Libya joins EBRD in bid for funds

WARSAW — The European Bank for Reconstruction and Development (EBRD) voted here Thursday in favour of Libya becoming a member country, a move that could see it eventually receive EBRD financing.

The bank’s board of governors approved membership for the North African country on the final day of the EBRD annual meeting in Warsaw.

“Libya has become a member of the EBRD, with a view to becoming a recipient country, which would enable Libya to benefit from the bank’s investment programmes,” said a statement.

“Any decision to grant recipient country status to Libya will be taken separately following a thorough assessment by the bank of the political, economic and operational environment in the country,” it added.

The EBRD was founded in 1991 to help ex-Soviet bloc countries such as Ukraine and conference host Poland make the transition to free-market economies and democracy.

Two years ago, it expanded its reach to invest in Jordan and three countries in North Africa — Egypt, Tunisia and Morocco — in the wake of the Arab Spring uprisings.

Libyan authorities last year sought EBRD membership as the country seeks to “implement programmes of economic reform and would contribute to its economic growth”, the London-based bank said Thursday.

However, EBRD chief economist Erik Berglof told reporters on Wednesday that the bank could not begin investing in Libya unless “basic security” was in place.

“Provided that this happens and that there is a commitment from the government to work with the EBRD, there will be very exciting opportunities,” he said.

He told a press conference: “The private sector in Libya is about five per cent so there is an enormous amount of things to do... we will enter into a process now of assessing what the needs are and that will be very interesting — the fact-finding effort both in terms of economic reforms but also looking at the political side.”

Since 2012, the EBRD has invested 871 million euros ($1.2 billion) in 34 projects across Jordan and the three North African countries in which it currently invests.

The EBRD Thursday concluded an annual conference dominated by its grim economic assessment of the Ukraine-Russia crisis by making strides towards investing in troubled nations Cyprus and Libya.

A day after the EBRD forecast a deeper Ukraine recession than many had thought possible, and warned of contagion in Russia and beyond, the bank agreed to begin investing in bailed-out eurozone nation Cyprus and took a major step towards lending to strife-ridden Libya.

“This has been a very important annual meeting,” EBRD President Suma Chakrabarti told a press conference at the end of the two-day conference in Warsaw.

“We’ve ensured that the EBRD is extremely well-positioned to support the economies of the regions where we work,” added the former senior British civil servant.

His comments came one day after the EBRD said it expected Ukraine to tumble into recession in 2014 with a contraction of 7.0 per cent — and to deliver zero growth next year.

At the start of this year, before the outbreak of the country’s crisis with Russia, the EBRD had forecast that Ukraine’s economy would grow by 1.5 per cent in 2014.

Russia meanwhile on Thursday reported a sharp slowdown to its own economic growth in the first quarter that analysts attributed to fallout from the raging crisis in neighbouring Ukraine, where pro-Russian separatists have been waging an insurgency in the east of the country.

The state statistics agency said the Russian economy grew by 0.9 per cent between January and March compared with the same period last year.

Cyprus, Libya 

in EBRD sights 

On Thursday, the bank announced that it will begin investing some half a billion euros in Cyprus to assist the island nation to recover from a “severe economic crisis”.

EBRD investments up until 2020 will complement Cyprus’ international bailout programme that is worth 10 billion euros ($13.7 billion).

Chakrabarti said the bank could expect to invest between 500 and 700 million euros in Cyprus through 2020 but stressed that the amount was only indicative at this stage.

The EBRD noted that “the Cypriot economy remains mired in a deep recession that emerged after a boom period between 2004, when Cyprus joined the European union, and 2008, when it adopted the euro”.

Ukraine, Russia shedding investment 

On Monday, the Kiev government joined the EBRD and economic grouping the Organisation for Economic Cooperation and Development OECD in signing a memorandum of understanding that promises an anti-corruption drive.

The EBRD insists that tackling corruption in Ukraine has become increasingly urgent as the country struggles for foreign investment along with Russia.

In Warsaw, the bank said that private-sector capital outflows in Russia had reached $64 billion (47 billion euros) in only the first quarter of this year, exceeding the annual amount for 2013.

The EBRD’s latest annual gathering took place almost 25 years after the fall of the Berlin Wall and a decade since eight former communist nations, including Poland, became members of the European Union.

The institution has 66 shareholders, comprising 64 countries plus the European Union and the European Investment Bank.

The bank’s head said that lending to Russia could drop as the economy slows, while it may step up loans to countries at risk of economic damage from the Russia-Ukraine crisis.

EBRD funding in Russia slumped last year to 1.8 billion euros ($2.5 billion) from 2.6 billion in 2012 due to what the development bank termed “difficult investment conditions”.

Chakrabarti, said it could now drop again this year.

“It could impact on our business volumes in a country the size of Russia if the economy keeps slowing because investment then slows,” Chakrabarti told reporters.

But the bank had no plans at the moment to stop its funding to Russia in reaction to Russia’s annexation of Crimea and the situation in eastern Ukraine.

“There are some shareholders that are seriously concerned at, as they perceive it, Russia’s behaviour in eastern Ukraine,” Chakrabarti said.

“That may play out in the EBRD, it hasn’t yet,” he added. “The shareholders bought into my argument that the EBRD has been a force for good in Russia. We will see what the future holds, but not yet.”

Chakrabarti himself has pulled out of an international  conference Russia is holding in St Petersburg this month. He said he had an urgent engagement elsewhere, but gave no details.

Meanwhile, he said, the bank would look in the next few months at increasing its investments in central and eastern Europe. Governments in the region fear the Ukraine crisis could hurt their economies and Chakrabarti said there was high demand for EBRD loans, which come on attractive terms.

“In the next few months we will look if we can do a bit more in the region,” he said. “There is high demand for more EBRD resources, this is absolutely accurate...  Energy security comes up a lot in the conversations at the moment.”