Divisions emerge over EBRD expansion plan
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Emerging Markets

Divisions emerge over EBRD expansion plan

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Historic moves to expand the EBRD’s funding activities into the Middle East and North Africa have fuelled tensions among shareholders over how far the bank’s remit should reach

The EBRD will on Friday take an historic step towards expanding its remit into North Africa and the Middle East in a move that threatens to fuel tension among its shareholders over the role of the bank.

The board of governors is expected to back a resolution that would open the way for the EBRD to invest up to E3 billion in Egypt and other fledgling North African democracies that have been at the centre of the wave of the civil unrest.

The move comes as US president Barack Obama backed the EBRD’s move into North Africa and announced the US would pour billions of dollars into the Middle East comparing the aid package with the support given to central and eastern Europe in 1989.

While there is a growing consensus behind the EBRD moving out of its core focus on central and eastern Europe and central Asia, divisions are emerging among the bank’s shareholders over how far its remit should reach.

European nations are keen to ensure that the EBRD’s focus stays focused on Europe’s near-neighbours along the southern Mediterranean coast while the US has been pushing for the bank to move further into the Middle East.

Leading European countries are urging shareholders to exercise caution over the extent of the EBRD’s future involvement outside its core geographic area, the amount of money involved and the need for consensus over the plan.

Klaus Stein, the head of the German delegation to the EBRD, said he was willing to support expansion “in principle” but said that it should be subject to some “important conditions”.

“We should prevent the EBRD losing its focus on Europe, where the Bank has its main comparative advantages and experience,” he told Emerging Markets.

The first stage will be a decision to admit Egypt as a “country of operation” - the technical term for a country in which the EBRD can invest. Egypt, a founding member of the EBRD, initially applied three years ago, well before the recent popular uprising.

Stein said any decision to admit a new state from this region as a country of operation must be subject to a unanimous decision by the 61 country shareholders.

“In the event of a regional expansion beyond Egypt, a narrow definition of the region limiting it to the states bordering the southern Mediterranean is essential and the countries in question should be individually named,” Stein said.

The issue has come to head at the annual meetings after leaders of the G7group of rich nations - the US, Canada, Germany, France, Italy, the UK and Japan - agreed in April that the EBRD should invest in North Africa.

“The request from the international institutions did not really restrict itself to Egypt, they talked about North Africa and the region where these events were happening,” Kurt Bayer, Austria’s executive director, told Emerging Markets.

Countries must become members of the EBRD to qualify for investment. Morocco, which is a member of the bank and has applied to become a country of operation, could be next in line while states such as Libya and Tunisia would have to join first.

In an interview with Emerging Markets, EBRD President Thomas Mirow said the bank would change its articles of agreement to include “something like North Africa and the Middle East or the southern Mediterranean” but that individual countries would be admitted on a case-by-case basis.

Even if Governors give the EBRD the green light, it will take until early next year to complete the ratification process. In the meantime one option would be set up a special fund to invest in Egypt, which requires a lower threshold of three-quarters of shareholders that have 80% of the total votes.

Mirow has said the EBRD could invest up to E3 billion a year without reducing spending on its existing 29 countries of operation, which countries such as the US, Germany and Austria would oppose.

“I had a series of conversations with members of the [US] administration and it was quite clear that they would encourage us to embark on this route provided that we would not ask for any increased capital resources,” he said.

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