Activities of the European Bank for Reconstruction and Development (EBRD) in 2009: facilitating economic integration in Europe
- Author(s):
- Parliamentary Assembly
- Origin
- Assembly debate on 6 October 2010
(33rd Sitting) (see Doc.
12349, report of the Committee on Economic Affairs and
Development, rapporteur: Mrs Naghdalyan). Text
adopted by the Assembly on 6 October 2010 (33rd Sitting).
1. In 2009, the global financial and
economic crisis was in full swing across Europe, leading to an exceptionally
deep downturn for most Council of Europe member states in central,
eastern and south-eastern parts of the continent, which put to the
test the solidity of economic fundamentals, social peace, governance and
institutions, as well as the direction of structural reforms. Timely
and concerted action at national and international levels was crucial
in mobilising resources to stabilise the macroeconomic situation
and preserve the confidence of all stakeholders in development prospects.
2. Parliamentary scrutiny over the prioritisation of expenditure
by states and international institutions, such as the European Bank
for Reconstruction and Development (EBRD), is particularly relevant
with a view to ensuring fair allocation and good use of resources.
Building on the Agreement of Co-operation between the Council of
Europe and the EBRD, the Parliamentary Assembly appreciates the
opportunity to contribute its views on the action of the EBRD in
the light of the ongoing economic crisis.
3. In keeping with its mandate, the EBRD actively responded to
the region’s needs for financial resources in order to mitigate
the impact of the crisis. The Bank’s investments over 2009 were
unprecedented in scale and were targeted at the countries that suffered
most from the crisis: two thirds of the operations concerned the
category of “anti-crisis measures” and were implemented in collaboration
with other international financial institutions and governments
of the region. The collective approach to tackling financial problems
enabled the region’s countries to preserve macroeconomic stability
and economic growth potential. However, the major problems revealed
by the crisis still require appropriate solutions. The task and
the challenge for the international community are to rehabilitate
the current economic model, to enhance the sustainability of the financial
system and to stimulate employment.
4. The Assembly welcomes a substantial increase in the EBRD’s
volume of operations over 2009 – with commitments up from €5.1 billion
in 2008 to €7.9 billion in 2009 and disbursements amounting to a
record €5.5 billion – even as the Bank’s own accounts incurred a
net loss of €746 million in 2009 after a loss of €602 million in
2008. It notes that these losses, the first since the effects of
the Russian crisis in 1998, were largely unavoidable due to the
shrinking value of the Bank’s equity operations and higher provisions
for the potential underperformance of loans. The Assembly is aware
of the likely prolonged demand for the EBRD’s financing at similarly
high levels for the period 2010-2015 and fully supports the decision
to approve a corresponding temporary 50% increase in the Bank’s
capital from €20 billion to €30 billion.
5. In this context, the Assembly underscores a major catalytic
role that EBRD lending plays in the realisation of investment projects
through co-financing arrangements. The Bank has thus mobilised funds several
times larger than its own and has, together with its partners, achieved
a significant multiplier effect in its operations. This effect is
all the more relevant for spreading high standards of corporate
ethics and the concept of corporate social responsibility.
6. The Assembly appreciates the EBRD’s contribution to the establishment
of the Vienna Initiative (more formally known as the European Bank
Co-ordination Initiative), which not only bolstered investor confidence
in the banking sector of central, eastern and south-eastern Europe
at a critical moment, but also helped avert a systemic banking crisis
in some parts of the region. Early in 2009, the EBRD, together with
the International Monetary Fund and the European Union, rallied
a gathering of foreign banks, their subsidiaries, governments and
regulators with the aim of reaffirming multilateral commitment to
the region and devising an action plan underpinned by solid funding
support.
7. Eastern European economies experienced an overall contraction
of 6.1% of GDP in 2009 (ranging from a contraction of 18% in Latvia
and 8.7% in Russia to modest growth in Poland and Albania at 1.6%
and 2.2% respectively), the largest of any emerging market region.
The spread of the crisis into the EBRD client countries can be linked
to persisting global imbalances, deficient international regulatory
frameworks for financial markets and institutional failures to correctly
assess complex financial products. However, the countries in the region
that were most seriously affected generally had inherent structural
weaknesses, including heavy dependence on foreign capital, a rapid
growth of the private sector and household debt spurring property
and construction bubbles and a consumption boom, budget deficits,
regulatory flaws and, in some cases, excessive reliance on remittances
and external demand.
8. The Assembly is concerned that the deteriorating macroeconomic
situation and the implementation of anti-crisis or stabilisation
measures have resulted in a slowdown or a reversal of improvements
in living conditions throughout the EBRD’s countries of operation.
Household incomes decreased and poverty levels increased as wages
were cut, unemployment soared and social benefits were curtailed.
It is reassuring that the response of the population has so far
been moderate and that domestic political stability has not been seriously
affected throughout the region. Furthermore, recent turbulences
in the eurozone have not hurt the EBRD client countries, which remain
on a steady, though fragile, recovery path with average growth forecast at
3.7% in 2010.
