* Mirow says EBRD to urge countries to build local markets
* Has no plans to try to directly make up for scarce FDI
* Says EBRD stronger, shareholder criticism "evaporated"
* Says ECB discussing extending swap lines in region
By Gavin Jones
ROME, May 22 (Reuters) - The European Bank for
Reconstruction and Development will focus more in future on
helping emerging economies to build local capital markets to
lessen their dependence on foreign borrowing, EBRD chief Thomas
Mirow told Reuters.
Mirow said the bank's core business of project financing
would not change, but it had drawn some lessons from the crisis
which has ravaged central and eastern Europe in the last year.
"Certainly we would enhance our efforts to sustain countries
in their efforts to build up local financial markets instead of
borrowing too much in foreign currencies," Mirow said in an
interview on Thursday.
The EBRD president, in Rome to attend a financial
conference, said the bank's main shareholders were urging it to
get more involved in "policy dialogue" and regulatory and
supervisory issues.
"We may advise central banks and treasuries, certainly in
the less advanced countries, on how to build up a robust and
market-friendly framework that would be an incentive for
investment in local currencies and local funding."
Mirow said he did not believe the EBRD, set up in 1991 to
help former communist countries adjust to free markets, bore any
responsibility for the extent of foreign currency borrowing in
the region or its exposure to the credit crunch.
"After 1990 there was a huge appetite for catching up in
living standards," he said. "That you get into a phase where
people take a lot of credits and, with growth rates of 7-10
percent a year, you run into current account deficits, is at
least understandable."
He said the crisis had strengthened the EBRD's position in
the eyes of some shareholders, such as Australia and the United
States, which had previously questioned its role. The U.S. had
been "very supportive of what we have done in crisis response"
and had so far expressed no opposition to a capital increase.
MORE EBRD SUPPORT
Previously polarised views about the development bank's
value have "literally evaporated," he said, and been replaced by
"a quickly growing sense that in bad times there are not so many
resources for counter-balancing and counter-cyclicality."
The London-based EBRD decided at its annual meeting last
week to bring forward by a year to May 2010 a review of its
available capital. Mirow said the decision on whether to
increase funding lay entirely with the bank's 63 shareholders.
With the prospect of a prolonged recession, continuing
scarcity of foreign direct investment (FDI) and a weak recovery,
"I would assume the number of (beneficiary) countries that would
ask us to do more might rise again."
He played down comments by Japan's delegate to the annual
meeting, who urged the EBRD to "fundamentally review" its
strategy saying market economies that had emerged in the region
had proved neither sound nor stable. Mirow said the remarks
referred to economic policies in general and were not aimed at
the EBRD.
He said the bank would continue to try to attract as much
capital as possible to the region but had no plans to directly
replace FDI. "We wouldn't look at replacing entrepreneurial
decisions and making investments," he said.
The bank has capital of 20 billion euros and plans to lend a
record 7 billion euros this year. This month it slashed its
growth forecast for the region to a 5.2 percent contraction this
year from a forecast of 0.1 percent growth a few months ago.
Mirow warned that non-performing loans looked set to
increase this year, which was a downside risk even to the latest
forecast and "something we need to look at very closely".
Strong regional cooperation with the European Investment
Bank, the World Bank and the International Monetary Fund meant
they were effectively working under one umbrella, Mirow said.
The European Central Bank had also "done some things outside
the euro area," he noted, such as opening swap lines on a case
by case basis with Poland and Hungary. He said there was an
"ongoing discussion" about extending these to other countries,
but added that this should continue to take place in private.
(Reporting by Gavin Jones; Editing by Ruth Pitchford)
