Transcripts

President press conference at the Annual Meeting in Bucharest, Monday 20 May 2002

THE PRESIDENT: It is good to see you here. I know you have been working hard in the last few days and I will try to be brief. In a very few words, I will try to focus on some of the main questions.

My first remark is that I am very grateful to you for being here. It is important for the Bank and for the people of the region. Thank you for the time you have spent working on the region.

You know the main message I have tried to convey to Governors. The message is clear: 2001 was a fruitful year for the region. The question for us all today is how to build on the success of the region last year and how to make progress sustainable. This is becoming a positive and challenging question for the region. I will give you some examples: how do we move from the extraordinary recovery in Russia after the 1998 crisis to lasting growth; how do we move from progress in central Europe to sustainable competitiveness; how do we move from the new democracy and peaceful situation in the Balkans, and especially Yugoslavia, and build on this to develop the activities and peace in the Balkans; how do we open wider the window in Central Asia created by the new geopolitical situation after the tragic events of 11 September; how in Romania do we move from the good decisions taken during recent months to a strong pace of reform, which will reduce unemployment and bring greater prosperity to fight poverty. These are the key challenges. There are successes, but we need to move forward.

What has happened during this meeting? You know what I have said, and I have met most of you. The meeting we had yesterday and this morning with Governors has been an extraordinary meeting because the region and the Bank are stronger after this meeting. You may ask yourself why we hold Annual Meetings. I will try to explain. First, the region is stronger. There has been a lot of dialogue with and discussion among Governors and in the Investment Forum and the Business Forum. Moreover, there was an extraordinary consensus in the speeches from the countries of operation and from other countries on the way to move forward. There is no dissent today about the way to bring progress, moving toward democracy and the market economy. The recipe is well known. Nobody has given a lecture to others. We have had a shared experience among the various countries. This experience has highlighted the difficulties, and there is consensus on these difficulties. Mainly the difficulties concern how to improve governance, the judiciary system and the bureaucratic system and how to implement the reforms which have been decided upon.

Then there is a second clear message about the difficulties, which relates to the social dimension. This is very important because progress must be understood by everybody and everybody must support the reforms in the countries of operations. I think there was a good dialogue on the difficulties and the social dimensions. You know the obvious example, which is tariff policy and the utilities - water, electricity and heat - and how to increase tariffs to make investment possible and sustainable. but at the same time how to make the price acceptable or affordable for poor people.

Real discussions are taking place on this issue. The answers are well-known: they concern discussions with SMEs, with international financial institutions, the EBRD and our sister organisations, the EIB, the World Bank and the Asian Development Bank, to try to mitigate these social questions. The donor countries, the EU, the United States, Japan and many countries provide technical cooperation funds to build the best system possible. There has been great consensus on this point and willingness to support it.

There is a third element I would like to mention, namely the environmental dimension. It is clear that there is a consensus on that as well. A lot of commitments were made on the Northern Dimension Initiative. When I say commitment, I am talking about money, about countries ready to provide financing for this type of initiative.

Briefly, the region is stronger because we see there are shared views among the ministers of the region, and other ministers gave very powerful commitments and shared experiences. All Governors have been very clear about this and there was a very good mood.

The Bank is stronger, and this is the second lesson I am taking from the meeting - stronger because we have strong support from Governors and we act on their behalf. This is important. They have been positive. Let me take this opportunity of meeting with you to pay a specific tribute to the staff of the Bank. They are good, dedicated, hard-working people. They are trying to do their best to improve the situation.

We have learnt a lot and I have learnt a lot during these meetings. What is the message for the Bank? The Bank has to continue to be at the forefront of the market, to be ahead of the market. Of course, it must respect the market and observe sound banking principles, but it must always be ahead of the market. The Governors have said, "You did it last year. Continue this year". What does that mean? It means we need to find new areas for the Bank to explore and move forward because the situation is changing.

I will try to give you a few examples. In central Europe, we have to be ahead of the market to support the medium-term convergence of the economies which are going to join the EU. We have to do that over time. How can we do that? We do it in the way we know well: infrastructure, banking, financial services, greenfield investment. The main idea is that we need to provide more equity to finance large, small and medium-sized businesses. I have given a commitment to improve what we are doing. My German is very bad, but it is the Mittelstand in central Europe which has been responsible for the success of Germany and Austria and must be replicated now in central Europe. We are committed to providing more equity financing over time to achieve this.

In Russia, Ukraine, Central Asia, the Balkans and of course in central Europe, we need to find new ways to explore agriculture. It is clear that after doing quite a lot in industry, we need to move forward to explore this very important sector of rural activities, agriculture, agribusiness and agricultural banks. This is a new area where we need to move.

