By Ivan Anderzhanov in Moscow
The European Bank for Development and Reconstruction (EBRD), the European Investment Bank (EIB) Group, and the World Bank Group yesterday warned against complacency in the face of significant challenges that stand in the way of economic recovery in Central and Eastern Europe.
Meeting in Istanbul at the World Bank and International Monetary Fund Annual Meetings, EBRD President Thomas Mirow, EIB President Philippe Maystadt and World Bank Vice President Philippe Le Houérou said that unprecedented coordinated international action had helped stave off a systemic crisis in the region. But more needed to be done and they pledged renewed action on the part of their institutions to support the region's return to growth.
The three international financial institutions said they are on track in delivering on the Joint IFI Action Plan with commitments of already €16.3 bn by end of September 2009 in crisis-related financial support for the Central and Eastern European region. However, efforts had to be continued to support Central and Eastern Europe into its recovery period.
At their meeting in Istanbul, the three signatories of the Joint IFI Action Plan presented their first Joint Progress Report, discussed new challenges ahead, and future areas of cooperation.
The report said coordinated efforts had contributed to avoiding a systemic regional crisis in face of massive economic shocks. Parent banks have continued to support their subsidiaries and viable local banks have managed to stay in business.
However, despite signs that the grip of the economic crisis is easing, and despite country variations, significant challenges remain ahead before the region can get firmly on the road to recovery and growth.
Specifically, credit to the real economy—and SMEs in particular—is still shrinking, non-performing loans are rising, bank recapitalisation needs remain large and unemployment is increasing rapidly.
The institutions believe that economic recovery will depend critically on private-sector growth, which will not re-emerge without lending to the real sector.
This requires, in addition to vital funding, strengthening banks’ balance sheets, helping mitigate financial risks in the region and restructuring of private debt where necessary and possible. It will be important to address the vulnerability of foreign exchange exposures, in tandem with the development of long-term local currency funding and capital markets.
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