(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
js-1443
At the Annual Meeting of the Eurpoean Bank for Reconstruction and Development
On behalf of President Bush and Treasury Secretary Snow, let me first say how pleased I am to be here in London. I offer my sincere thanks to Prime Minister Blair and the British government for hosting this important meeting. I think it’s fair to say that we are gathered here at a critical time for this institution.
In less than two weeks, eight of the EBRD’s countries of operation will join the European Union. This historic event will mark their transition, in a mere 13-year period, from communist countries with centrally planned economies to independent countries with strong democratic policies and open market economies. These countries deserve our congratulations for their achievements. For the EBRD as well – with its mandate to promote this very type of transition – this is an opportunity to declare victory.
In this context, it is appropriate that the shareholders take a fresh look at the future of this Bank. It has always been our view that transitions are, by definition, fleeting. As we are to carry out the EBRD’s mission, we must continually evaluate our operations in the context of a changing global environment. Maintaining the status quo may be the easiest path forward, but it is not necessarily the most effective path. In that vein, the upcoming Capital Resources Review (CRR) in 2006 represents a very good – and much-needed – opportunity for the Governors to revisit the Bank’s graduation policy.
Moving forward, the EBRD should build on its successes in the accession countries by focusing on its poorest countries of operation, where the volume of EBRD activity has actually declined for the last four years. We are pleased that the Bank intends to upgrade its efforts in these countries through an Early Transition Country initiative. The initiative should incorporate programs such as the Direct Investment Facility and the U.S.-sponsored SME lending program. Success will require sustained input from the private sector, a detailed plan for implementation, a redirection of EBRD resources . . . and likely some organizational and cultural changes within the Bank. In this context, I would argue that the Bank’s compensation policies need re-examination to ensure staff have the appropriate incentives to pursue projects in these difficult environments.
As the EBRD shifts its focus south and east, we should keep in mind that the total volume of EBRD activity is not – in and of itself – a measure of the EBRD’s success. Indeed, as the Bank’s activities decline in the advanced transition countries and expand in the poorer countries, we can expect a decline in total volumes, but an increase in transition impact.
With the dramatic surge in growth in many of the former Soviet countries, the opportunities for the EBRD to promote transition in the region while ensuring profitability have increased. The EBRD should look for investments that support economic diversification. Two such areas are the financial sector, where reform has often lagged, and municipal infrastructure and services, especially in poorer countries where crumbling infrastructure is a central barrier to growth. In contrast, the EBRD must be more selective in the extractive industries, which are increasingly well-served by private capital.
Political change creates new opportunities as well. Recent events in Georgia provide renewed hope for fiscal health and economic growth. We have already seen dramatic results: Georgia has run a fiscal surplus in the first three months of the year . . . confounding the skeptics. With the eyes of the international community on Georgia, this is the time for real progress on improving the business environment, particularly by reducing corruption.
In Serbia, the new government faces the urgent challenge of accelerating growth and job creation. Cooperation with the International War Crimes Tribunal is a necessary first step that will open new avenues of support from the international community and potential investors. Improving the investment climate will be a key priority for Serbia.
Bosnia-Herzegovina must spur more private sector-lead growth as it reduces a bloated public sector that consumes over half of its GDP and cannot be financed as international aid diminishes. We urge accelerated efforts to build a simple, effective, predicable tax and regulatory system. It currently takes 60 days to start a business in that country. The recent instability in Kosovo reaffirms the urgency of better economic performance. Accelerating privatization and building a strong legal and regulatory environment must be top priorities. We call on the EBRD to take a leadership role in developing Kosovo’s infrastructure and promoting privatization as improvements are made in the policy environment.
Last year, the EBRD focused attention on the early transition economies of Central Asia by holding its annual meeting in Tashkent, Uzbekistan. Since that time, there has been some good news – notably, higher growth in Tajikistan and the Kyrgyz Republic – but also disappointments, particularly in Uzbekistan, where there has been very limited progress on political and economic reforms. This area of the world certainly presents a challenge to the EBRD . . . but it also presents real potential for transition impact and enhancing regional integration.
Going forward, as the EBRD looks for opportunities to promote development, it should expand support for the small business sector, including through increased contribution of its own resources. EBRD projects which promote access to credit for small businesses have encouraged entrepreneurship, expanded employment opportunities, and strengthened local financial systems. We strongly support these programs and expect that the Bank will continue to see them as vital to its mission.
The Bank’s promotion of improved legal structures and good corporate governance contributes to improvements in the business environments of its countries of operation. It seems logical – and, we would argue, is required – that the EBRD itself should adhere to the highest standards of corporate governance. The EBRD, like other international financial institutions, is a steward of the taxes paid by the citizens of its members and, as such has significant and serious responsibilities to its shareholder nations.
And so, we are pleased that the Bank has committed to establish a strong framework of internal controls and assessment procedures for the 2004 financial statements and beyond. This commitment will serve as a powerful example to other international financial institutions.
Yet our work is not done. More progress is needed, particularly on the independence of key individuals and the improvement of transparency and disclosure policies.
Before I conclude, I’m pleased to report that just this week the United States government completed the process of accepting Mongolia as an EBRD country of operation. We look forward to other shareholders following suit within their own governments.
Now let me end where I started . . . this Bank has accomplished much in a short period of time. It has played a vital role in fostering the transition of countries toward pluralistic, multiparty democracy and market economies. We must now seek to replicate success in those countries where difficult transition challenges remain. I know that I speak for President Bush and Secretary Snow when I say that given its history thus far, we are confident that the EBRD is up to this great task.