Last year I answered a question from you on energy efficiency. We have done quite a lot in a year and we have to do more in energy efficiency because that is part of the answer to the tariff question. If you waste energy, the price of energy is higher. Energy efficiency is not only an environmental question, it is also a social question. We have to do more there.

We have to do more to address the regional dimension, which is trade, trade among the countries of Central Asia. Most of the Governors from Central Asia have put this point on the table. You have trade: but you have water, you have energy, you have the environment - and this is the Northern Dimension. The sub-regional dimension is growing in the region, and we are committed to doing more.

I have mentioned these examples: equity, agriculture, energy efficiency, regional dimension and dialogue, in addition to what has been confirmed by what we have been doing in the last few years to improve the situation. Last year was successful in that regard.

At the end of this Annual Meeting, I can say that the region is stronger. I have learned a lot. I will use what has been said during this meeting to further improve the delivery capacity of the Bank and the impact that the Bank has in the region. Last year the Bank invested €3.6 billion, which means a €10 billion investment in the region, with our partners, the private sector; and this represents a third of the capital inflow to the region.

Our commitment is not necessarily to increase this level but to do better and to have a good impact on transition, project by project. We will make progress as regards the market economy and democracy. We have a catalytic role, and we shall use this capacity to attract as much investment as possible to the region.

Next year our meeting will be in Tashkent. It will be the first meeting of the Bank in Central Asia. This was decided long before 11 September, and before I was President of the Bank, two or three years ago. It is a commitment of the Bank to Central Asia. An annual meeting is an incentive to make progress, and not an endorsement. This is the real importance that we attach to our meeting in Tashkent. It concerns the whole region, with a focus on Central Asia, and with a clear dialogue. We invite you to go to Tashkent.

I conclude my remarks with a few words on Romania. Some of you have asked me questions about it. What has happened here is very important. We have better understood the situation here and the challenges and the policies that are in place. In our dialogue with the Romanian authorities we have discussed some very important projects. Last year we financed the restructuring of an industry. We are talking about the privatisation of Petrom. We have been talking about the banking sector and the possible privatisation of BCR. We have talked about financing municipalities, and we have done that. We have talked about financing SMEs, and yesterday morning I had the pleasure to accompany the United States Governor, Mr O'Neill to a small business just outside Bucharest. His comments are very important for us, for the country and for the region. In SMEs you have the real future of the country and of the region, and we will work with the Romanians to find better ways of financing and developing SMEs.

From the Romanian point of view, this meeting has also been very fruitful for us. I consider this meeting to be crucial because it is the beginning of the new decade, moving from recovery and progress to sustainability. The lessons are known and the messages are clear for the Bank. All of us in the Bank will try to deliver, as we tried to do last year. Thank you for your attention. I am sure that you will have some questions.

ADINA SADEANU (ADEVARUL): Speaking of Romania, can you identify the risks that Romania will have to cope with this year in order to make its progress sustainable? My second question is this: you have already expressed your interest in Petrom. When do you think you will express your interest in privatisation of BCR?

THE PRESIDENT: You do not want me to make a long speech about sustainability in Romania! First, I would say that you should keep the macroeconomy, the budget and inflation on track. It must be improved. There is a good track record and it is improving, but it must be improved further.

The second point is that there should be structural reforms. I have been talking about the restructuring of industry and about Petrom. The Prime Minister said two days ago that new steps will be taken. This momentum is crucial. The momentum must be respected, and we must understand that these decisions are not easy, especially for social reasons. The social dimension of these decisions is very important.

A common challenge for each of us, the Romanian authorities, the EBRD and many other people, is the fight against poverty. I have spoken a great deal with the Prime Minister and President Iliescu about these questions. At the end of the day, success will be judged on reducing poverty. We are committed to bringing money to finance SMEs.

To recap, you should continue with the macroeconomic policy, making structural reforms step by step. I do not say that there should be a lot of them, but there should be good decisions that are well taken, step by step, with the help of various institutions like the EBRD, the EU and others, in order to address the various questions related to poverty.

In regard to BCR, I will not make the decision: I am not the owner of this state-owned bank; it is the Romanian authorities. Let me be clear, to avoid any confusion: we have had an exchange of views about the future of BCR, but the timing of this exchange of views is not the same as in the case of Petrom. With Petrom, we are talking about concrete actions. We are a long way on in the discussions about the technicalities of an agreement to prepare the privatisation of the company. On BCR, we are talking about how to move forward and what steps to take, but we are not yet at the same stage. I hope that it will come soon.

