The EBRD has introduced a new way of measuring the transition to a market economy, the concept which underpins the design and evaluation of its investments and technical assistance projects.
The transition concept, approved by the EBRD Board of Directors today, comes into practice next year. It argues that a well-functioning market economy should be more than just competitive; it should also be inclusive, well-governed, environmentally friendly, resilient and integrated. These qualities are implicit in the EBRD’s founding articles.
“Because the EBRD’s world has changed, the definition that lies at the heart of its mandate has also been brought up to date,” said Hans Peter Lankes, EBRD’s Managing Director Corporate Strategy.
The 2016 concept refines a notion of transition formulated in 1997, when all of the EBRD’s countries of operations were emerging from communism and faced a similar set of challenges on their way to capitalism. The change reflects both a global evolution since then in defining a successful market economy, and the development of the EBRD’s own work in countries now applying a variety of brands of capitalism and needing different sets of reforms. Following work mitigating the effects of the 2008 financial crisis, the Bank now also understands the risks of reform reversals.
“This is critical for ensuring the political sustainability of market reforms,” said the EBRD’s Chief Economist, Sergei Guriev.
Mr Guriev went on: “In our region today, we see how important governance and inclusion are for market reforms. The countries that have managed to create sustainable democratic institutions are also the ones that have made most progress in economic transition. Reforms should deliver benefits to the majority of the population in both the short and the long term, preventing populism both in times of crisis and in normal times”.
The EBRD was set up in 1991 to support the development of the countries where it invests to market economies based on a strong private sector. The Bank invests alone or alongside commercial partners to promote these goals. EBRD investments must meet the criteria of additionality, sound banking and transition impact. Today, the Bank is investing in 36 countries on three continents and to date has invested more than €110bn through over 4,600 projects.