FROM THE OFFICE OF PUBLIC AFFAIRS

President Lemierre, fellow Governors, ladies and gentlemen, I am delighted to be here in Bucharest for these annual meetings. I believe I am the first U.S. Treasury Secretary to visit Bucharest. And it has been a decade since a Treasury Secretary attended the EBRD annual meetings. Secretary Brady attended in 1991 and 1992. I have come because I think the EBRD has been an exceptionally effective tool for development and transition in the region. It is uniquely endowed with a mandate to support countries committed to and applying the principles of multiparty democracy, pluralism, and market economics. I also want to call on this bank to rise to the challenges now facing us.

In a series of recent speeches, President Bush and I have put forth an agenda for accelerating development and for greatly increasing aid effectiveness. Key elements of that agenda are:

• a focus on productivity growth,
• the importance of private investment and investment in human capital in raising productivity,
• an insistence on measurable results, and
• the Millennium Challenge Account based the on essential policy underpinnings good governance, economic freedom, and investment in health and education.

The EBRD is well-designed and well-positioned to advance this agenda. The central purpose of the EBRD is to promote the transition to democratic market economies, particularly by facilitating private sector investment. It is designed to finance projects that are above the risk threshold for private capital alone. Under President Lemierre, it has also intensified efforts to use its financing to encourage better corporate governance and improved investment environments. We view these activities as among the most effective that international financial institutions can undertake in raising productivity and spurring growth and higher living standards.

September 11 and the war on terrorism it launched have forced us to look again at our definitions of national, regional, and global security. The concept of security must be broadly defined to encompass the sources of instability, extremism, and terrorism. We know that the war on terrorism has an economic front. This bank includes countries and regions very much on the frontlines of this struggle, including Central Asia and the Caucasus. I think the EBRD has a unique, vital contribution to make, and I welcome its efforts to step up its activities in these areas.

We very much support and encourage more EBRD efforts to expand operations to the South and to the East, and also to expand financing and investment in micro, small, and medium size companies. While these are only a part of the EBRD’s operations, we view its programs to promote new, small businesses as especially valuable tools in support of transition and development. SMEs are an essential source of job growth, where productivity gains are likely to be highest.

The governments of the region should seize this moment and redouble their efforts to improve investment climates. They have influence over much of the risk facing investors. If they act, we are confident that the EBRD will vigorously respond. The United States has put its own resources on the line in these efforts. We have created a Fund at the EBRD to support the development of micro, small and medium sized businesses in early and intermediate transition countries, which will grow to over $25 million this year, and expand operations to the farthest reaches of the Bank.

Just this morning in Bucharest, President Lemierre and I visited a furniture factory that has been a beneficiary of this SME fund. With a loan from this Facility, the furniture factory has rapidly increased its operations, enabling it to expand from sales to designing and manufacturing its own products. This is typical of the EBRD’s success with this facility across Southeast Europe. Nearly 17,000 loans worth over $100 million have been provided since its inception nearly two years ago. This Fund includes a "policy dialogue" component, under which EBRD staff engage governments at the local and national levels on steps to identify and remove obstacles to small business finance and growth. Our financing also trains loan officers to do this kind of lending, thus building human capital in a very practical, productive sense.

While in Russia last summer, I witnessed first hand the enormous impact of EBRD’s activities in promoting small business loans through the Russia Small Business Fund. We fully endorse the EBRD’s plans to further expand this very successful program, and I strongly urge other donors to join us in contributing the resources necessary to support its expansion.

With more than a decade of transition behind us, the benefits of reform are more and more in evidence. Despite the global uncertainty in the wake of the events of September 11, as well as financial turmoil in other regions, the economies in the EBRD’s portfolio grew at an average rate of 4% in 2001, with every country except Macedonia posting positive growth for the second consecutive year. In the Baltics and Central Europe, this growth is driven by vibrant private sectors, robust export performances and high levels of foreign investment, and we look forward to the day when these countries will no longer need the EBRD.

In other countries, the foundations for growth are much more fragile. In the Balkans, the key is to seize the opportunity offered by improved political stability by embracing the reforms necessary to attract investment – such as simpler tax systems, clear and efficient regulatory frameworks, contract and property rights enforcement, and comprehensive efforts to root out corruption.

In Russia, the government has embarked on structural reforms that are making tangible improvements in the investment climate. In addition to a radical income and profit tax reform, the Government is turning its attention to the small business sector, agricultural land reform, the banking sector, public administration reform, and the remaining large state-owned monopolies in the energy sector. I sense and welcome continued resolve by President Putin and his government to stay this difficult course.

For Romania, our host country, this as a critical year: it has the attention of the international community and has opportunities created by growth, lower inflation and foreign investment. If the authorities can seize these opportunities by embracing further reform, this could be the year that Romania launches itself on the path of sustained growth.

Finally, I would like to commend EBRD for its efforts to help fight terrorism by establishing procedures to ensure that the proceeds of Bank financing do not go to organizations that support or finance terrorist activity. This is a crucial component of the international community's determination to choke off financing for terror, and we are very grateful for the Bank's cooperation. The EBRD is also taking additional steps to combat money laundering, including working more closely with the Financial Action Task Force, a most welcome development that should continue.

In conclusion, I would like to thank President Lemierre for his leadership at this institution, and look forward to working closely with him – and others – to achieve our common objectives. I will not be satisfied with a region where one’s living standard depends on one’s longitude. Our aim is sustained high growth throughout the region, and I hope this bank aims for no less.