By Nick Edwards
ISTANBUL, Oct 5 (Reuters) - The economies of emerging Europe
remain fragile and a failure to supply billions of euros of new
capital for the region's development bank, the EBRD, would risk
wasting opportunities, the bank's chief said on Monday.
"Certainly the worst of the crisis seems to be over, but
still the situation remains fragile," Thomas Mirow, President of
the European Bank for Reconstruction and Development, told
Reuters Television on the sidelines of the annual meetings of
the World Bank and International Monetary Fund in Istanbul.
"We've had huge demand on our investments, on our services,
on our catalytic role and we like to make the most out of it,"
Mirow said.
"It would be about wasted opportunities," he said when asked
about the risk to the region if 10 billion euros ($14.6 billion)
of new capital, which the bank has written to shareholders
asking them to provide, was not forthcoming.
Pressed on whether he was hopeful the bank's shareholders
would come up with the cash, all Mirow would say was: "We will
see."
The Group of 20 leading older and emerging economies,
increasingly responsible for the international coordination of
policy responses to the global crisis, has asked all the
multilateral development banks to increase their activities and
to assess their capital needs in early 2010.
"This is what we will do in our annual meeting, that has to
take the decision, in May in Zagreb," Mirow said.
The bank, which is controlled by over 60 shareholder members
including European Union members, the United States and Japan,
appealed for the money to expand lending and compensate for a
drop in private capital flows to the former eastern bloc.
In a letter to shareholders seen by Reuters, Mirow
recommended the 50 percent increase in capital to enable the
bank to spend 9-10 billion euros a year over the next five years
to tackle the crisis and help the recovery.
The additional capital would consist of 1 billion euros that
would be paid in, and 9 billion euros in callable capital.
Mirow said there were signs that the emerging European
economy was beginning to bottom out, but not enough to stop the
bank from downgrading its forecast for economic growth in the
region to minus six percent in 2009 from a previous estimate of
a contraction of 5.2 percent.
"This applies to a very big region ... The Baltic countries
are in a very bad situation, other countries like Poland are
doing relatively well, so it would be a bit wrong to just look
at the average," he said.
Meanwhile the EBRD stood ready to provide more support if
needed to the 15-systemically important banks in the region it
has already been helping.
"This is not what we can see now, but as the real economy is
still lagging and produces non-performing loans, at the same
time the numbers in terms of unemployment are still rising, this
could hit back to the financial sector. If this were to happen
the bank would stand ready to continue our support," he said.
Dealing with sour loans and toxic assets was clearly the key
issue to tackle, Mirow said, but added that no decision had yet
been taken at the EBRD to join a planned $5 billion fund from
the International Finance Corp (IFC), the World Bank's private
sector lender, to buy up distressed debts.
"We have not yet taken any decision on this. It is in an
early stage of appraisal," he said.
(Nick Edwards, +44 7990 565231; Editing by Ruth Pitchford)
