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Interview: EBRD Chief Economist Sees Lessons For Arab World On Economic Transformation

Chief economist of the European Bank for Reconstruction and Development, Erik Berglof
Chief economist of the European Bank for Reconstruction and Development, Erik Berglof
As the European Bank for Reconstruction and Development (EBRD) meets for its annual board meeting this week in Astana, Kazakhstan, the bank -- originally set up to foster economic reforms in Central and Eastern Europe -- is increasingly seen as an institution that can help reform the economies of Arab-uprising countries. RFE/RL correspondent Ron Synovitz spoke with the EBRD's chief economist, Erik Berglof, about the future expansion of the bank into North Africa and possibly the Middle East.

RFE/RL: U.S. President Barack Obama's newly announced plans for supporting democratic change in the Arab world includes the promotion of market economic reforms. He has mentioned that that the European Bank for Reconstruction and Development has the experience to play a helpful role. What do you think about the idea of the EBRD reorienting its activities from its traditional region of Central and Eastern Europe in order to expand operations into North Africa or the Middle East?

Erik Berglof: First of all, this is not really about reorienting. It is about putting additional resources into this part of the world. We have a request from the Egyptian government and from Morocco, and we know that there are other countries also interested in our experience.

I think there are many transition challenges in these countries [of North Africa and the Middle East]. It's about developing a healthy private sector, developing small and medium-sized enterprises. It's about getting changes in how energy is used and about redefining the role of the state in the economy.

So there are many things they have in common [with Central and Eastern Europe immediately after the fall of communism], though, of course, specific challenges that are different -- things that have to do with the issues associated with a very different demography than in [the Central European and Eastern European] region.

Many young people are unemployed [in the Arab world]. It's about very important historical differences as well. But we think that there is enough in common for us to play a useful role there.

RFE/RL: Are there specific and relevant lessons that the EBRD learned during the 1990s about supporting the transition from a command economy to a market economy?

Berglof: Well, I think there are many lessons. We probably would have done a number of things differently [in Central and Eastern Europe] if we had done them today, thinking from the perspective of policy-makers in the region.

Having said that, if you look at Central Europe where many different approaches to privatization were tried, they led to very similar outcomes. Probably we have learned that in order to privatize, you need also to focus on a number of other things -- on the rule of law, corporate governance, competition and so on. So you need to combine any privatization scheme with those other policies as well.

RFE/RL: What about countries of the Arab uprising where the development of the private sector has concentrated assets in the hands of the elite, or those with links to the armed forces? Meanwhile, others face insurmountable hurdles and bureaucracy if they try to start their own small, private business.

Berglof: Take Egypt -- the country most immediately concerned. They have a very large private sector already. So [privatization is] not really the issue. In a sense, they have done many of the mistakes that were made also in the [Central and Eastern European] transition region when it comes to privatization as such.

...There are indeed very important challenges [in the Arab world]...we can be part of the solution
It's really now about redefining the role of the state. Instead of subsidizing different parts of the economy, it needs to get into the role of supporting the creation of small and medium-sized firms, improving the business environment and also investing in skills that are needed by business.

There are commonalities in that regard -- more with countries of Central and Eastern Europe and the EBRD region today than the countries as they looked when we started the transition in 1989 and 1991 in the region.

RFE/RL: The EBRD works as a for-profit investment institution. It is not really in the business of handing out aid, though it does make loans and buys equity stakes in private firms where it operates. Do you see the bank's future role in North Africa as more of a lending institution or an equity investor?

Berglof: I think we will do both loans and equity, but what these countries need most is not really capital. They need the skills. They need experience.

RFE/RL: Is there a shared realization in countries in the Arab world who are asking for transition support from the EBRD that the bank's experience will help speed the pace of economic reform?

Berglof: The requests came from the countries Egypt and Morocco. They were members of the bank from the very beginning. They have asked us to get involved. They see that we have some experiences that we can contribute.

We think basically that they are right, and we are looking at what specific experiences are worth transferring. When we do this assessment, we find that there are indeed very important challenges and that we can be part of the solution.