because of depressed output from heavy industry. Energy prices are under government control and they are kept low. The first priority of the economic policy is to reduce inflation. Tax reform is going on, and in 1994 a Value Added Tax will be introduced. The restructuring process results also in serious social problems. At present, there are 100,000 unemployed and the social tensions are resulting in strong political pressure which might have impact on the current economic trends.
Privatization will release some funds for the economy and also for the environment. The small and medium size enterprises (between 500-2000 employees) are being privatized. There is a program of mass privatization as well, and each citizen can buy shares. Managers and workers also can buy out shares of their enterprise. Privatization of the banks will be started after a rehabilitation program is completed. Funds provided by privatization are put into a Development Fund. The Agency for Privatization is the authority to approve the schemes of privatization.
Funding for the environment is limited. The implementation of some of the most important environmental projects (like the desulphurization of the Sostenj power plant) was stopped due to lack of money. The government is trying to seek funds from abroad within the framework of the Slovenia Environmental Project.
REC * PUBLICATIONS * STRATEGIC ENVIRONMENTAL ISSUES 1 * ANNEX
