EBRD Votes to Extend Lending Program
21 May 2011, Wall Street Journal/Dow Jones
ASTANA, Kazakhstan—The European Bank for Reconstruction and Development on Saturday adopted a resolution to expand operations to lend to fledgling democracies in the Middle East and north Africa, following the wave of uprisings that has rocked the region and toppled regimes in Tunisia and Egypt.
The proposal adopted by ERBD governors gathering for an annual meeting in Astana, Kazakhstan, could see the bank start lending €2.5 billion ($3.6 billion) a year from its existing capital base to Egypt and other would-be democracies in north Africa. The resolution will now be considered by the London-based bank’s directors, who will propose an extension to the bank’s mandate. The EBRD was established 20 years ago to help countries in eastern Europe and the former Soviet Union make the transition from centrally planned to market economies.
Any formal decision to expand the remit beyond its current 29 countries of operation would require unanimous approval from all of its 63 shareholders.
If approved, Egypt, an existing EBRD shareholder, would be the first economy to benefit, with financing set to start in the first half of 2012. Morocco on Saturday reiterated its “strong interest,” in gaining recipient status though EBRD officials said it would need to offer democratic guarantees to tap financing.
The bank’s move to expand its democracy-building role has the strong backing of Washington and Brussels.
U.S. President Barack Obama in a Thursday speech on Middle East policy expressed his support for the proposal, stressing that; “We will work with our allies to refocus the EBRD so that it provides the same support for democratic transition and economic modernization in the Middle East and north Africa as it has in Europe.”
The governors’ adoption of the resolution also represents a personal victory for EBRD President Thomas Mirow, who pushed hard to promote the bank as the international financial institution best-placed to aid new democracies across the Arab world.
The move also follows the success of the EBRD’s Vienna Initiative, which saw the EBRD, the IMF and the EU help protect eastern European nations exposed to capital flight by agreeing to provide loans on condition that international banks maintain lending to those countries.
Underlining that success, Mr. Mirow’s name has been touted as a possible European compromise candidate to head the International Monetary Fund following the resignation of Dominique Strauss-Khan if front-runner Christine Lagarde is deemed unsuitable.
The EBRD chief on Friday stressed that extending the bank’s lending operations “should not require additional capital contributions and should not compromise the agreed scope and impact of the Bank’s operations in the existing recipient countries.”
Questions still remain over whether the bank will formally expand its mandate. Some EBRD shareholders have expressed unease at the risk of overstretch from broadening the mandate of helping communist countries make the transition to market economies.
Other nongovernmental organizations have cast doubts on the EBRD’s ability to manage successful transitions to democracy, stressing that although major gains have been made in eastern Europe, many countries of operation in the former Soviet Union, particularly Central Asia have made limited strides.
Bank Watch, an NGO monitoring EBRD lending activity said in a May report that the bank’s eastern countries of operation “are mostly still far from democratic and some can hardly even be called market economies.”
The move comes as the EBRD’s existing countries of operation across eastern Europe and the former Soviet Union, many of whom were badly affected by the financial crisis, face an uncertain future.
On Friday the EBRD modestly raised its growth forecasts for the region, but warned that rising commodity prices and euro-zone debt problems pose new risks that could derail the economic recovery.
“In light of fiscal pressures in the advanced countries, the continued imbalances in the world economy, the food and commodity price spiral and the turbulence in sovereign debt markets the risk of setbacks is real and remains of particular concern to our region,” Mr. Mirow warned.
Theme: Social & economic impacts