QUESTION: Mr President, one of your most important business partners in the Czech Republic and in Poland in future is the steel group of Lakshmi Mittal. How can you be so optimistic about a company that is no longer able with its junk level rating to raise funds in the market. Is that not dangerous for the Bank? How can you protect the Bank against the eventuality of further problems of the Lakshmi Mittal group?

THE PRESIDENT: My answer is very simple and clear. We are very confident about the group and the project we have financed. It is not up to me to make detailed comments about the group and the structure of the group. I must comment on my confidence in the project and our financing and I have no doubt about it. We know our business.

QUESTION: So you are optimistic about the market?

THE PRESIDENT: I am not optimistic about anything else in the market. I can tell you that I know the projects and the way we have financed them. In answer to your question, I have no doubt.

QUESTION: Will collaboration continue in the steel sectors of the Czech Republic and Poland ?

THE PRESIDENT: I have answered your question. I am not talking about projects we do not have. We are talking about companies which are in the market. I can only answer on what I know. I am serious and I am not speculating. You have asked me a question about the deals we have financed and I have no doubt about the situation of the Bank. Do not talk to me about things I do not know about because I am humble and I cannot answer.

QUESTION: Could you comment about three countries: Mongolia, Belarus and Turkmenistan? Is there a move to extend the Bank's operations to Mongolia? What is the long-term future of your operations in Belarus and Turkmenistan? When will you reach the point when you might consider pulling out altogether?

THE PRESIDENT: You put them in the same box. Taking Mongolia first, this is well known to you but perhaps I need to explain a little why you have asked a question about Mongolia. Mongolia was not a member of the Bank two years ago. The decision was taken by the Governors of the Bank to make Mongolia a shareholder of the Bank, a member of the Bank. So Mongolia is a member. There has been a Mongolian Governor at this meeting and he made a statement. His views are well known. I am sure the Mongolian flag is flying here.

Mongolia is not what we call a recipient country. We cannot use the Bank's money to invest in Mongolia. It is not a country of operation. What is the present situation? Some shareholders - I will not mention them all but they include the Netherlands, Luxembourg, Japan, Germany and Korea - are supporting Mongolia through a technical cooperation fund. The management of the fund is in the Bank but it is not the Bank's money.

The question today, at the request of Mongolia and some shareholders, is: can Mongolia become a recipient country? Can we use the Bank's money to invest in Mongolia? Many positions have been taken this morning and yesterday by many Governors. Briefly, I see growing support for Mongolia to become a recipient country of the Bank. There are some legal questions to solve. I have started discussions with the shareholders and Directors of the Bank about these legal questions. I am quite sure that we can find a solution quickly.

There is a request by Mongolia, supported by some countries, and I see growing support for Mongolia to become a recipient country. The best meeting point I can give you is Tashkent.

On Belarus the Board of the Bank has adopted a new strategy, which states that there are serious concerns about the political and economic situation and progress. Nevertheless, the door is open. We have maintained capacity for action at the SME level. We provide financing to develop SMEs in Belarus. We have said that if Belarus makes progress - and you can see this in the documents we have published - step-by-step we can increase the level of investment and commitment we have in Belarus. The level of our commitments is at the minimum. If there is no progress, we shall not invest, except in the SME sector.

We have taken the same position on Turkmenistan for reasons related to Article 1: progress towards democracy and a market economy. We took the same position a few months ago. We will review this position during the summer. I will have discussions with the Turkmen authorities so that we understand where we stand. We will stick to that position if, after this assessment, we consider there is no progress towards democracy and a market economy. This is exactly the same approach as maintaining capacity to finance SMEs. We say we could do more under certain conditions related to political and economic progress.

These are the two countries where, unfortunately, today we have decided to have a very low level of commitment.

ALANA VISULIA (BBC Office in Romania): You made a very optimistic statement about the Romanian economy. The IMF has announced that it will postpone discussion about the agreement with Romania. There are voices that say that Romania could lose its agreement with the IMF. What will be the effect of this on Romania's relations with the EBRD and what do you think will be the influence on the Romanian economy because the IMF agreement is a package of macroeconomic issues?

THE PRESIDENT: I will tell you a secret. I thought you were going to ask me the question, so I called the IMF before coming here, in order to understand the discussion. First, we talked about the point you mentioned with Romania and the IMF. It is quite normal, and there is no contradiction. My understanding of the situation today - and I do not want to speak on behalf of Romania or the IMF - is that there are some difficulties at a technical level in the measurement and understanding of the IMF conditions. There is a need for more discussion. I understand that the Romanian Government, especially the Romanian Minister for Finance, and the IMF have agreed to discuss these aspects in order to reach a better understanding. I am confident that there will be a clear conclusion to these technical discussions soon.

