Bankrolling The Rebirth Of The EastRichard A. Melcher and Blanca Riemer
Not since General George C. Marshall masterminded the mammoth U. S. aid plan for war-ravaged Western Europe have so much hope, talent, and money come together to rescue a region. On Apr. 15, statesmen and financiers from around the world gathered to open the West's postcommunist sequel to the Marshall Plan: the European Bank for Reconstruction & Development.
Armed with $12.4 billion in capital and a mandate from 39 industrial countries to promote democracy and free enterprise, the bank will attempt to link public and private money on an unprecedented scale. Led by Jacques Attali, the prolific author, filmmaker, and close adviser to French President Francois Mitterrand, the bank intends to generate more than $100 billion in fresh capital for a region groaning under decades of political and economic stagnation. Says Polish Prime Minister Jan Krysztof Bielecki: "The question is how fast they can provide financing and how fast they can find good projects."
POLISH PICKLES? The EBRD's territory includes Poland, Hungary, Czechoslovakia, Bulgaria, Romania, Yugoslavia, and the Soviet Union. But the U. S. and Britain, fearful that Attali might lend too much support to bloated government projects, have insisted that 60% of the EBRD's investments go to private-sector deals. That may account in part for an expected slow start: The bank's lending and equity infusions probably will be limited to $6 billion between now and 1995, and perhaps $20 billion by the decade's end.
But bank economists estimate that six to seven times that amount will come from other investors. Already, the new bank is examining 250 proposals, including a request by London broker James Capel & Co., for venture capital to supply laid-off Hungarian high-tech executives who want to start new companies. The bank may help set up mutual funds in Poland. And it is considering investing with H. J. Heinz Co. in a $15 million purchase of a Polish food processor. The EBRD would provide Poland with local experts to help assess the company's value and close the deal. Indeed, Luqman Arnold of Credit Suisse-First Boston Ltd. estimates that the EBRD could figure in half the projects his investment bank is hunting down in Eastern Europe.
Arnold and other bankers fear that Attali's bank will take an even larger role. They worry that it will end up claiming the best business for itself. London-based Lazard Freres & Co., for instance, recently signed a joint venture with Poland's leading financial institution, Handlowy W. Warsawa, to help the government get its derailed privatization program going again. That's just the sort of job the EBRD is looking for.
Attali's colleagues, however, picture themselves more as facilitators than competitors. One reason: Until they build up their own financial and technical base, they still will need help from the World Bank and other development institutions.
This summer, the EBRD is likely to cooperate with the World Bank on restructuring Hungary's telecommunications network. The bank is also expected to unveil plans to clean up the polluted Baltic Sea and Danube River in conjunction with the World Bank and the European Investment Bank. Says Klaus Friedrich of Washington's Institute of International Finance: "An investment bank can't go in and become a major mover of funds right away."
Attali must also overcome skepticism on the part of the U. S. and other countries on his board. Many bank members object to Attali's rapid bureaucratic buildup, including 23 highly paid executive directors and five vice-presidents. The U. S. has forced the bank to limit lending to the Soviets to only $220 million. And suspicion persists that Attali, who has spent much of his career in the corridors of the Elysee Palace, wants to use his bank as a vehicle to extend the European Community's power. "He wants to convert the EBRD into the leading bank of a United States of Europe," says Polish Prime Minister Bielecki.
Says Attali: "I don't see any reason" for the U. S. and others to be concerned. But he nonetheless describes the EBRD as "the first institution of a united Europe." Such talk rubs the U. S. and many allies the wrong way. But how the EBRD helps rebuild Eastern Europe will play a big part in shaping not only the region but also all of Europe--and perhaps the world.