EMBARGO UNTIL DELIVERY D30(010)
CHECK AGAINST DELIVERY 06.10.2010
From responding to crisis to securing the recovery
Ladies and Gentlemen,
Many thanks for the invitation to address you today. It is a great honour for me, even more so as it is my first public speech in my new position as EBRD Vice President for Operational Policies.
In my previous capacity as Prime Minister of the Czech Republic I came to appreciate the work of the Parliamentary Assembly of the Council of Europe. I see the Council of Europe and the EBRD as partners working for the same ultimate goal – greater stability and prosperity of the vast Region comprising Central, Eastern, South Eastern Europe and CIS, and its deeper and smoother integration into United Europe. I am looking forward to working closely together in the next few years, and to furthering the excellent cooperation established between the European Bank for Reconstruction and Development and the Council of Europe and its Parliamentary Assembly.
The EBRD was set up as an institution to facilitate transition towards open market-oriented economies, to promote private and entrepreneurial initiative, and to assist in structural reforms. Despite many achievements of which we are proud, the EBRD’s mandate is far from complete. The Bank has at its disposal a broad range of instruments allowing it to successfully continue implementing this mandate, but it is also reflecting on the new face of the Region and its changing needs and priorities.
I would like to congratulate the Rapporteur on the EBRD Ms. Hahdalyan and the members of the Committee on Economic Affairs and Development for a comprehensive Report on our activities, and for a highly interesting presentation here today.
I have put my speech today under one over-arching theme which is “From responding to the crisis to securing the recovery”. This for me captures what the EBRD has done since the global financial crisis hit our Region with such extraordinary force, what we are doing now, and what will be our main tasks in the years ahead.
Allow me to start with a brief macro economic round-up: The EBRD Region was hit particularly hard by the crisis and, even though we see a return to economic growth in some countries, the recovery remains sluggish, protracted, and far from secure in others. Central European countries are benefiting from the recovery in their Western neighbours. In contrast, growth continues to be flat or even negative in many countries of South Eastern Europe. There are several reasons for this: weak credit growth and fiscal consolidation weaken domestic demand and the crisis and its aftermath have revealed a lack of competitiveness of local producers.
Looking further east we see a steep recovery in Russia and Kazakhstan since the end of 2009 based on higher oil-prices, large fiscal stimulus packages and substantial state support for the banking sector. However, progress with much-needed reforms such as diversification, SME development or private sector support remains patchy.
For many EBRD countries of operations, which the Council of Europe is traditionally following especially carefully, we can report a mixed picture. Among the group of what we call the Early Transition Countries we have seen some recovery, although structural weaknesses and pressures remain.
In this situation we at the EBRD see our main task in supporting our countries of operations in overcoming the crisis and securing the recovery. We are doing this in various ways, according to the demands and needs of our countries of operations and in line with our mandate.
Our first contribution is clearly through our investments. As you know, the EBRD responded forcefully to the crisis with an unprecedented increase of our investment from €5.1 billion in 2008 to almost €8 billion in 2009, the year the crisis unfolded in our region. The EBRD Board quickly approved a crisis response package which allowed us to react swiftly and decisively by targeted spending on priority areas like the financial sector, the real economy, infrastructure and energy efficiency and renewable sources of energy. The record business volume comprising 311 projects reflects the Bank’s robust support to our countries of operations with close to two-thirds provided as crisis response.
The crisis did not detract the EBRD from continuing our strategic focus on the Early Transition Countries and South Eastern Europe. Investments were particularly high in the Western Balkans where volume increased by 36 per cent from €534 million in 2008 to €727 million in 2009.
The biggest turnaround, however, occurred in the advanced countries of Central and Eastern Europe where only a few years ago discussions about graduation from the EBRD were the main topic. Now due to the crisis the Bank, responding to the needs of these countries, multiplied its investments from €328 million in 2008 to €1.6 billion in 2009.
In terms of geographical composition, 47 per cent of the 2009 investments went to early and intermediate transition countries, 30 per cent to Russia, 21 per cent to Central and Eastern Europe, and 2 per cent to Turkey where we have recently successfully launched our operations.