RADU SOVIANI (B1 TV): I have two questions. You have told us that the answers for sustainable economic growth are SMEs and international financial support. What do you think about internal financing in Romania? Have you made an analysis of how the Romanian banking market responded after the biggest bank in Romania, Bancorex, disappeared?

THE PRESIDENT: Thank you for your questions, mainly the first question because it gives me the opportunity to be more explicit. There are many components of sustainable development. Among them, investment is certainly key; without investment you go nowhere. You need more investment. The flow of investment into the region is good, but it should be much bigger in order to achieve sustainable development. I am talking now about Romania, but that applies to all the countries in the region to varying degrees. Our duty is to help bring in more investment.

The bulk of this increased investment will be foreign direct investment, and that is clear; but that cannot be the only investment. Today, there are very important possibilities for building a stronger capital-based economy on domestic markets. That is why I have mentioned the equity investment commitment of the Bank, the wish to support the creation of a stronger Mittelstand in the countries of operations, especially in central Europe and Romania. This is important for two reasons. It is important for economic reasons. Today we can move forward, both on FDI and on domestic investment. It is also important from a political point of view because there is a need, and the capacity, to develop entrepreneurship in all the countries. For those reasons, we are highly committed to supporting foreign investment and domestic investment. Domestic investment can be achieved rather quickly in certain countries, but it may take longer in other countries. The commitment of the Bank is very clear.

I will not make lengthy comments about the specific situation of the banking sector in Romania. We think that the banking sector has been quite resistant and delivers a good financial service to the companies and the people. That could be improved. We are very confident in the supervision by the Central Bank, and we have invested money in the Romanian banking sector, and we are ready to invest more. Progress has been made in financing the real economy. Our only wish is to do more in the banking sector. The best answer I can give you is this: we are ready to put in more money, which shows that we are confident.

ION NICOLAE (PRO TV): Returning to the question asked by my colleague from the BBC, one of the points of disagreement between the IMF and the Romanian Government was the restructuring of Petrom. Can you give us a few more details about how the EBRD will help this restructuring process, if you have any such details?

THE PRESIDENT: I cannot answer the first point in your question. They are discussions between Romania and the IMF, and they are about the past and what has been done. We are talking about what will happen. Everybody does their own job.

We have proposed, provided the Romanian authorities agree, that the company be sold. That must be clear and there is, from our point of view, agreement on this. We have said that if it is done within the next 12 or 24 months, we are ready to go with them. Before you sell a company, it is better to restructure the company to make it better for the country and for the market. The restructuring is the job of the company and the job of the Government. We can provide financing to do this, in the form of a loan of between 130 million and 150 million, depending on the technicalities. This would be a loan to Petrom to help it restructure its activities and financing so that it is ready for privatisation. That loan would be subject to the clear commitment of the company to prepare for privatisation and the clear commitment of the Government to monitor the preparation of privatisation. We have reached an agreement on these points, and the preparation and monitoring arrangements have been decided upon.

The loan will be partially convertible, which means that part of it could be converted into shares and part of the capital of the future privatised Petrom. That is the scheme.

QUESTION: Should we understand that the EBRD might become a shareholder in the privatised Petrom?

THE PRESIDENT: Your understanding is good.

LIDIA MOISE (ENENIMENTUL ZILEI): You are talking about the privatisation of Petrom, but from my point of view Petrom is not a state company. It is listed on the stock market here in Bucharest. If you are involved in this process, and are likely to be a shareholder, would it be possible to list the company on the London Stock Exchange? Of course, you are bankers, but I have not heard anything about corporate governance and whether this good habit will be implemented in Romania. What do you think about this?

My last question concerns the rather scandalous situation with Mr Basescu, the Mayor of Bucharest. We understood that he asked the EBRD for a loan of €51.5 million for a project, and at the very moment of the Annual Meeting something happened and the Government interfered with this loan. We wanted to know the current situation, because Mr Basescu declared that the two Vice Presidents of the Bank had a discussion with him and tried to negotiate. What did they try to negotiate, and what is the state of this very important loan or our capital Bucharest?

THE PRESIDENT: You have asked three questions. I will try not to forget them. The first one is: what about the privatisation of Petrom and where the company could be listed. We must bear in mind the fact that a privatisation can be done mainly in two ways, either with a strategic partner or by doing what we call an IPO, which simply means going to the market. It is too early for me, perhaps not for the Romanian authorities, to give a clear opinion on this. If we move forward with a pre-privatisation loan, we will have some months to prepare the next step, and that is why we need time to prepare that step. There will be advisers and decisions to be made. We can take part in these final decisions.

