Statement

From the Department for International Development

4 May 2003

2003 EBRD Annual Meeting

Statement by the Chair of Board of Governors, The RT Hon Clare Short MP

On behalf of the Board of Governors, I would like to thank the Uzbek authorities and the Bank and its staff for the organisation of this Annual Meeting - the first time the Bank's governors have gathered in Central Asia. I would also like to thank President Karimov for his opening statement¹ and welcome the four Presidents of neighbouring countries whose presence confirms the importance of this meeting. This region has a long history in providing the trade routes that brought together East and West. This culture of exchange brought material and intellectual benefits to the world and to the people of Central Asia. Much of this progress has been lost in recent years and I hope that by holding our Annual Meeting in the region we can help to drive forward progress and bring real benefits to the people of Central Asia where the legacy of poverty, corruption and human rights abuses has yet to be overcome.

I hope our Annual Meeting will provide an opportunity for a frank exchange of ideas about the challenges facing Central Asia and the Bank's other countries of operation. It is also a chance for all of us to review our experience, and consider how we can strengthen our efforts to improve life for the people of the countries of the Former Soviet Union.

2002 was another successful year for the Bank. The President will provide a full assessment of the Bank's performance. But I would like to draw attention to two particular achievements.

First, despite a global economic slowdown, the Bank achieved a record lending volume of 3.9 billion Euros. Second, the Bank is moving east and focusing more on the countries that need more help. Last year, it approved projects worth almost 1.3 billion Euros in Russia - an increase of more than 50% on 2001. But more still need to be done to develop investment in the poorest countries. This will require progress with reforms by those countries, and deeper understanding of the challenges, and closer coordination with others by EBRD.

On behalf of the Board of Governors, I would like to thank management and staff for these achievements and for their dedication and skill.

I would also like to pay two special tributes: to the President, Jean Lemierre, for his strong leadership of the Bank; and to Joachim Jahnke, who after nine years, including five as Vice President, left the Bank at the end of 2002.

Progress with transition

Amongst development banks, EBRD has a unique mandate - advancing economic and political transition in Eastern Europe and the Former Soviet Union - with a special focus on the private sector which is deeply needed in a region where there was very little private sector activity until recently. The Bank has important expertise which can help countries to improve their investment climates and by sharing risk, increase private sector investment and the important technology transfer and improved economic growth to which this leads.

Twelve years ago it was believed that the transition to democracy and a market economy would be simple and speedy. In practice, progress has been slower and more painful than was expected. The test of its success has to be improvements in the life of the people of the region, and the reality is that levels of poverty and need are still far too high in many transition countries.

During 2002 there were important steps forward. Less than 12 years after the Bank was established, eight countries of operation concluded negotiations to join the European Union. It is likely that Bulgaria and Romania will soon follow them. EBRD is working itself out of a job in these countries but still has a role in the less advanced regions and sectors. The success in Central Europe and the Baltic states must not overshadow efforts in other countries of operation. It is a good thing that despite the global slowdown, growth continued across the region.

It is particularly timely that EBRD is holding this Annual Meeting in one of the regions where transition is least advanced. I am afraid that the international community has been slow to recognize that the poorest countries in the Former Soviet Union face a particularly difficult range of challenges and need more support. On the one hand they face the challenges of transition, the difficulties of transforming their political and economic systems from the old Soviet systems. But they also face the challenges which confront poor countries throughout the world including high and unsustainable levels of debt.

One in every two people in these seven countries lives under the national poverty line. And one in every three lives on less than $2 a day. Inequality has increased. Life expectancy has declined. Diseases such as TB and HIV/AIDS are spreading. And families have been forced to turn to subsistence agriculture to survive.

I am therefore very pleased that I, with other Governors, have been able to come here to Uzbekistan to see something of these problems at first hand. This morning I had the opportunity to get at least a glimpse of some of the problems facing people here in Tashkent. Tomorrow I shall be going on to the Kyrgyz Republic. This meeting gives all of us the opportunity to learn more about a part of the world which we have neglected for too long. I hope it will create new interest and new partnerships which will help drive forward progress in Central Asia.

The role of governments in the region 

We have learned through our own history and by experience across the world that the foundation of sustainable development, and improvements in standards of living, is good governance. For the countries created in 1991, transition to a market based system has meant building all the institutions of an independent state. This is a huge task. There has been progress, but there is much to do. Many countries need a stronger commitment to poverty reduction, the reduction of corruption and need to give priority to transparent financial management and procurement, to stability and security and respect for human rights.

As EBRD's Article 1 recognises, a commitment to pluralism and democracy is essential, both for human freedom and economic progress. Development is strengthened by democratic accountability, an effective and independent justice system, an active civil society and a free media.

