FROM THE OFFICE OF PUBLIC AFFAIRS
May 22, 2005
JS-2462
Remarks of Randal K. Quarles
Acting Under Secretary of the United States Treasury
at the Annual Meeting of the
European Bank for Reconstruction and Development
Montenegro for their work in ensuring the success of this event. And at the very outset, I also want to thank Noreen Doyle for her years of service to the EBRD. She has dedicated 13 years of her career to the Bank, beginning as the head of syndications in 1992, and most recently serving as the First Vice President. We all wish her well in her future endeavors.
It has been a remarkable year for the region – one that has affirmed the fundamental importance of peaceful democratic change to a successful transition to an open market economy. The second wave of peaceful revolutions spreading east and south has drawn inspiration from the EU-8 accession countries that have demonstrated the concrete benefits of completing the transition to market-oriented democracies. Now the new democratic reformers are using their political mandates to achieve major breakthroughs on economic reforms and the fight against corruption.
In Georgia, the state has stepped back from the brink of financial collapse. By no longer tolerating corruption, the government increased revenues by 50 percent in one year and is meeting its commitments to its people in full and on time for the first time in its history. Not satisfied with marginal refinements, it completely rewrote the tax code, making it one of the most investor friendly in the region. In return, confidence and investment have soared.
In Ukraine, we remain impressed by the new government's commitment to tackle corruption through strengthening the rule of law. The government has eliminated a wide range of exemptions and privileges that were previously exploited by large companies to
evade tax obligations. This is a good start. Moving ahead rapidly on other priority reforms will demonstrate that Ukraine's authorities are serious about leading Ukraine to its rightful place in Europe.
Serbia and Montenegro experienced their own transition from dictatorship to democracy and are now poised to reap the benefits of reform and strengthening relations with the international community. Following last year's elections, the government moved forward resolutely on economic stability, privatization and development of the financial sector. The July 2004 agreement with the London Club was a landmark achievement, which normalized the country's relations with international capital markets. We hope that
progress on bringing the final war crimes indictees to justice in The Hague will allow the U.S. to resume supporting EBRD operations in Serbia.
Romania has demonstrated how democratic and economic development can be mutually reinforcing. A surprise opposition victory served to reignite the country's movement toward EU membership by freeing the government's hand to take on entrenched interests and improve the investment climate. The introduction of the flat tax has been accompanied by efforts to improve tax collection and strengthen anti-corruption legislation. Early results have been positive with higher revenues and registered employment indicating a shift out of the shadow economy.
The changes sweeping the region represent a new wave of transition, potentially as transformational as the dramatic events of 1989-1991. But the trends are by no means inevitable and must be nurtured if the high expectations of citizens are to be fulfilled.
In the Kyrgyz Republic, the people have taken a stance against the corrupt status quo in favor of change. It is our hope that the recent changes will result in free and fair elections in July. If this happens, the new government will need to show that democracy can deliver the economic opportunity that was denied under the old regime.
In some countries the people have yet to have their say. I would like to reiterate the U.S. stance on Belarus -- we stand with those struggling for democracy in Europe's last dictatorship.
In Uzbekistan, we are seriously disturbed about recent events and believe the EBRD should give these events careful consideration during its upcoming review of the Uzbek country strategy in July.
Given the tremendous changes sweeping east and south, it is only natural that the EBRD should continue to play a major role in supporting economic and political transformation in the region.
To do so, the EBRD must look back to its creation and renew itself as an institution. It must refocus on its transition mandate by directing its resources to those poorer countries of the region where its transformational effect can be the greatest. It must take the valuable lessons learned in the advanced transition countries and apply them to those countries that are still making this transition.
And to effectively apply the lessons learned to the early and intermediate transition countries, the EBRD must be willing to recognize its successes. This includes acknowledgment of when its work is done and it is time to move on.
In several countries, the EBRD is already at that point. The eight countries of Central and Eastern Europe that joined the EU last spring have completed their transition. While EBRDs work is done, these countries will have support for their economic convergence into the EU from EU structural and cohesion funds and the European Investment Bank. I
wish to repeat our call for the EBRD to cease new operations in the EU-8 within the next two to three years. Our intention is to acknowledge their remarkable success. And most importantly, to free the Bank to focus completely on the less advanced countries of operation and to serve them with the same dedication and intensity of purpose that it brought to the EU-8.
Sometimes in response to our call for a movement south and east, we hear the objection that this move is not practical. We hear that the poorer countries of the region are too risky. We hear of the obstacles to investment and the barriers to activity.
But when we hear of the difficulties of operating in the poorer countries in the region, we must remember that there were no easy investments in Hungary or Estonia or Slovenia in 1991. Yet the Bank dove in, and both the region and the EBRD prospered. I am convinced that with the vision and professionalism and dedication that have characterized the management and staff of this Bank since its inception, we can do it again.
As the Bank expands its operations in the early and intermediate transition countries, I want to reiterate our long-standing support for efforts to expand financing for local entrepreneurs, particularly micro, small, and medium-sized enterprises. These
entrepreneurs are essential to creating a vibrant, market-oriented economy, and, as stakeholders in their communities, they facilitate the development of more open and transparent government. We hope that the EBRD will fully staff and use the Group for Small Business and the Direct Investment Facility, among others, to advance the Banks efforts in this area.
At a time when so many countries in the region are taking steps to fight corruption, I want to emphasize the importance we attach to the EBRD's work in this area. Because democracy and free markets depend on an open, transparent, and rule-based system of law, the elimination of corruption is a vital component of the EBRD's transition objectives. Consequently, the Legal Transition Program and other work in this area have
been as important to the Bank's mission as its financial operations.
To promote good governance effectively in the region, the EBRD must make sure that its own operations are consistent with best practices. There have been several positive developments on this front, including the implementation of a COSO system of internal
controls, new measures leading toward full independence of the evaluation function, work underway to revise the Code of Conduct, and a planned, annual anti-corruption report.
The Bank, however, must make further improvements in public disclosure, particularly by making its budget and the minutes of Board meetings available to the public as is done by other international financial institutions. The Bank should also make public its draft country strategies for comment. In addition, the EBRD must take further steps to ensure the operational independence of its internal audit and compliance functions. Furthermore, reviewing the operation of the Board should be part of the process of bringing the Bank in line with best current corporate governance practices.
In conclusion, let me reiterate our fundamental point -- now is the time for the EBRD to renew itself as an institution so that it might maximize its impact going forward. The Bank was created to bring the former communist countries into the community of free, open societies. To remain true to its mission, the EBRD should recognize where the mission has been accomplished and what tools have been instrumental to that success so that it is in the best possible position to seize the historical opportunities developing elsewhere in the region.