East Europe Must Boost Defenses Amid Risks, EBRD Says

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Eastern Europe and neighboring emerging nations -- at risk from economic turbulence in Russia, Ukraine and Greece -- must fortify defenses to better endure shocks, the European Bank for Reconstruction and Development said.

The London-based lender’s shareholders meet Thursday and Friday to discuss making the region more robust to repel crises, President Suma Chakrabarti said. The bank, which invests more than 8 billion euros ($9 billion) a year in 36 countries from Morocco to Mongolia, is also due to revise its economic outlook.

The numbers will show that “the return to growth in the region as a whole remains elusive,” Chakrabarti said before the meeting in Tbilisi, Georgia. “Many countries in the EBRD region still suffer from the legacy of the global financial crisis and more recently the impact of the geopolitical tensions.”

The fortunes of the bank’s member nations have diverged. While central Europe is enjoying a consumer-led revival, bad debts persist, and Russia and war-torn Ukraine are mired in recessions that threaten to drag down growth elsewhere. The EBRD forecast in January that gross domestic product in the zone where it invests will shrink 0.3 percent in 2015 as a 4.8 percent slump in Russia infects its neighbors.

Buoyed by rebounding oil prices, the ruble has regained some of last year’s losses. It’s the best performer in 2015 among 173 currencies tracked by Bloomberg with a 24 percent jump against the dollar. The four worst are Georgia’s lari, Belarus’s ruble, Ukraine’s hryvnia and, in last, Azerbaijan’s manat.

Greek Cloud

While the euro area is slowly recovering, the prospect of Greece leaving it counts among risks facing the EBRD’s members, according to Chakrabarti. What that would mean for Greece’s neighbors is “impossible to know,” he said. The country has banking ties to nations such as Bulgaria and Romania.

The financing consequences are also unclear for Greece, which is set to begin receiving EBRD funds after the bank started lending in Cyprus in 2014.

EBRD investments reached 8.9 billion euros last year, up from 8.5 billion euros in 2013. Turkey was the biggest recipient, getting 1.4 billion euros. Ukraine was next with more than 1 billion euros. Whether it gets more cash “depends on the implementation of reform in two areas -- energy and banking,” according to Chakrabarti.

The lender banned new projects in Russia, traditionally the largest recipient of funding, after President Vladimir Putin’s government was hit with European Union and U.S. sanctions over Ukraine.

“How long will this last? Chakrabarti said. ‘‘Well, how long will the tension last?’’

(Corrects Turkey investment total in eighth paragraph. )
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