By Carolyn Cohn
LONDON, May 6 (Reuters) - High food prices and inflation are
a challenge to growth in central and eastern Europe, but
sensible investment can alleviate some of those pressures, the
head of the region's development bank said.
While soaring energy prices have been a boon for some oil
and gas exporting countries in the region, the recent surge in
food prices has hit all of them, European Bank for
Reconstruction and Development Bank president Jean Lemierre told
Reuters ahead of the bank's annual meeting later this month.
Food prices were feeding inflation and aggravating economic
tensions across the region, he said.
"We are very concerned by what is happening with the price
of food. The increase in the price of food has an impact on the
region and may have an economic impact through inflation, and
also a social impact."
The soaring cost of food in many of the world's poorest
countries has leapt to the top of the agenda for multinational
and regional development banks. Asian finance leaders at the
Asian Development Bank's meeting in Madrid this week, for
example, warned against the use of subsidies and price controls.
Inflation in countries monitored by the EBRD, which was set
up in 1991 to help the former communist economies of central and
eastern Europe move to market economies, has accelerated into
double digits over the past year.
And surging food price rises have prompted defensive moves
by some governments, such as a decision by Kazakhstan to ban
wheat exports.
Lemierre cautioned against such moves, which he said
reflected "a reaction which has a lot to do with control of
prices, control of distribution systems, control of trade, at a
time when the best answer is opening of the economy, investing
in production and transport capacity, increasing competition".
Cooperation between public and private sector could also
make more land available for farming, Lemierre added.
"There are 15-20 million hectares of arable land which are
not being used."
CREDIT CRUNCH
With high food prices adding to the chill winds from a
western credit crunch, Lemierre said the EBRD's investment in
the region, particularly in local production, could help to
steer the region's economies through any rocky times.
"An important policy for the EBRD is to support the supply
side of the economy. There is huge appetite for consumption,
which is a very important component of growth. An increasing
part of the consumption should be produced locally and not just
imported."
Lemierre said the sub-prime crisis had relatively little
effect on central and eastern Europe so far. However, any
further problems in the developed world were likely to hit the
region.
"It's clear that we see some slowdown in growth in the
Western part of the world. Until now, the (EBRD) region seems to
be quite unaffected by this. But it is reasonable to think that
if it continues, it may have an impact."
The EBRD earlier this year scaled back its original forecast
for 6.1 percent growth in 2008 in central and eastern Europe by
at least half a percentage point. The bank will present its
latest growth outlook at the EBRD's meeting.
Its profits were 1.9 billion euros in 2007, but this
represented a slowdown after two years of record profits.
Tighter liquidity in some markets, such as the Ukraine, was
making it harder for companies, particularly banks, to operate.
"We have been living for two or three years in a very benign
environment of liquidity and cheap money. To a certain extent,
there is a rebalancing," Lemierre said.
Lemierre said the EBRD hoped to play a part in improving the
efficiency of capital markets in the region, with plans to issue
bonds in Ukrainian hryvnia and Romanian leu.
TURKEY INVESTMENT
The bank's shareholder members -- 61 countries, the EU and
its investment bank, the European Investment Bank -- are
expected to vote at the annual meeting in favour of the EBRD's
plans to invest the bulk of its profits into reserves, and to
refrain from paying a dividend.
The bank's governors may also discuss Turkey, which has made
a formal application to join as a country of operation. The
Czech Republic has already stopped being a beneficiary of EBRD
investment, and seven other EU member countries are expected to
graduate from that role by 2010.
EBRD governors are also expected to vote in the one
candidate standing for president to replace Lemierre -- German
deputy finance minister Thomas Mirow.
Lemierre will stand down in July at the end of an 8-year
term, but he dismissed suggestions that other country members
might wish to follow the example of Australia, which the EBRD
says is planning to sell its stake.
He also played down speculation that the EBRD could be shut
down or merged with the EIB as its countries of operation
diminish.
"There is a need for a strong EBRD as an element of
stability in an uncertain world," Lemierre said.
"This is not a time for weakening that element."
(Editing by David Christian-Edwards)