The second major challenge for this region is the creation of broad based growth driven by the private sector. This requires an investment climate that unlocks the domestic potential for investment, and attracts and retains foreign investment. Experience from Central Europe shows the tremendous importance of small and medium size enterprises in driving growth and creating employment. EBRD's own good and innovative work to develop micro-finance in the region shows what is possible. But as we have learned across the world, excessive bureaucracy and regulation stifles the growth of small businesses. Much more needs doing to reduce such burdens. Investment in human capital is also important both in its own right and to improve the performance of the economy and public resources therefore need to be invested wisely to improve the skills and well being of all the people.

And third, I would like to encourage stronger regional cooperation. International and regional cooperation is essential to improve economic growth and the higher levels of investment needed to bring technology transfer and improved infrastructure. Regional integration creates larger markets that encourage local businesses to grow and create greater incentives for inward investment.

Closed borders and corrupt charges at checkpoints hinder development. And it is not just trade that needs to be addressed at a regional level but also transport, energy, water and natural resource management, and border security. Failure to work together regionally will inevitably hamper growth, and prevent the region lifting its people out of poverty.

In March EBRD shareholders unanimously approved the Bank's new strategy for Uzbekistan. The strategy makes it clear that the country's ability to grow its economy, attract investment and reduce poverty is dependent on progress with both economic and political reforms. [I welcome President Karimov's commitment to] [It is crucial for Uzbekistan to] resume discussions with the IMF. The strategy calls for sustained progress towards multi-party democracy, greater openness to allow greater freedom for the peaceful expression of all views including those in opposition to the government. In addition there are particular concerns on Uzbekistan about lack of respect for freedom of religion, the prevalence of torture and the failure of the judicial system to protect the rights of the citizen. We welcomed the visit by the Special Rapporteur on Torture in December 2002. We are deeply concerned by his conclusion that torture is systematic, [and urge the Uzbek authorities to fully implement his recommendations without delay]. [We welcome President Karimov's condemnation of the practise of torture and his agreement to implement the recommendations of the UN Rapporteur]. Greater openness also means greater respect for freedom of association. This includes allowing NGOs - including human rights organisations - to operate freely. As Chair of the Board of Governors, I encourage the Uzbek authorities to move forward with the critical economic and political reform steps identified in the strategy. The Bank and the rest of the international community will support and monitor progress.

The role of the international community 

If the governments of the region work at home to strengthen governance and improve the investment climate, and work together at a regional level to foster cooperation, they will put in place the bedrock which will lead to improved growth and poverty reduction. But the international community also needs to improve its performance, looking both at the policies that effect developing countries, such as trade rules, and at the way in which we provide assistance. There are four practical challenges I would like to put to EBRD.

First, co-ordination. When donors and development banks work in isolation, they risk wastage and heavy transaction costs that sap the precious capacity of capacity constrained governments. When we coordinate and harmonise our operations we achieve much more, especially when we work to support a nationally owned development strategy.

Important agreements were reached at the High Level Forum on Harmonisation in Rome in February. I hope we will see rapid implementation of these agreements by all the IFIs, including EBRD.

Second, we must seize the opportunities for improved development offered by the Poverty Reduction Strategy process. We have learned across the world that development works best when it is led by a locally owned strategy. Ten of EBRD's countries of operation are developing, or have developed, poverty reduction strategies. We welcome the steps EBRD has taken to engage with these strategies but believe it needs to engage more strongly. The Bank can make an essential contribution to development of the strategies, particularly helping to involve the private sector in supporting policies that will help generate growth and encourage investments in infrastructure in a way that supports implementation of the strategies.

Third, sustainability. The Bank's second Article of Agreement requires it to promote sustainable development - and addressing the social impacts of Bank investments is a crucial part of this.

This is especially important in the poorest countries. Essential reforms, which will eventually bring sustainable growth, will often carry negative short term consequences. The Bank needs to better understand these consequences and be able to be innovative in working with other agencies to help mitigate them.

And fourth, institutional openness. EBRD should set an example through the quality of its corporate governance. I welcome the recent moves towards increased transparency and consultation by the EBRD.

It is essential that the Bank explains its work to the public, and is open to consultation and review. I am confident that the new information and environment policies and Recourse Mechanism will bring important benefits. They will help to develop an informed civil society - contributing to the Bank's mandate. I look forward to seeing further progress on this agenda.

Conclusion 

Mr President, the world is now more interdependent than at any time in history. We therefore all have an interest in sharing capital, technology and knowledge so that people throughout the world can enjoy the benefits of the modern world.

I said at the beginning of this speech that I hoped this meeting would provide an opportunity for an open discussion. I hope that my ideas about the key challenges for the region and for this Bank will help stimulate that discussion and that this meeting will help to lead to improved development and a better life for the people of this region.

Fellow Governors, I look forward to hearing your ideas. I also look forward to talking with representatives from business and civil society. This meeting is an opportunity for us all to get a better understanding of the challenges facing the region. And in doing so, to get a clearer vision of how we can work together to help address them.

¹  The Secretary of State may include a reference to President Karimov’s opening statement, depending on its content

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