At the same time the EBRD was also instrumental in the establishment of the “Vienna Initiative”. This forum assembled all major players – governments, central banks, regulators, western banking groups with a heavy presence in the Region, and international financial institutions plus the European Commission – to coordinate nation-based policy responses between home and host authorities. For banking systems of the countries most affected by the crisis, commitments by western banking groups helped stabilize liquidity and ensure sufficient capital. To date, the record of the initiative has been good.
The coordination efforts of the Vienna Initiative are being underpinned by substantial financial contributions. Under the Joint IFI Action Plan, the EBRD, EIB and World Bank Group have put together €25 billion to support the region’s banking sectors and lending to the real economy. We will continue to work under the JAP until its expiration at the end of 2010, and thereafter shall continue our enhanced collaboration established under the JAP framework.
To allow the EBRD continue this increased level of activity, in May 2010 our shareholders approved our request for a capital increase from €20 billion to €30 billion via a temporary increase in callable capital of €9 billion and a transfer from reserves to paid-in capital of €1 billion. Currently €5 billion of capital is paid-in and €15 billion is callable and the Bank’s reserves stand at around €6 billion. I would like to take this opportunity to thank the Parliamentary Assembly and the national Parliaments of the countries you represent for your strong and longstanding support for the strengthening of the EBRD’s capital reserves.
With this additional “cushion” we intend to maintain a historic record level of investment to support our countries not only to recover from the crisis but also to lay the foundations for future growth. According to our current medium-term business plan, which was adopted in May at our Annual Meeting in Zagreb, the capital increase will allow for annual investments of €9 billion from 2010 to 2012 and of €8.5 billion in each of the following three years.
For this next phase we have identified the following priorities within our overall mandate to promote transition to market economies and private and entrepreneurial initiative:
In institution building: The crisis has revealed weakness in institutions and policies which we will aim to improve through intensified policy dialogue in coordination with other international financial institutions and supra-national bodies like the EU.
In the financial sector: The promotion of sound balance sheets and risk practices and - in a concerted effort - the building and strengthening of local capital and currency markets.
In the real economy: Support for the diversification of the economic base and the development of knowledge-based industries in order to generate balanced and less vulnerable growth.
In the energy sector: Energy efficiency, energy security and tackling climate change have been at the forefront of our activities in recent years and will gain even more prominence in the future. The potential for savings and efficiency gains remains enormous: Our Sustainable Energy Initiative alone aims to achieve carbon reductions of up to 35 million tonnes of CO2 per annum.
In the infrastructure sector: The EBRD - together with private investors and, where feasible, through PPP models - will help to close the funding gap for critical infrastructure due to the growing fiscal constrains of national governments.
Based on almost 20 years of experience and the unique set of skills and expertise the EBRD has, we are confident that we can make further important contributions to the successful development of Emerging Europe. However, we also must acknowledge that the main impulse must come from the countries themselves. The overwhelmingly mature and measured response to the crisis in our countries of operations - in many cases underpinned by unprecedented and well coordinated international support - gives us the confidence that the crisis will not lead to a reversal of the reform process but inspire the search for new approaches and solutions.
Drawing the lessons from the crisis and confronting the challenges ahead Emerging Europe needs a “New Growth Agenda”, which can lead to a more stable and sustainable growth. This agenda will need to address imbalances and vulnerabilities that were unmasked during the crisis such as the mismatch between external and domestic sources of financing, the continuing lack of diversification within the economies of the region, and the need for a strong focus on energy efficiency to boost competitiveness and achieve low-carbon growth.
We also firmly believe that the current crisis presents an opportunity for the countries of Eastern Europe to continue and deepen the reform and transition process. Unprecedented progress has been made over the past 20 years and integration into the global economy and institutions like the European Union or the World Trade Organisation remains the way forward.
The countries of our region that are now emerging from the recession are facing enormous tasks. Those still in recession are confronted with even bigger challenges. The EBRD stands ready with its support to all of them.
Thank you for your attention.