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May 3, 2010 10:35 pm
International efforts to support economic recovery in central and eastern Europe are set to get a big boost this month from a decision to raise by 50 per cent to €30bn ($40bn) the capital of the European Bank for Reconstruction and Development.
The bank has about 60 shareholder governments, headed by European Union members, the US and Japan. They are expected to agree unanimously to provide the bank with extra resources for a region that has been slow to pull out of the global crisis.
The decision comes at a critical time, with investors concerned about the possible impact on central and eastern Europe of the Greek crisis. While some countries, notably Poland, have emerged strongly from the global recession, others remain vulnerable, not least three countries in International Monetary Fund rescue programmes, Ukraine, Latvia and Hungary.
Thomas Mirow, EBRD president, said: “The capital increase is very important for us not only in purely economic terms but because I think it’s a very strong signal about the unanimity of our shareholders who . . . haven’t always been united to the same degree.”
Mr Mirow said the final decision would be taken at the bank’s annual meeting in Croatia on May 14-15, but he had seen no indications that any shareholders would withhold support. This contrasts with the atmosphere before the crisis, when the US led moves, opposed by the EU and others, to limit the EBRD’s future role by pushing hard for dividend payouts that would have cut resources.
Mr Mirow said the €10bn increase would allow it to lend €8.5bn-€9bn annually, compared with last year’s record €7.9bn. This, combined with the money invested by the private companies that collaborate in most of the bank’s projects, would generate about €27bn annually.
The EBRD is raising its economic growth forecasts for 2010 for central and eastern Europe (CEE), including Turkey, from 3.4 per cent to 3.6-3.7 per cent. Officials warn this conceals wide variations between above-average performers, such as Russia and Poland, and states still struggling to escape the recession.
Mr Mirow said CEE’s dependence on incoming foreign investment, which was now weak, undeveloped local financial markets, and dependence on either commodities (as in Russia) or a narrow range of manufactured exports (as in central Europe) made the recovery sluggish. “Capital markets are more sceptical about recovery in this region,” he said, than in east Asia, the Middle East and Latin America.
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