It is a great honour for me to chair this year’s Annual Meeting of the European Bank for Reconstruction and Development, a meeting that takes place on the eve of the accession to the European Union of eight countries in which the Bank has been active since 1991. This accession to my mind pays tribute to the tremendous changes that have taken place in Central and Eastern Europe since the fall of the Berlin Wall, and the EBRD can be proud to have played a crucial role in that transition. Had it not been for the pioneering role of the Bank to support the emerging private sector in these countries while paying due attention to the social consequences of the changes, I believe that the transition would not have been that smooth and that fast.
At the same time, I do not believe that the transition process is over for the accession countries, in such a way that there would be no further scope for EBRD involvement. On the contrary, the “last mile” to a fully functional market economy is usually the hardest, and it takes a specialist institution like the EBRD to accompany our new member states on that final stretch of the road. Financial markets there often do not yet have the desired breadth and depth, the restructuring of sensitive sectors is not yet completed, and municipalities still need help to provide better public services. I strongly believe that the EBRD because of its longstanding experience in the region can deliver on these issues without violating its usual conditions of additionality and transition impact; after all the EBRD is not in the business of taking away opportunities from other investors interested in the accession countries.
One reason why the future work of EBRD in the EU accession countries will surely be additional is the greater risk element inherent in some of its future transactions there. This, combined with the push to do more in the least advanced transition countries to the South and the East, will result in an increasingly risky project portfolio that the Bank has to manage. We as shareholders should however strongly support this development, as risk taking within the parameters of sound banking fully corresponds to EBRD’s mandate. Moreover we are fortunate that the last years, and especially fiscal 2003, have for a variety of reasons produced solid financial results, which give the Bank a cushion for enhanced risk-taking.
I think at this point we should commend President Lemierre and the Bank’s Management for their competent leadership in terms of financial health of the institution. We are well aware that at least part of the good results are due to profitable equity exits in deals concluded at the early stages of privatisation in Central Europe, and that it will be difficult to find similar opportunities in the future. However the sound fiscal management of the institution (with regard to banking, treasury operations and the operational budget) merits special mention, as it is not self-evident to stay clear of danger in the often imponderable waters of emerging economies.
Talking about new challenges, we certainly have in mind the expanded role of EBRD in the less advanced transition countries. By moving further east and south, not only will the economic environment become more difficult, but the conditions listed in Article 1 of the Bank’s Articles of Agreement, namely political diversity and democratisation, are likely to gain greater prominence. Some of these countries represent the poorest part of an otherwise very dynamic region, stuck between lack of investor interest and high public debt. I warmly welcome the Action Plan for Early Transition Countries (ETCs) that the Bank has produced at the end of an extended review and analysis process. The idea of building on existing instruments that have proved their mettle like direct equity participations and small business lending is a good starting point. But the need to add on new instruments to stop the overall decline in EBRD commitments to this region has been well recognised. Moreover the increased mobilisation of staff resources, combined with a more direct management structure, are useful complements in this strategic refocusing.
This leaves us with the last major element of the ETC Action Plan, the necessary grant finance resources to accompany the Bank’s operations. Because EBRD in contrast to other multilateral development banks does not have a concessional window, such grant financing has to come from outside sources: we as donors thus have an increased responsibility for the success of the Bank in the ETCs, and I believe that we must make a special effort to live up to that challenge. Luxembourg for its part is willing to build on the positive experience it has had with the TAM/BAS programme and put more grant resources for SME development in the early transition countries, as well as for microfinance activities; [for example we have just now approved a new commitment for TAM activities in Tajikistan and the Kyrgyz Republic].
One country that also deserves our attention in this region is Mongolia. Despite being excluded for the moment from direct EBRD financing, Mongolia is pursuing a courageous transition programme, with the support from the Mongolia Technical Cooperation Trust Fund set up by the Netherlands, Japan and Luxembourg three years ago (later joined by Taipei China). However effective this Fund is, its resources are limited, and wide-scale transition results can only come about through regular EBRD project financing. I therefore urge you, my fellow Governors, to personally follow-up on the unanimous resolution we have taken to admit Mongolia as an EBRD country of operation, and make sure that our national ratification requirements of the amendment to the Bank’s Articles of Agreement are met as swiftly as possible. I can tell you that my own country is on the verge of passing the necessary law, and I hope that the Bank can quickly close this procedure in the interest of our Mongolian friends.
Having focussed on the early and intermediate transition countries in the East, we should not forget the ones in the South-East, notably the Caucasus and Western Balkans. Concerning the latter, the EU reaffirmed its commitment to the Stabilisation and Association Process at the Thessaloniki Summit in June 2003. This commitment however has to translate into increased financial and political support, if we are to stand a chance to overcome the instability that has plagued parts of the region for so long. The EBRD can surely play an important role in this regard, not only by complementing the EU’s Stability Pact through private sector initiatives, but also by fostering cross-border investments and working on legal transition. This region must not be left to remain an impoverished enclave in a wider, more prosperous Europe.
Let me close by thanking you personally, Mr President, for your exemplary leadership at the helm of this Bank. I already talked about your circumspective guidance in building up the Bank’s reserves, and about your clear identification of the operational challenges that lie ahead. Let me add that the relationship with our representatives at the institution, the Board of Directors, continues to be excellent, and that the Bank’s staff feels highly motivated to follow your lead. Mr President, I am sure that my fellow Governors a few minutes from now will be unanimous in voting for a renewal of your mandate for another four years, as we have been so well served by your competence and vision the first time we asked you to lead this institution.