* EBRD shareholders meet in London May 15-16.
* Debate on EBRD role, remit on hold
* Focus on capital, steps to fight financial crisis
By Sebastian Tong
LONDON, May 12 (Reuters) - Eastern Europe's financial
firestorm has swept away questions about the future of the
European Bank for Reconstruction and Development and replaced
them with worries about whether it has enough funds.
The global financial and economic crisis that has engulfed
the countries within the EBRD's remit has reinvigorated the
London-based development bank set up at the end of the Cold War
to help former communist economies adjust to free markets.
Barely a year ago, the United States -- its largest
shareholder -- questioned the need for the EBRD given the
spectacular economic growth of recipient economies such as
Poland and Russia.
Now with newfound purpose, the EBRD is stepping up
investment to unprecedented levels, aiming to spend up to 7
billion euros to help eastern and central Europe face its
biggest economic challenge since the fall of the Berlin Wall 20
years ago.
It is also contributing 6 billion euros to a 24.5 billion
euro two-year package led by the World Bank and the European
Investment Bank for the region.
"The EBRD is one of the few institutions with substantial
capital still available for emerging Europe," said John-Paul
Warszewski, head of emerging Europe at Nomura International.
The adequacy of its response and whether the EBRD has
sufficient resources will be the likely topics of discussion
when its 60-odd shareholders meet in London on May 15-16.
The deepening economic slowdown, which has forced bank
bailouts across emerging Europe and precipitated political
crises in Latvia and Hungary, has silenced those who felt the
role of a such a dedicated development bank was unnecessary.
"Until the crisis blew up, there was a sense that the EBRD
would be quietly phased out," said Vanessa Rossi, senior
research fellow for international economics at Chatham House.
Last week, the EBRD slashed its 2009 forecast for emerging
Europe for the second time in six months, warning that the
regional economy would contract 5.2 percent instead of the 0.1
percent growth it predicted earlier this year. []
OVERSTRETCHED?
The region's economic woes have suspended the debate over
the EBRD's remit which was expanded in recent years to include
Turkey and Mongolia. The European Union members that were
previously expected to stop receiving EBRD funds by 2010 --
Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and
Slovenia -- are likely to put those plans on hold.
Signings of projects are up by more than 30 per cent in the
first quarter this year, and its project pipeline in the 30
countries it operates has grown beyond anything seen in the
EBRD's 20-year history.
"The EBRD may be overstretched but so are the World Bank and
the IMF -- this is something they all have to deal with," said
Kaspar Bartholdy, head of sovereign strategy at Credit Suisse.
The funding needs of multilateral lenders were highlighted
in April when G20 leaders agreed to a $1.1 trillion increase in
funds for the International Monetary Fund (IMF) and said they
would review the capital needs of the EBRD.
No progress has been seen on additional EBRD funding but
EBRD President Thomas Mirow said more capital would be required
if shareholders expected the lender to do more. []
OPPORTUNITY
The EBRD, which has 20 billion euros in capital, says it is
Eastern Europe's single largest financial investor, with about a
third its portfolio in equity.
Following last week's deal to invest over 400 million euros
in the central and eastern European subsidiaries of Italy's
UniCredit, the EBRD is expected to unveil more such deals with
Western banks to help shore up the region's banking system.
The EBRD has been particularly active in the Baltic states,
where it acquired a 25 percent stake in Latvia's recently
nationalised bank Parex.
"It's also a great opportunity for the EBRD to take equity
stakes in Eastern European banks. They can sell these stakes for
profit when the situation improves," said Timothy Ash, head of
CEEMEA research at Royal Bank of Scotland.
The increased equity stakes and loan volumes will boost the
EBRD's profitability and could help it make a dividend payout --
an issue that has in the past divided shareholders.
Investors say the EBRD may also consider ways of helping
companies in eastern and central Europe to access capital
markets, such as providing partial guarantees for debt issuance.
"The EBRD has been investing money in troubled banks,
extending loans and taking stakes. But investors will want to
see whether it can come up with innovative measures," said
Nomura's Warszewski.
(Reporting by Sebastian Tong; Editing by Ruth Pitchford)
