When policy-makers from around the world gather this weekend in Kiev for the annual meeting of the European Bank Reconstruction and Development (EBRD), we will discuss an institution whose success now raises questions about its future. Seventeen years after its creation to help formerly communist countries transition to market-based economies through focused project financing, the EBRD has achieved much of its original mission. The number of blossoming market economies in the former Soviet bloc, the growth of private sector economic activity, and the institution's own economic vitality make the EBRD's record of achievement clear.
As a consequence of this success, the EBRD is rapidly approaching an important strategic decision point. The bank must decide whether to go beyond its initial mandate by assisting countries outside the former communist bloc or simply fade away, as its founders envisioned, becoming a smaller and more focused institution over time as its original mandate is fulfilled. Thomas Mirow's selection as the new president of the EBRD makes now an ideal time for shareholders and management to thoughtfully answer this important question.
As the single largest investor in post-communist Eurasia since 1991, the EBRD deserves significant credit for the region's vibrant economies.
Eastern and Central Europe stand out as one of the most dynamic areas in the world, with the private sector accounting for over 70% of all economic activity, annual average growth of 7.0%, and net foreign direct investment of over $75 billion in 2007 (an increase from $5.5 billion in 1994).
The EBRD's results on the ground are also impressive. Since its inception, the EBRD has committed almost $57 billion of financing in 29 countries of operation. The EBRD finances roughly 300 projects per year ranging from infrastructure development to privatization, and improvement of municipal services to environmental sustainability. Whether helping to privatize banks in Romania or finance the development of small and medium sized enterprises in the Eastern Europe, the Bank's projects share a common objective – promoting a vibrant and sustainable private sector. Most important, the EBRD is rare among development institutions in realizing its ultimate objective as highlighted by the Czech Republic's recent graduation from borrowing status and the progress of other EU accession countries that are close behind it.
Yet, despite this success, significant challenges remain in former communist states in the Caucasus, the Balkans, and Central Asia where widespread prosperity remains elusive. Even with these remaining challenges, the EBRD's accomplishments have led some to advocate expanding its mandate to support economic development beyond post-communist countries. Simply put, the question facing EBRD shareholders is whether the Bank should evolve into a more traditional multilateral development bank assisting countries from Central Asia to the Mediterranean?
For example, Turkey is a successful democracy in Europe that might benefit greatly from the EBRD's support and assistance, and has applied to be considered as a recipient country of operation. Some have even suggested the Bank offer its creative financing capabilities to Lebanon and countries in North Africa.
While the EBRD was created with the expectation it would be dissolved once its mission was complete, those who support an expanded mandate argue that it would permit the EBRD to leverage its capabilities to meet the dynamic development needs of the broader region. Emerging economies throughout Eurasia are facing development challenges ranging from aging population and environmental degradation to outdated infrastructure and could clearly benefit from the EBRD's support. While acknowledging the potential benefits of an expanded mandate, the United States and a number of other countries are concerned that it would dilute focus from the EBRD's core mission, weaken its financial stability, and create redundancy with other multilateral institutions.
Resolving this question requires the Bank's governors to consider a number of important issues. If the Bank expands its geographic scope, how broad should it be and on what criteria should it be based? How can we be sure that an expanded mandate would not come at the expense of current operations, and what are the implications for the EBRD's financial model?
Finally, if the EBRD undertakes a broader mission, how should it harmonize its operations with other European and multilateral institutions such as the European Investment Bank and the World Bank's International Finance Corporation? Any serious discussion of EBRD expansion must address these issues first.
For this reason, the United States believes a broad-based review of the EBRD's mandate and future direction -- led by the management team with the active support and participation of all EBRD shareholders -- is a logical next step.
There is every reason to believe that under Mr. Mirow's leadership, the EBRD will address these important issues in a manner that maintains a truly multilateral consensus, bringing together European and non-European nations alike, to deal with the most pressing economic development challenges facing post Cold War Eurasia. Mr. Mirow and the Bank's other shareholders can count on the United States to be an active and constructive partner in determining a path ahead for the EBRD.
David H. McCormick is the under secretary of the Treasury for international affairs