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EU: EBRD Vote Reflects Competing Interests With U.S.

Board members of the European Bank for Reconstruction and Development, or EBRD, will elect a new president at their annual meeting in Latvia's capital Riga, which begins this weekend. RFE/RL correspondent Ron Synovitz assesses how the competing interests of the EBRD's main shareholders could influence the vote -- and the bank's future activities.

Prague, 17 May 2000 (RFE/RL) -- The differing geo-political interests of the United States and the European Union could surface in Riga at the start of the EBRD's annual board meeting. The board is due to vote on a replacement for outgoing president Horst Koehler, who last month left the EBRD to head the International Monetary Fund.

Earlier this week, Britain's "Financial Times" daily said it was a foregone conclusion that French Treasury Director Jean Lemierre would be elected to fill the post. EU finance ministers last week nominated Lemierre as their candidate, and the EU nomination traditionally takes the job. Washington, however, has not publicly endorsed Lemierre.

The U.S. is the EBRD's largest single shareholder. But the EU and its affiliated institutions together control 58 percent of the bank's voting shares. Still, EBRD spokesman Ben Atkins notes that neither the U.S. nor the EU controls a majority of seats on the board:

"Lemierre, in order to become president of the bank, must still be voted in by the shareholders. There are 60 shareholders. He must get 31 of those shareholders to vote 'yes.' If you take the European Union countries as well as the two other offices of the EC and European Investment Bank, they do have a majority of the total voting power. However, they still have to bring on board a further 14 or so governors to support Lemierre as a candidate."

A change in leadership at the EBRD usually re-activates the old debate about where the bank should focus most of its resources. The bank was set up in 1991 to help the countries of Eastern Europe and the Commonwealth of Independent States, or CIS, in their transition to a market economy.

U.S. Treasury officials have argued that more EBRD activity is needed in Central Asian and Caucasus nations that have good records on democratic reform. For example, Washington wants the EBRD to help finance new pipeline and transport projects in the Caucasus and Central Asia so that trade with those countries would not have to rely on transit routes through Russia and Iran.

But the EU wants the EBRD to focus more on Central and Eastern Europe, where 10 candidate-states are trying to meet the requirements of full membership in the union.

Despite these differences, officials in Washington and Brussels do agree that investment in southeastern Europe is important for Balkan stability. Talks in Brussels early this month between U.S. Deputy Treasury Secretary Stuart Eizenstat and EU foreign-affairs commissioner Chris Patten centered on cooperation in the Balkans.

The EU also leads the so-called Balkan Stability Pact, which is backed by the U.S. That program aims at fostering political stability across southeastern Europe through investments in vital infrastructure projects -- from railways, highways, and bridges to banking sectors.

Sounding a positive note for the proceedings in Riga, the EBRD's annual transition report, published yesterday, says that the countries of the former Soviet bloc will this year post their fastest economic growth since the collapse of communism. The report says that Russia's recovery from its 1998 financial crisis -- combined with solid gains in Central Europe fuelled by exports to the EU -- will produce an overall 3.6 increase in regional gross domestic product, GDP. It describes as undoubtedly "the most surprising development in the region in 1999 [the] pace of recovery in the Russian economy," which reached 3.2 percent growth.

The EBRD report warns, however, that there was a growing gap between the performance of CIS states -- still struggling to reform their economies -- and western parts of the region, which are increasingly linked to the EU. It says that GDP in the CIS today is only at 57 percent of its 1989 levels, while it has recovered to 100 percent in central and southeastern Europe and in the Baltic states. In Poland, the area's top economic performer, GDP has reached 128 percent of the 1989 level.

Acting EBRD President Charles Frank of the U.S. says that the EBRD's recent work was being guided by a medium-term strategy endorsed at last year's board meeting in London. That plan aims to improve financial discipline, corporate governance, and bank-sector reforms within the EBRD's 26 countries of operation.

The strategy was devised after the EBRD lost more than $225 million in Russia's 1998 financial crisis. EBRD activities in Russia have been scaled back since then. But U.S. officials may push for more EBRD resources to be directed back toward Russia -- particularly if President Vladimir Putin makes progress on improving the legal and regulatory environment for investment.

Despite Washington's interest in fostering the economic independence of former Soviet republics in Central Asia, is it clear that Turkmenistan will not receive much EBRD financing in the near future. Last month, the EBRD announced that it will not make new public-sector investments in Turkmenistan because of the country's lack of progress on economic and political reforms.

The decision came after Turkmen President Saparmurat Niyazov canceled scheduled meetings with senior EBRD officials who had traveled to the capital Ashgabat to meet with him. The delegation included acting President Frank, who later said Niyazov's refusal even to discuss the question of political reform showed that the government of Turkmenistan was not committed to EBRD principles.