Press Room
 

May 22, 2006
JS-4276

Statement by Clay Lowery
Assistant Secretary for International Affairs
Annual Meeting of the European Bank for Reconstruction
and Development

London, ENGLAND – I am pleased to be in London for the 15th Annual
Meeting of the EBRD. On behalf of President Bush and Secretary Snow, I would like to thank our UK hosts, President Lemierre, and Bank staff for making this event a success.

I also extend a special welcome to the incoming First Vice President of the EBRD, Mr. Varel Freeman, who comes to the Bank at an important time of change. We thank Steven Kaempfer for his extraordinary service to the EBRD both as Vice President for Finance and as interim First Vice President during the past year. We wish him well in his future endeavors.

The CRR period just ended was a time of great success for the EBRD. During this period, eight countries of operation completed the kind of political and economic transition envisioned in the Bank's charter. These countries, the EU-8, have established:

  • strong rates of economic growth reflecting simplified tax regimes with low rates of taxation;
  • substantial inflows of foreign direct investment;
    access to EIB funds and EU structural and cohesion funds as members of the European Union for the last two years; and, most important from the transition perspective; and
  • strong financial sectors which can meet the needs of the marketplace.

As the EBRD enters its third Capital Resources Review period, it stands ready to shift its focus fully to the countries to the East and Southeast. The Bank has considerable strengths with which to meet its remaining transition challenges. It has 15 years of transition experience, a capable and knowledgeable staff, strong profitability, ample reserves prudently calculated and no need for further capital from its shareholders. Its expertise in financing local entrepreneurs, specifically micro, small and medium-sized enterprises, will continue to be of particular importance in the early transition countries. There are challenges to be sure, but the Bank has the right mix of resources and the right mandate to finish its mission by assisting the remaining countries of operations in their own transition processes.

Management of the Bank's own transition will be the center piece of the next CRR period. To achieve this, the Bank has a strong CRR strategy that includes:

  • ending new operations in the EU-8;
  • closing and consolidating EU-8 resident offices to manage existing investment portfolios; and most importantly; and
  • a clear commitment to reallocate resources to the early-intermediate transition countries south and east, in support of the Bank's new strategy.

We are pleased that all shareholders approved this strategy, and we understand that several EU-8 countries are already making plans to graduate – when this happens, we should all celebrate this leadership.

Of course, in implementing its transition mandate the Bank must adhere to sound banking principles and financial additionality, as public monies should not compete with the private sector. We also strongly support the decision to require much greater specificity in annual business plans beginning with 2007. This is necessary to enable shareholders to measure management's performance in implementing each plan.

The new CRR marks a historic turning point for the Bank, and I commend President Jean Lemierre for his leadership on this issue. This CRR keeps EBRD true to its mandate as a transition, not a permanent, bank focused on helping the former communist countries of Eurasia develop market economies.

For the same reason that the Bank is closing offices and consolidating its presence in the EU-8, the Bank needs to expand its resident office network in Ukraine, the poorer parts of Russia, and other countries to the East and Southeast. We will support such an expansion whenever a solid business and transition case can be made for it. This is particularly true in the early transition countries where the ETC Initiative continues to provide the benefits of EBRD operations to the most critically underserved clients. In this context we look forward to welcoming Mongolia as the final addition to the list of countries of operation. We also strongly support continued cooperation between the EBRD and our donor agencies on the ground particularly in the Early Transition Countries. We especially welcome cooperation between the EBRD and the Millennium Challenge Corporation in Georgia and Armenia.

A more intense focus South and East will allow the Bank to play a greater role in key regional development challenges:

  • It can help promote stability in Kosovo by moving quickly, once final status is determined, to support a private sector that provides jobs and growth.
  • In Central Asia, the EBRD can help spur regional investment and greater trade, transport and energy links to South Asia.
  • It can be instrumental in promoting greater energy efficiency in places like Ukraine and Moldova.
  • And it can continue to expand its micro and small business lending program, one of the most successful of its kind in the world, to broaden access to capital in these areas.

With respect to investment in energy infrastructure, we expect the EBRD to be increasingly called upon to help companies adopt cleaner, more efficient technologies. In providing such support, we believe it is important for the Bank to limit its activities to projects which promote transition and exhibit sound economic fundamentals. Any EBRD business line should be conducted within the context of the Bank's transitional mandate and the portfolio shift required by the CRR.

To promote good governance in the region, the EBRD must make sure that its own practices are best practices. We are pleased that the Bank is now implementing improved grievance and appeals procedures as well as a new, modern code of conduct which includes disclosure of financial interests. While we believe that the new Public Information Policy fell short of what it could and should have achieved, we recognize that it has improved the transparency of the EBRD's operations. We also commend the Board and the Management for breaking new ground among the multilateral development banks by agreeing to disclose the compensation provided to members of the Board of Directors as well as senior management. We continue to believe that reviewing the operations of the Board and determining whether it provides good value for money should be part of the process of bringing the Bank in line with best corporate practices.

We have worked closely with our U.S. Congress in strengthening anti-corruption policies at the MDBs. Achieving this goal requires improved cooperation among the MDBs. We commend the EBRD for its efforts to combat corruption and to prevent money laundering and terrorist financing, but we recognize that there is still room for improvement.

As the Bank discusses its annual business plans, it should, of course, be prudent in establishing and maintaining reserves and in approaching the risks that it will face in the coming CRR period. The Bank's finances are strong, and its profits are large and unprecedented. In this context, we support the proposal to include certain donor-supported activities, such as the Legal Transition Program and the TAM and BAS programs, in the operational budget. We should also consider the full range of potential uses of the Bank's capital, including payment of dividends.

In conclusion, we are pleased that all of the shareholders came together in the CRR to reaffirm the Bank's mandate as, ultimately, a financial institution with a specific and finite transition mandate. We celebrate the coming graduation of all EU-8 countries in the CRR-3 period because it is a sign of their and the EBRD's great success. First the EU-8 and eventually others will come to support the Bank with a new maturity and confidence simply as shareholders rather than as shareholders and countries of operations.

With the new CRR strategy, the Bank's management has the necessary policy guidance and tools to complete the task assigned to it fifteen years ago. We wish the Bank and all those associated with it well in the new CRR period.

We think today is a time to celebrate the EBRD's leadership. It led the way in helping transition Eastern European countries to market-oriented economies. It led the way in creating viable, professional financial institutions that frankly displace the need for the EBRD. It led the way in being a focused, disciplined development institution, instead of trying to be all things to all people. The result of this leadership is the opportunity and obligation to show further leadership. It can lead the way in showing countries can be successful and graduate. It can lead the way further into countries in need of transitional assistance. And it can lead the way in showing that development institutions can be transitional and can be successful.