European Development Bank Looks to Help North Africa

20 May 2011, New York Times

FRANKFURT — The European Bank for Reconstruction and Development, long focused on promoting democracy in central Europe and the former Soviet Union through loans to business, is likely to extend its mandate to North Africa as part of a broader push by Europe and the United States to help countries in the region.

The E.B.R.D., based in London and financed by 61 nations including the United States, will on Saturday begin the process of amending its bylaws to allow expansion across the Mediterranean, probably beginning with Egypt and Morocco. The bank’s board of governors is holding its annual meeting Friday and Saturday in Astana, the capital of Kazakhstan.

The expansion of the E.B.R.D.’s operations follows a call in April by Timothy Geithner, the U.S. treasury secretary, for institutions such as the World Bank and International Monetary Fund to do more to support a transition to democracy in the Middle East. “The World Bank and other multilateral development banks will be essential, just as they were in support of Eastern and Central Europe’s transition two decades ago,” Mr. Geithner said on April 16.

On Wednesday, Germany officially endorsed deploying the E.B.R.D. in the Middle East. Jörg Asmussen, deputy finance minister for Germany, said in a statement that a condition for aid would be that countries make “a firm commitment to the core principles of democracy, political pluralism and the market economy.”

But a coalition of 28 non-governmental organizations and CEE Bankwatch Network, a regional group based in Prague that monitors the activities of international financial organizations, has urged the bank’s shareholders not to approve the expansion.

It is premature to make commitments for E.B.R.D. financing for the Mediterranean region, they said, “when it is by no means clear what kind of governments will follow the recently overthrown regimes.” In a joint statement, they also criticized the bank’s track record in helping to establish democracy in East and Central Europe.

The United States is the largest shareholder in the E.B.R.D., which was founded in 1991 to help countries that were trying to shift from planned to market economies. The bank typically supports small and medium-sized businesses, as well as infrastructure projects by local governments such as water and sewage systems.

Recent loans include $105 million to Metro Group, a German retailer, to expand operations in Kazakhstan; and €3.7 million, or $5.3 million to Industrial Mecano, a maker of packaging for food and beverages in Romania. The bank valued its business volume in 2010 at €9 billion.

The E.B.R.D. was also instrumental in supporting banks in eastern Europe during the financial crisis in 2009, and has helped finance the continuing cleanup in Ukraine at the site of the 1986 Chernobyl nuclear disaster.

The bank has steadily expanded its territory since its founding, now operating as far as east as Mongolia.

A person with knowledge of the E.B.R.D.’s plans, who was not authorized to speak publicly about them, said that the bank would not need to raise more capital to expand its operations into North Africa. The new loans there would not come at the expense of other countries served by the bank, the person said.

Egypt, Morocco and Tunisia are likely to be the first countries to receive E.B.R.D. loans. Whether other countries like Libya are added depends on political developments, the person said.

Egypt is already an E.B.R.D. shareholder and had asked to be considered for loans last year, before popular demonstrations toppled long-time President Hosni Mubarak.
Matthew Saltmarsh contributed reporting from Paris.