EBRD and the SEECP RegionHigh Level Officials Meeting

Istanbul, 9 April 2010

Andrew Kilpatrick

Director for Strategy and Analysis, EBRD

The crisis in the transition region was deep …

Average output decline of 6 per cent in 2009 (-5½ per cent in SEECP, excl. Greece)

After positive average growth of 6 per cent in the previous 5 years

… but overall resilience was notable

No uncontrolled currency collapses System-wide bank runs avoided;

payments systems survived Few populist or coercive policy

responses No major reform reversals

… contrasts with previous emerging market crises

What explains this resilience?

European economic, regional and political integration

Sound domestic policy responses (and favourable initial conditions)

Strong, timely and coordinated international policy responses

A stabilising effect of foreign bank ownership, on balance

Positive, fast, co-ordinated responses

Textbook (Keynesian) approaches

Political hurdles easier to jump given the severity of the situation; G20 leadership

Low inflation environment helped; as did generally sound public sector balance sheets

IMF programmes, once again, but less stigma

Co-ordinated IFI efforts to tackle systemic risk

Massive Support for Crisis Management:Large IMF programmes

Size of IMF Programmes(Per cent of GDP)

02468

10121416

Ukr

aine

,200

8

Rom

ania

,200

9

Hun

gary

,200

8

Ser

bia,

2009

Turk

ey,1

999

Latv

ia,2

008

Indo

nesi

a,19

97

Arg

entin

a,20

00R

ussi

a,19

98-

1999

Mex

ico,

1995

Bra

zil,2

001

Thai

land

,199

7

Phi

lippi

nes,

1998

Kor

ea,1

997

EBRD role – both macro and micro impacts

Macro level

Joint action plan by investing IFIs (EBRD, EIB, WB Group), €25bn support package

‘Vienna Initiative’ aimed at systemic banks

Big increase in EBRD operations - over 60 per cent increase in business volume in SEECP region, to €1.8bn in 2009

High financial integration in Emerging Europe

Source: Bankscope, bank websites

Share of Foreign Banks (Per cent of banking system assets)

01020304050607080

Asia mid-1990s Transition Region mid-2000sSource: 2009 Transition Report. 1/Asia: Thailand, Philippines, Korea, Malaysia, Indonesia. Transition Region: New EU Member States, Ukraine, Russia, Kazakhstan.

Public-private sector co-ordination: the ‘Vienna Initiative’

Facilitating collective action

Incentivising bank groups to stay engaged

Achieved by: IMF/EU macroeconomic support

Investing IFIs (eg EBRD debt and equity to banks) Understandings with banks and their commitment to

recapitalisation and maintain exposures Home-host fiscal authorities and supervisors

engagement=> Strong signal: Coordination + Investment

Eastern Europe benefited from financial integration, with caveats

Driver of growth and convergence

Stabilising factor in the crisis

But…

Contributed to credit booms, excess leverage and foreign currency debt that made the crisis worse…

…reflecting deficiencies in regulatory framework and attitudes to risk by banks

Continuing need for Public Private Coordination

Impact of post-crisis clean-up– Distressed asset management

– Recapitalisation

– Risk Mitigation

Need for sustainable lending– Local currency lending

Impact of new regulation– Increased role of non-banks

EBRD role – both macro and microimpactsMicro level Not only financial institutions (€2bn) but debt and

equity for infrastructure (€1.7bn), energy (€1.5bn), corporates(€1.6bn) and small businesses (€1.1bn)

Supporting transition, taking risks (eg equity stakes) and levering in additional private finance, including syndications

Working with the European Commission and others on regional co-ordination initiatives, such as the Western Balkans Investment Framework and sustainable energy financing facilities

Looking ahead…

Growth yes, but lacklustre and patchy

Risks remain – NPLs and debt workouts, restructurings, etc; impact of withdrawal of QE and fiscal retrenchment

Public sector pressures put onus on private sector solutions…but private sector is weak and FDI, remittances likely to be less strong than in recent past

And provision of credit to small business continues to be a problem

… EBRD’s role

EBRD will continue to operate at a high business volume level, gearing up to potentially €2½bn investments per annum in the SEECP region

Along with renewed syndications and other private finance

Plus Technical Cooperation and grant funds

And policy dialogue to further transition to well functioning market economies

… but many fundamentals still to address Sound macroeconomic frameworks; and structural

reforms, such as better labour markets

More developed and energy efficient infrastructure

Energy security and climate change finance

Deeper, well regulated local capital markets

Transparency and good governance in economic and legal institutions

Improved product and business standards and processes

Better and more reliable business environments