speeches

EBRD and Council of Europe – Two strong partners in difficult times

Keynote address by EBRD President Thomas Mirow to the visiting delegation from the Committee for Economic Affairs and Development of the Parliamentary Assembly of the Council of Europe

London, EBRD Headquarters, 23 January 2009

Dear representatives of the Parliamentary Assembly of the Council of Europe!

Welcome to the EBRD and many thanks for your working visit to our Bank. This has given us the opportunity to discuss many important issues and I am honoured to address you today. After my remarks I will be delighted to discuss your questions and comments.

The cooperation between our two institutions goes back to 1992 when a framework agreement was signed. What has always connected us is that we are both working for the same goal, although in different areas. This goal is the promotion of integration, stability and prosperity in the region stretching from central Europe to central Asia.

Given the current financial and economic crisis in the world we are both facing challenging tasks. For your institution, at the core of which lies the promotion and deepening of democracy, the possible social and political impact will doubtlessly be a key question in the foreseeable future. For the EBRD making a contribution to resolve the financial and economic crisis has become a priority in all our activities.

This is why we have decided to expand our planned business volume this year by €1 billion or roughly 20 percent. In recognition of the urgent needs of the countries where we invest and in response to requests half of the amount is designated for central and eastern Europe. This demonstrates that our mission is far from over. The EBRD´s financial means as well as our expertise and skills remain valuable instruments to alleviate the current crisis. In the last days of December alone we have provided loans and equity to strengthen banks which are vital for the financing of the real economy in Georgia, Romania, Ukraine and Russia.

But we are, of course, aware that because of the enormity of the crisis today international cooperation is more needed than ever. In this context I explicitly want to thank you as representatives of the Council of Europe for the long-standing and strong support of your institution for our activities.

Indeed, the areas where our joint interests coincide most visibly are playing an increasingly important role as we further develop the concept of transition. This includes the support of local and regional economic development, regional and cross-border cooperation, environmentally sound and sustainable development or our special emphasis on strengthening energy security through energy efficiency. In recent months, we have also learned just how valuable continuous policy dialogue with the authorities is and, like you, we attach the highest importance to good governance, institution building and integrity issues.

This demonstrates that the current crisis is not distracting us from our mandate and policies. Consequently, the EBRD is continuing its shift to countries with a more difficult business environment and less advanced stages of development. In this context the Bank’s Board of Governors decided at our Annual Meeting 2008 to set up a Special Shareholder Fund to supplement technical cooperation and grant financing. Often these contributions play a decisive role in the adoption and implementation of projects, especially in countries where access to commercial financing is still difficult.

I understand that in the next meeting of your Parliamentary Assembly which will start on Monday the situation in the Caucasus will be one of the items on your agenda. Allow me therefore to give you a brief overview of how we see the current situation.

• In Georgia we saw a rapid decline in GDP to about 2 percent after the conflict in August, after strong growth of more than 8 percent in the first half year of 2008. The EBRD was actively involved in the stabilisation of the financial sector and we have also continued our support for the real economy and for municipalities through our investments.
  
  
• In Azerbaijan there are encouraging signs that the country will be able to withstand the current global crisis relatively well thanks to its natural resources. The country has considerable financial reserves and growth is still strong, albeit slower than in recent years.
  
  
• So far Armenia appears to be less affected by the crisis than other countries. The country, however, may feel second-round effects because of its high dependency on remittances and external financing, especially from Russia.

All three countries remain members of our Early Transition Countries Imitative which tries to accelerate investments in countries with the greatest needs through a streamlined approach. The initiative’s success has exceeded our most optimistic expectations and now typically generates around 100 projects every year. Donor support, which is also being provided from your institution, is a key contributor to this success.

In another region of our operations that is also of special interest to you, the EBRD remains the largest institutional investor in all countries of the Western Balkans. My first two visits as president of the EBRD led me to Serbia and to Bosnia & Herzegovina last September and I was impressed by the progress which has been made after many years of difficult development. Our activities range from infrastructure development - including critical regional transport corridors - to the energy sector and from the financial sector to small and medium-sized enterprises.

For this year we expect that the Western Balkans will also increasingly feel the impact of the financial crisis as their recent high growth rates slow down. Our long-term outlook for the region, however, remains optimistic thanks to progress in regional cooperation and acceleration of the EU approximation process. With the signing of the Stabilisation and Association Agreements with Serbia and Bosnia & Herzegovina last year all countries of the region now have an accord with the EU.

We strongly support this process and will continue to complement the region’s integration into the wider Europe with our investments. This is helped enormously by the increasing political stability and maturity which the region displayed last year when faced with extraordinary political challenges such as Kosovo’s declaration of independence. Political stability remains key for further economic and social progress.

Underlining our support for greater regional integration, the EBRD became a member of the Regional Cooperation Council last year, which succeeded the Stability Pact for South Eastern Europe. We also expect positive effects for the region from the fact that Turkey became a recipient of EBRD investment last October.

Within the EBRD region Turkey represents a natural link between the Balkans, the Caucasus and Central Asia. Building on deep historical and cultural relations, the country has, in recent years, expanded its political and economic links within this region and strongly contributed to its development. Today, Turkey represents the second largest economy in our region. We plan to invest up to $600 million by the end of next year and will especially focus on small and medium-sized enterprises whose strengthening is crucial because of the current financial crisis.

In Russia we are witnessing the growing impact of the current global crisis. The country, which remains our largest country of operations with more than 35 percent or almost €2 billion of our business volume last year, is faced with the double challenge of rapidly falling commodity prices and the drying up of external financing. The rouble has lost about 20 percent of its value since the onset of the crisis, the Moscow stock exchange 70 percent. The government has announced a $200 billion package and still has considerable financial means at its disposal.

In this situation the role of the state in the economy is considered in a different light in many countries, and especially in Russia where state intervention into the economy was increasing long before the current crisis began. Encouraging private sector development, however, remains important for long term growth given that the state currently needs to deploy its resources for crisis management.

We welcome the current Russian administration’s declared intention to reform the legal framework and fight corruption. The rule of law is key to an investor-friendly business environment and stable and sustainable growth. The EBRD is engaged in a policy dialogue with the authorities.

Our investments are targeted to support the diversification of the Russian economy, strengthen the private sector and support the development outside Moscow and St Petersburg. We opened a new office in Samara last year to cover the Volga Federal District. Two additional offices in Rostov-on-Don for south Russia and Krasnoyarsk for Siberia will be operational shortly.

Ladies and gentlemen! In your resolution last year about the Council of Europe’s cooperation with the EBRD you stated: “The EBRD is more than just a bank. It is an institution with a unique mission and experience at the service of people and countries (...).” May I assure you that we are fully committed to this mission and also take this opportunity to ask for your continued support. We know well that the EBRD can only be as strong as the support it receives from institutions like the Council of Europe.

Thank you for your attention.