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The bank bounced back in 1999, when it recorded a profit of $37 million, but repeating that performance may be made more difficult by its intention to spread its largess more evenly in the future. By 2003, it hopes roughly 30% of its commitments will be in Russia and a similar proportion in the advanced countries, with the remaining 40% earmarked for the poorer nations in Central Asia and southeastern Europe.
This proposed distribution has done little to placate those who say the EBRD is doing too much for the advanced countries. Other sources of finance are available there, and soft public money can upset the market for commercial lenders. "The more advanced a country is, the more it will have access to private sector funding," says Wike Groenenberg, an Eastern Europe economist at Schroder Salomon Smith Barney.
Indeed, an influx of venture capital and other sources of funding has begun to marginalize the bank's role in previously lucrative sectors. Hubert Warsmann, the EBRD's Budapest-based director for Hungary and Slovenia, has seen a change since he arrived in 1994: the early EBRD practice of lending money mainly to large Western corporations such as General Motors, says Warsmann, is now "game over. The commercial banks are more than willing to do it." Echoes Attila Chikan, chairman of the Council of Economic Advisers to the Hungarian Prime Minister: "I think its role has been mostly completed."
Lemierre, however, thinks the EBRD still has a role to play in those countries where the move to a market-based economy is well under way — financing public sector projects, particularly in the development of infrastructure. "We are not going to leave," says Lemierre of the advanced countries. "We have to shift to sectors and companies where progress has not been sufficiently made."
The EBRD is also returning to Russia. Earlier this year, the bank announced it would invest as much as $600 million in the country in 2000, up from just over $173 million in 1999. Next month, it plans to release an updated investment strategy for Russia: along with activity in the automobile and metals industries, it hopes to sponsor projects in relatively untapped areas such as home mortgages and venture capital.
Behind the new projects and sectors lies a new way of thinking. After the Russian collapse, the EBRD's top bankers decided that focusing solely on project finance would not be enough to foster the EBRD's goals. The aim is now to develop the overall business environment of the countries under its mandate, tackling issues like legal and regulatory frameworks and corporate governance. The EBRD may soon get the chance to test its resolve: before the end of October, the bank's board is poised to review a proposed $250 million loan to Gazprom, the gigantic Russian gas company. The loan is significant not just because it involves a corporation that sits on about 25% of the world's gas reserves and production, but also for the conditions that accompany it: increased corporate transparency and stricter accounting standards. "What is important," says Lemierre, "is what we are trying to do through this deal."
Perhaps, but the bank's attempts to change post-communist Europe by pressuring companies and governments have had mixed results. The EBRD claims some credit for the 1998 shake-up in the management board of Czech bank Ceska sporitelna whose privatization was completed this year (see following story). But other attempts have ended in abject failure. In April this year, a small delegation from the EBRD travelled to Turkmenistan, where the bank's portfolio of five projects with a value of about $190 million makes it one of the country's three largest foreign investors. Worried about scant progress toward political and economic reform in the Central Asian country, the delegation scheduled a meeting with Turkmen President Saparmurat Niyazov to discuss the EBRD's intention to stop funding public projects until the country showed a willingness to move toward multiparty democracy. The President's reaction was, in the word of one EBRD insider, "contemptuous." He did not even bother to turn up.
Yet the bank's supporters insist that it can be a catalyst for change, enticing other investors into regions they might otherwise avoid. "As a yardstick you need EBRD everywhere you cannot transfer hard currency or where such a transfer risk might materialize," says Martin Frank, head of project finance at Bank Austria Credit Anstalt, which has co-financed $225 million worth of projects with the EBRD. For Frank, the EBRD still has a vital role to play in much of the East European region. "You still have a lot of countries, the Ukraine for example, where there is no framework in place and you cannot lure medium-term finance by commercial banks. There, the EBRD umbrella certainly helps."