EBRD Transition Report 2013 launch event

By Claire Ricklefs

Transition countries are in danger of failing to match the living standards of more advanced market economies, the EBRD’s 2013 Transition Report, launched today, argues.

“After all the remarkable achievements in the 1990s, very little has happened in terms of economic reforms in most of the countries in the EBRD region,” Erik Berglof, the EBRD’s Chief Economist said at the Report’s launch at the Bank’s HQ.

The purpose of the 2013 Transition Report is to understand why countries often have difficulties implementing reform, and how these constraints can be relaxed or circumvented, he said.

“Much of our region is stuck in transition, in a vicious circle of weak political institutions and lack of economic reform,” Mr Berglof stressed.

But, he went on, the report also shows how countries can break out of these transition traps by “opening up, by encouraging experimentation and accountability at the local and regional levels, and by investing in people, giving them more education and establishing an institutional context that makes better use of the skills they have acquired”.

In his welcoming remarks, EBRD President Sir Suma Chakrabarti admitted that the report poses major challenges for the Bank. “We often take credit for having been part of the incredible success story of transition, dating from the fall of the Berlin Wall and through the mid-2000s,” he said. “If we do this, should we also share some responsibility for the subsequent stagnation of transition?”

But the report reassured him on one aspect that has been absolutely central to the Bank’s role: economic integration is indeed the key to bolstering reform and supporting improvements in institutions and human capital, he said.

This works through many channels, including trade, foreign direct investment, and cross-border banking, which have been vital to the Bank’s business model for many years, Sir Suma said

The Transition Report confirms the link between economic reform on the one hand and targeted political and governance reforms on the other, Sir Suma noted. The latter includes, in particular, the quest for transparency and accountability.

“This is an area where the EBRD can do more, and in which we have begun to take steps, in partnership with political leaders in our region and in coordination with other key international stakeholders,” Sir Suma said.

“We are calling this our Investment Climate and Good Governance Initiative. I am happy to say that Albania, under the leadership of Prime Minister Rama, is among our first partners in this endeavour.”

Edi Rama was one of a distinguished panel of speakers at the launch event who have played central roles in shaping the process of transition in their own countries and beyond.

They were even described by Mr Berglof as ‘heroes of transition’.

Roza Otunbayeva, former President of the Kyrgyz Republic, George Soros, the global investor and philanthropist and Tarik Yousef, Member of the Board of Directors of the Central Bank of Libya, all agreed that international integration is one of the most powerful motors of transition.

Mr Rama stressed that for the first time for decades the Western Balkans will spend the New Year in peace. Current efforts by all governments in this region to drive the peace process, are all “in the name of Europe”, he said.

Paradoxically, the EU the region strives to be integrated with is no longer “what we had in mind”. Nonetheless, regional cooperation is absolutely necessary for future economic development, he said, noting that the country did not have sufficient resources to cope with the multitude of problems on its own.

Mr Soros also blamed the current political and economic crisis faced by western European countries and the EU institutions themselves for the stagnation in the EBRD region.

“The region desperately needs the EU as a magnet but it has ceased to function,” he said. What started as a process of transformation and integration has reversed and is now a process of disintegration, Mr Soros said., His sentiments were echoed by fellow-panellist Tarik Yousef who says he is witnessing significant reversals in the transition process in his own country Libya. “Our region is stuck on step one of the transition process,” he said. Echoing the findings of the Transition Report, he believes the region may be stuck in transition for a very long time to come.

He speculated that the absence of an “anchoring process” such as EU accession may be to blame for the lack of targeted reforms and asked what other international frameworks may allow for the necessary support and engagement of the outside world which up to now has largely “looked the other way”.

Mr Yousef asked whether the EBRD could provide such leadership, stating that he believes the Transition Report to be the most useful “blueprint” for reform in the Arab Region to emerge in the last three years.

Ms Otunbayeva also welcomed the Transition Report but also issued an appeal for the EBRD to focus more on the issue of migration, a key one for the Kyrgyz Republic, and more support for SMEs and microfinancing.