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New phase of investment for EBRD in Hungary
Updated strategy puts emphasis on small business, financial sector, infrastructure
The European Bank for Reconstruction and Development has revised its strategy in Hungary to reflect the country's successful first decade of transition and focus now on the critical challenges that lie ahead, such as promoting investment in the country's less developed regions.
Having invested €1.3 billion itself - along with a further €4 billion from sponsors and co-financiers - the EBRD has played a major role in supporting Hungary's embrace of a free-market economy. The Bank's updated strategy for the country, posted today on its website (www.ebrd.com) for the first time, describes how the EBRD will increasingly turn its attention to the development of the regions, infrastructure and the needs of the private sector.
"We've built a critical mass of investments in Hungary," said Noreen Doyle, the Bank's First Vice President, who is in Budapest to meet government officials and business leaders and help celebrate the EBRD's 10th anniversary. "Our new strategy is meant to be more focused on helping consolidate the progress made and ensure that Hungary continues to attract investment."
While Hungary's transition to a market economy is well advanced, the Bank notes that areas such as competition policy, liberalisation of the energy market and the supervision of the non-bank financial sector still present significant challenges to policymakers and institutions. Fast growth and expanding employment have been fueled by robust foreign direct investment. To maintain the momentum, authorities need to address income inequality and unbalanced regional economic growth. Moreover, economic policy can be further tightened to support disinflation.
The EBRD has been one of the most prominent investors in Hungary, providing debt and equity finance to support foreign investment and local corporate development. Especially in the early 1990s, the Bank provided otherwise unavailable long-term, limited-recourse finance to such foreign investors as General Motors, Packaging Corporation of America and Columbian International Chemicals Corp. It played a prominent role in the restructuring of Hungary's financial sector, through direct investments in three major Hungarian banks and by introducing long-term, local-currency bonds. Investments in such companies as Matav and Digitel - and more recently Vivendi Telecom Hungary BV - have contributed to the emergence of one of the most liberalised and technically advanced telecommunications industries in the region.
Going forward, the EBRD will continue to promote the local private sector, largely through equity investments. It will, for example, facilitate the consolidation of industries that are under competitive pressure in the run-up to European Union accession, and support Hungarian companies' access to local capital markets. It will make more investments in non-banking financial institutions, such as leasing companies, retail mortgage and consumer finance institutions. It will promote lending to small municipalities through local intermediaries. It will seek to support the restructuring of companies still owned by the state, and invest in municipal and environmental projects aimed at promoting balanced regional development.
"The EBRD was designed to support countries through all stages of transition," Ms Doyle said. "As Hungary nears EU accession and its market economy strengthens, the Bank's role is evolving to meet the country's changing needs."
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