Sir Suma Chakrabarti – who was appointed head of the European Bank for Reconstruction and Development (EBRD) in July following the bank’s first open elections – told journalists in September that Western policymakers were downright neglecting – the impact of the eurozone crisis on eastern Europe and something must be done about it. He also said a team of EBRD experts would go to Athens, after a request from the Greek government to help with advice on how to use EU funds to mobilize private enterprises to kick-start stalled growth – something the bank has done in central and eastern Europe and the former Soviet states since it was founded in 1991.
The bank’s new assertiveness is part of Chakrabarti’s strategy - which he advocated during his campaign to become president - of opening the EBRD up to becoming a more important actor on the world stage. “The bank is extremely strong in its operations on the ground, has really good projects and so on, but the bank is, I would say, somewhat shy of using that experience on the ground and saying ‘look, at a global level we can say we have some policy positions, because of the experience on the ground,’” Chakrabarti says in an interview with Emerging Markets.
One area in which the bank could influence policy is that of sustainable energy, where it has used its experience to advise on how to make private and public purposes work together, the other is what is known as “the Vienna initiative 1” - a set of measures taken in 2008 to stop the flight of Western bank capital from eastern Europe when the post-Lehman financial shock hit the region. “I think there is an agenda for us to develop policy positions in one or two other areas,” he adds. “I think the crisis has made the EBRD value-added more obvious to many institutions,” says Chakrabarti.
But, some market participants say, even though the EBRD’s expertise in managing transition might be welcome, the bank is unlikely to make a significant contribution to actually solving the peripheral eurozone countries’ problems, simply because its resources are not enough. “The problems of the peripherals can only be dealt with by the European authorities,” Herbert Stepic, CEO of Raiffeisen Bank International, tells Emerging Markets. “I love the EBRD very much, they have been playing an important role in Central and Eastern Europe and are now playing that role,” but the bank’s resources are too small compared with the size of the problems in the eurozone’s periphery countries, he adds.
NEW REGION
In mid-September, the EBRD launched its first investments into the southern and eastern Mediterranean area (SEMED), where it expanded earlier this year, with a total of $88.5 million in projects in Jordan, Morocco and Tunisia. Egypt, which is seeking a
multi-billion IMF loan, is next on the bank’s agenda and the EBRD president says the first project for Egypt should be submitted to the board by the end of the year. “I can’t tell you the joy when the first three projects were approved for Morocco, Tunisia and Jordan. There’s a real feeling of optimism that we can make a real difference in this region,” says Chakrabarti.
The EBRD has started to open offices and hire staff in the four SEMED countries and he admits there are big differences between the “new” region and the bank’s “traditional” region, one made up of post-communist countries. In areas such as gender issues, the separation of religion from the state or the civil-military relationship there are big gaps between the regions. “These are things we have to learn about, get to understand, analyze, because they will have to be factors in how we do projects. I am optimistic but realistic as well about the pace at which we are doing this.”
The EBRD’s main focus in the Arab Spring countries where it started to operate has so far been on supporting small and medium-size enterprises. “They should be beneficiaries of the Arab Spring because they were pretty much shut out in the pre-Arab Spring economy in those countries,” Chakrabarti says. Drawing a parallel with the progress of eastern European countries after their revolutions more than 20 years ago, he says there is a need for a “sense of realism about the pace of progress, the ups and downs over the next 20-odd years.” Asked whether he would consider expanding the bank to other Arab states, he answers: “I don’t rule it out. We have to prove ourselves in this region and if other countries wish to join because we’re proving ourselves, then of course we will look at their interests. We will certainly not say no, but we have to prove ourselves first.”
On the bank’s traditional region of central and eastern Europe, Chakrabarti is more optimistic now than six months ago, as the much-feared deleveraging on the part of Western banks did not take place. “Fingers crossed. I think the parent banks have tried to behave quite responsibly. The signs are certainly there that the deleveraging process has slowed down.” This is, in a way, a reflection of the Western parent banks believing that the countries have strong perspectives in the longer term, says Chakrabarti, who adds: “the next 18 months are going to be difficult but longer term, their growth prospects are very good.”
Still, a coordinated plan is needed for eastern Europe and there will be discussions in Tokyo about how the international financial institutions can work together to help the region deal with the fallout from the eurozone crisis. A plan of action is needed on the regulatory side, to decide what the banking union that is proposed for the eurozone will cover outside of it and to ensure “a level field” for all the countries involved, Chakrabarti says. Another issue on the agenda will be making sure that the subsidiaries of Greek banks that are in eastern European countries are in good shape, and the EBRD team which travels to Athens in October is charged with discussing this with the parent banks.