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East/West: EBRD Rift Reveals Geo-Political Interests

Kyiv, 13 May 1998 (RFE/RL) -- An old debate that re-surfaced at the European Bank for Reconstruction and Development's (EBRD) annual board meeting in Kyiv this week shows that EBRD share-holder countries continue to be divided by the different geo-political interests of Washington and the European Union (EU).

While the U.S. is the largest single shareholder in the EBRD, EU members collectively hold a larger stake in the bank.

Belgium's Finance Minister and EBRD Board Chairman Philippe Maystadt urged EBRD members at the Kyiv meeting to vote to maintain a high level of financial operations in countries that plan to join the EU in the next few years.

But, U.S. officials argued with the EBRD needs to focus its efforts on countries that have made less progress in building market reforms. In particular, Washington wants the EBRD to work more in Central Asia and the Caucasus.

Belgium's Maystadt criticized the view that there is no longer a role for the EBRD in countries that have made the greatest strides toward market economies. He said the EBRD is needed in EU accession countries to help them meet the requirements of full EU membership.

But, David Lipton, Under-Secretary of the U.S. Treasury, said Washington wants a smaller proportion of banks funds going to countries that are, in his words, "increasingly able to thrive without the EBRD's help." Lipton said a trend last year toward increased investments and loans further east should continue.

Lipton said most of the financing for public infra-structure projects in EU candidate countries should come from the accession state themselves, from private capital markets and from Brussels.

For now, the EU appears to have won the latest round of the debate.

Marstadt announced in Kyiv that the EBRD's target for the year 2001 is to have 30 percent of its loans and investment in countries with more advanced economic reforms, like the Czech Republic, Poland and Hungary. Another 30 percent of its funds are to be committed to Russia, and 40 disbursed in the remainder of Eastern Europe and the former USSR.

Those targets represent a shift back toward Central Europe since last year, when 24 percent of EBRD commitments were in the more advanced countries, 32 percent in Russia and 44 percent to the other states.

Belgium's Maystadt said the decline last year in funding to EU accession countries had been "excessive." He said that a geographic shift in the EBRD's activities further east could jeopardize the bank's investment holdings.

Acting EBRD President Charles Frank, who is from the U.S., dismissed the parameters agreed upon for the year 2001, as flexible approximations.

EBRD members in Kyiv privately told RFE/RL that the bank's upcoming election of new officers could be influenced by the debate over where investments and loans should be most concentrated.

Maystadt said candidates for the EBRD presidency, which France's Jacques de Larosiere left in January, are to be formally named at a meeting of EU economic and finance ministers May 19. He said France, Spain and Italy already have named candidates, and that Germany is expected to name its choice for the EBRD presidency soon. EBRD board members are expected to mark their ballots by mid-June.

Maystadt said the board cannot waste any time, because the bank needs a new president, as soon as possible.