East European economies were seeing light at the end of the tunnel when the post- Lehman crash brought back the darkness. East speaks with Sir Suma Chakrabarti, President of the EBRD.
The European Bank for Reconstruction and Development was established in 1991 to help finance the transition of former East Bloc countries into the Western market economy after the collapse of the Soviet Union and the individual command economies associated with it.
Because of its success in supporting the transition process, the Bank was invited to play a similar role in developing a market economy in Turkey, where it has been investing since 2008, and then in countries in North Africa and the Middle East following political developments over the last three years.
Since 2012 the EBRD has been headed by Sir Suma Chakrabarti, a remarkable British civil servant and development economist who is the Bank’s sixth President. Chakrabarti was born in 1959 in West Bengal, India.
Brought to the UK as a child, he went on to study at Oxford, later taking an advanced degree in Development Economics at the University of Sussex. He holds several honorary doctorates.
His last position before joining the Bank was as Permanent Secretary of the British Ministry of Justice: its most senior civil servant. Prior to this, he headed Britain’s Department for International Development.
The Bank played a particularly important role during the global economic crisis that hit the EBRD region in force at the end of 2008. “We all feel our own pain most keenly,” Chakrabarti says, “but Eastern Europe was in fact the area of the world that suffered most from the worst economic downturn since the 1930s Depression.”
The impact on emerging Europe was then compounded by turmoil within the euro area. Recession sharply reduced demand for goods from Central and Eastern Europe while at the same time the difficulties of the banking sector led to a shortage of cross-border funding. “Those problems are not yet over,” Sir Suma says, noting that the EBRD’s latest annual report is entitled Stuck in Transition.
“But there are definite signs of recovery in the global economy. We see a strengthening United States. Growth is stronger generally in more advanced countries. The eurozone recession now looks to be behind us.
“Still, the recovery we now see in most countries in the Transition region in 2014 will not be particularly robust and certainly not strong enough to bring about the process of convergence that will lift their living standards to those of their more prosperous Western neighbours. “In 2013 we invested more than €8.5 billion to support just under 400 individual projects, despite an unusually difficult investment climate. “Together with the World Bank and European Investment Bank, the EBRD has pledged to invest €30 billion in Central and Southeastern Europe over the two years until the end of 2014. That’s to deal specifically with the impact of the eurozone debt crisis. We’re well on the way to meeting this target,” Chakrabarti says.
At the same time the Bank is systematically stepping up the link between investments and reform – especially the structural reforms that have ground to a halt in many countries – helping national authorities create a regulatory environment that supports rather than inhibits the flow of fresh capital.
“Simply through its choice of partners and the structure of its investments, the EBRD can help improve corporate governance standards, promote greater openness and take a stand against the corruption that remains endemic in many of the societies where we work,” Sir Suma says.
The principle of ‘graduation’ – an analogy with graduating at a university – remains firmly entrenched at the EBRD. In 2006 a timetable was set under which of the eight eastern European countries that joined the European Union in 2004 would no longer receive EBRD investments from 2010. As it happens, only the Czech Republic received its metaphorical ‘diploma’ – in 2007, just before the onset of the crisis.
The credit collapse further revealed underlying problems in the economies of these countries that had been masked during periods of rapid growth. Now that the recovery is finally underway there will be new discussions about the future role of the Bank in individual countries, Chakrabarti says.
“But it is clear – he adds – that many among the 34 countries where we are present still face a long upward struggle and in some we are only just now kicking the process off.” Chakrabarti has been among those urging a limit to the ‘excesses’ that many now see – especially on the heels of the economic crisis – as having been perhaps somewhat too “red in tooth and claw” in early post- Cold War period.
“The immediate post-communist view of what had happened – Chakrabarti says – was that of the end of an ideological battle which had pitched the state against the market, and which the market had decisively won. “But then we saw the sort of chaos a totally unfettered free market can cause, perhaps most dramatically in the headlong rush towards privatisation in Russia during the 1990s. “It’s not that the Bank has undergone some kind of damascene conversion, leading it to reject the free market model. But our approach today is more nuanced, calling not for more state, but for a better state.
“Political leaders especially – Chakrabarti believes – now have to make difficult decisions to bring their economies back into line. They won’t always be popular decisions. Effective leadership though must look beyond the immediate electoral cycle and towards the future good of all the citizens of a country.”
East European economies were seeing light at the end of the tunnel when the post- Lehman crash brought back the darkness. East speaks with Sir Suma Chakrabarti, President of the EBRD.