9. Moreover, even though progress with structural reforms inevitably
slowed down in 2009 when governments focused on the immediate problems
caused by the crisis, in no country did the leadership adopt an
anti-reform policy stance. This is a sign of growing political consensus
over the ultimate goal and the necessity of socio-economic reforms
with a view to building lasting prosperity and securing long-term
benefits in the context of globalisation. Policy dialogue and co-operation
with international development institutions, such as the EBRD, remain
a highly valuable tool for these countries to identify appropriate
national reform-oriented options and solutions.
10. The Assembly notes that despite a large increase in the volume
of EBRD financing, the number of projects supported in 2009 increased
only slightly compared to the year before (respectively 311 and 302 projects).
This corresponded to a massive support to major banking groups and
enterprises and a welcome sharper focus on lending to the real economy,
in particular through enhanced participation in trade facilitation,
energy and infrastructure projects (including participation in important
public sector undertakings) and stronger commitment to micro, small
and medium-sized enterprises with a strong job-creation potential. The
Assembly is concerned that the latter commitment is not sufficiently
covered and should be further expanded.
11. The Assembly welcomes the start of EBRD projects in the newest
country of operations – Turkey – and the resumption of commitments
to the countries of central Europe and the Baltic states against
the background of their evolving needs and changing circumstances.
It believes that the EBRD is well placed to promote further economic
integration in Europe, not least through support to projects in
the priority areas (including energy security and efficiency, good
environmental governance and development of small and medium-sized enterprises)
under the European Union’s Eastern Partnership in favour of Armenia,
Azerbaijan, Belarus, Georgia, Moldova and Ukraine, and more generally
under the European Union Neighbourhood Investment Facility.
12. The Assembly calls on the EBRD to:
12.1 use its network of partner institutions to stimulate a
debate on macroeconomic policy prescriptions and the longer-term
implications of the financial-economic crisis in terms of good governance,
including more effective regulation and oversight of cross-border
lending and further institutional development, in both private and
public sectors;
12.2 assist its countries of operation in respect of pension
system reform, notably as regards the setting-up and governance
of private pension schemes and funds, and to take part in the process
of institutional reform;
12.3 expand its contacts with the Council of Europe Development
Bank with a view to identifying possible joint activities;
12.4 maintain its increased volume of lending to support economic
recovery in its countries of operation and to co-operate more closely
with regional development institutions;
12.5 foster, together with other international financial institutions,
investment in companies with good management but facing temporary
financial difficulties and to help such companies restructure their
debt obligations and carry out structural adjustments through technical
assistance programmes;
12.6 tighten its control over indirect loans, in particular
the financing conditions applied and the risk premiums charged by
the intermediaries to the final borrowers;
12.7 contribute to the harmonisation of lending standards,
in particular with a view to cutting the administrative hurdles
in the lending process;
12.8 extend the investment programme under its Sustainable
Energy Initiative into new sectors, such as buildings, transport
and renewable energy, and to increase the range of instruments to
channel such investment;
12.9 increase lending to the early transition countries and
the European Union candidate countries in south-eastern Europe,
based on the analysis of their medium-term needs, taking into account
the impact of the crisis, and to reduce consultancy while increasing
more tangible enterprise support services;
12.10 continue to give priority to the financing of projects
in the fields of energy security and efficiency, good environmental
governance and development of small and medium-sized enterprises;
12.11 enhance its assistance to the development of local capital
markets and lending in the local currencies of client states in
order to decrease these countries’ dependence on lending in foreign currency
and on external financing;
12.12 assist the development of mechanisms of risk control in
relation to domestic currency lending in order to diminish reliance
on highly leveraged credits through hedge funds;
12.13 continue facilitating the access of women entrepreneurs
to finance and business advisory services, notably through microfinance
institutions.
13. The Assembly also draws the attention of the Council of Europe
member states to the broad policy conclusions drawn from the crisis.
It is convinced that financial institutions are an essential part
of a market economy and that they ought to serve – first and foremost
– the needs of the productive sector. This calls for the strengthening
of regulatory frameworks and oversight mechanisms to ensure responsible
lending and investment practices, adequate capitalisation and deposit
insurance, and a timely and effective regulatory base.
14. The Assembly encourages the executive and parliamentary authorities
of the Council of Europe member states to pursue sound macroeconomic
policies that take better into account the cyclical nature of economic development,
reinforce tax compliance, fiscal discipline and activities for combating
corruption, stimulate improvements in the business climate, foster
productivity gains, and give due consideration to future health
and pension obligations for ageing populations. The Assembly therefore
asks these authorities to give due support to the EBRD’s New Growth
Agenda that seeks to help countries tackle economic vulnerabilities
and imbalances, boost competitiveness and achieve sustainable “green”
growth.
