Eastern Europe’s Growth Tops Agenda as Development Bank Meets

The European Bank for Reconstruction and Development meets today and tomorrow in Istanbul as the 34 countries it invests in, from Russia to Morocco, seek to kickstart their economic recoveries.

EBRD President Suma Chakrabarti will try to convince the development bank’s shareholders at their annual meeting today that more of the 30.5 billion euros ($40.1 billion) it has to invest through 2015 should go to building projects and small-and medium-sized businesses to fuel economic expansion, he said in an interview last month. He will also urge nations receiving EBRD funds to overhaul their economies to enable faster growth.

“In this period of continued weak growth it is particularly important for the region to tackle important structural reforms,” Chakrabarti said in a May 2 statement on the London-based lender’s website. “The EBRD will support the region in this drive.”

Emerging Europe, where foreign capital inflows and easy access to credit fueled growth of more than 5 percent a year before the global crisis of 2008, is being hurt through trade and banking links to the recession-hit euro area. The euro crisis and western banks’ efforts to clean up balance sheets have undermined a growth model in the post-communist East that was propelled by exports and foreign investment.

The MSCI Emerging Europe Index fell 0.6 percent to close at 470.87 yesterday in London.

Capital Withdrawn

The EBRD will publish its new economic projections at 12:45 p.m. Istanbul time today. The bank in January predicted 3 percent growth this year in eastern Europe. Egypt, Morocco, Jordan and Tunisia, where the bank is preparing to lend as part of an expansion, will grow 4 percent this year, it said.

Eastern Europe’s growth is lagging other emerging markets as foreign lenders such as Italy’s UniCredit SpA (UCG) and Austria’s Erste Group Bank AG (EBS), which own about three-quarters of banking assets in the continent’s east, trimmed financing and capital to their units.

Support from western banks to the region grew to about $1 trillion in 2008 from about $200 billion in 2002, representing a quarter of the area’s gross domestic product, the IMF said in a report last week. About a third of those inflows were withdrawn between 2008 and 2012, it said.

While the process known as “deleveraging” slowed after the European Central Bank helped provide liquidity to banks, credit growth has remained impaired by a stock of bad loans and sluggish demand from borrowers amid an economic slump, the Vienna Initiative, a group of banks, regulators and policy makers that helped prevent an east European financial collapse in 2008 and 2009, said in a May 2 report.

New Recipients

To help cash-strapped businesses, the EBRD is focusing its resources on companies rather than direct support to banks, Chakrabarti said last month.

The EBRD invested 8.9 billion euros in its 30 recipient countries last year, mainly from the former Soviet bloc, financing a record 388 projects. It also committed 181 million euros to six projects in the southern and eastern Mediterranean region, where it’s expanding.

The bank has said it will invest as much as 8.5 billion euros a year through 2015 in its current recipients. It also plans to bring annual investments in new countries to 2.5 billion euros by that time.

The EBRD, owned by 64 countries and by the European Union and the European Investment Bank, was created in 1991 to help former communist countries from the Balkans to central Asia transform their economies. It has lent 80.9 billion euros since then.

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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