By Sebastian Tong
LONDON, Nov 25 (Reuters) - Doubts over the European Bank for
Reconstruction and Development's (EBRD) role in eastern Europe
have now been silenced by the global financial crisis that has
engulfed countries within its remit.
Earlier this year, some of the EBRD's shareholders --
including its largest, the United States -- argued that the
rapid economic growth of former Soviet bloc members such as
Poland and Hungary meant the EBRD's role in fostering private
sector investment had diminished.
But the purpose of the development bank, established in 1991
to help former Soviet bloc countries make the transition to
market economies, has been reinvigorated in recent months.
"I don't hear those questions about the (EBRD's) future any
more. There is a real role for the EBRD to help these countries
get through this difficult period," EBRD Chief Economist Erik
Berglof said on Tuesday.
The EBRD said last week it would reverse the recent decline
in investments to central Europe and turn its attention back to
economies once seen to be on track for graduation from its
lending programmes.
Having gorged on foreign financing during the boom years,
many of these economies have been hard hit by the credit crisis
sparked off by souring subprime mortgage debt in the U.S.
The London-based bank has forecast that the region's
economic growth would halve to 3 percent next year amid falling
consumption and rising unemployment. []
Belarus, Hungary, Serbia and Ukraine are among the transition
countries that have sought help from the International Monetary
Fund (IMF).
"Given the scope of challenges faced by the region and the
massive requirements for its regenerating growth, the EBRD seems
to have its work cut out for the next five years at least," said
Vanessa Rossi, a senior research fellow with the International
Economics programme at London's Chatham House.
COMMERCIALLY ORIENTED
While the IMF is focused on helping countries with their
balance of payments, the EBRD as a commercially oriented lender
is better placed to help mitigate the impact of the financial
crisis on private sector investments, analysts say.
As private sources of financing dry up, the EBRD will play a
more prominent role in its 29 countries of operations as one of
the few channels of foreign credit left.
"There will be countries that don't require IMF help but
will find it hard to raise financing. Partial guarantees
provided by the EBRD on project financing can often bring in
other investors," said Rossi.
The bank said last week it would raise its investments in
the region to as much as 7 billion euros next year to help its
creditor countries cope with the financial crisis.
Taking into account additional funding from its commercial
partners, this could mean EBRD-led financing could top 20
billion euros next year.
"Though the absolute financing is not huge compared to the
region's needs, any financing is welcome until we see a
resumption in capital flow," said Dmitry Guorov, an economist at
UniCredit.
The EBRD's investment efforts next year are likely to be
focused on sectors such as infrastructure and banking, which are
seen particularly at risk from the constriction of credit.
The institution, which is a shareholder in around 100
financial institutions and a creditor to a further 200, has
already pledged support for its partner banks.
Meanwhile, the organisation's geographical remit -- the
subject of debate this year after its decision to start funding
Turkey -- is likely to remain stable for the forseeable future.
"There is plenty to do as it is and their capital base isn't
large enough," said UniCredit's Guorov.
(Reporting by Sebastian Tong ;)