Let us wait a little while. Normally in this type of process, the approach by a strategic partner is very important but it can be as part of an IPO. We should be open on your question and even more open on the question of where the company is listed. Why not? It is up to the company to decide. It is not a question for today.

In your question about governance, did you mean governance in Romania or corporate governance?

LIDIA MOISE: Corporate governance.

THE PRESIDENT: You want me to say that it is important. It is important. I have talked a lot about governance. One point I made to the Governors yesterday was that the recipe for progress is: democracy, transparency and governance. For us that is obvious. We have no doubt about it and it is very important, not only in principle but in actions and decisions taken in the companies. We are shareholders in many companies and we pay attention to this.

Conclusions must be drawn from this. Of course it means good law, but this is not enough. This is probably the easiest part of the improvements. What is as important is the improvement of the judiciary system. You need to have good laws, honest civil servants and impartial judges. The improvement of the judiciary system is key for the improvement of corporate governance. It is important to fight against corruption and asset stripping and to protect minority shareholders. This is important but you also have improvement of education, health and the way this part of a country works. That is because if you want a system that is well respected by the citizens, it must function well. Governance is key and the judiciary system is key.

What was your third question?

LIDIA MOISE: The loan the EBRD was prepared to give to the Mayor of Bucharest.

THE PRESIDENT: It was so obvious, that I forgot it! Yes, we are working on a project with various components to address various needs of the municipality of Bucharest. The loan is important because it could be done in relationship with commercial banks. This is an important dimension for the city. We understand that there are some discussions about certain aspects of the project. We do not need to interfere, but to understand the needs. We have talked with the Mayor of Bucharest and the Prime Minister. We understand that there are discussions in Romania among officials to try to reach the best understanding of what should be financed. My understanding is that these questions are clear and limited and we are waiting for the answers. I have no other comment to make. We are ready to finance the needs. We need to know what they are and to see if there is an agreement. The moment there is agreement, it is up to us to see if we will continue. There are many reasons why we could go on but we should agree, and that is all.

QUESTION: How long is EBRD going to wait for an answer on this particular loan?

THE PRESIDENT: I do not know.

SEAN McGUIRE (Reuters): Given the problems in getting FDI levels up in eastern Europe and the given the changing political climate in Western Europe, do you worry that the West is getting tired of the east and that will complicate efforts to bring the two parts of the continent together?

THE PRESIDENT: No. It is clearly not the impression I gained through my dialogue with the Governors. Of the 62 Governors of the Bank, 27 come from the countries of operations, the others from what you call the West. The West is Japan, Korea, Australia and New Zealand. They are supporting us. They were here. Paul O'Neill was here and Mr Solbes was here. I mention them and I could mention many others. They made strong commitments to the region of operations of the Bank. The answer is 'no". They are committed.

YAMATO SATO (NIKKEI): I have one simple question. What can Japan do for this region? Even though Japan is one of the second largest shareholders of the Bank, investment in this area is very limited. Japan really needs to fund your Bank.

THE PRESIDENT: Japan is an important trade and investment partner of the countries of operations. Japan pays a lot of attention to what is happening. I will give you perhaps three examples. Japan is a very strong supporter of Central Asia. Even before 11 September, Japan created in the Bank a special fund to support what we call institution building in Central Asia, and this is very important. I talked with the Japanese Governor yesterday and once again he expressed strong commitment to the region.

We are working with Japanese companies and Japanese investors on some large projects in Russia. I can mention a third example. In the past we have been working, and I have been talking, as have my colleagues, with Japanese investors about projects in Central Europe. Japan is certainly one of the most important shareholders of the Bank. It is certainly a strong supporter of the region. We have many projects and discussions with Japanese companies.

SYLVIE LANTEAUME (Agence France Press): During this meeting, did you make any progress with the Russian delegation about the improvements necessary in the Russian banking sector?

THE PRESIDENT: Yes, I have discussed the financial sector, among others, with Mr Kolotukhin, who is the head of the Russian delegation. We discussed two issues in particular, namely how to facilitate the Bank issuing bonds in the market in roubles. It is important to structure a market in roubles to be able to raise money to finance SMEs and local municipalities in Russia in roubles. Mr Kolotukhin has confirmed that the necessary laws will be introduced. This is very important and could be the beginning of the creation of a good market in roubles. We are committed to doing that, because it could be a major step.

The second point concerns the banking sector. I am sure you have in mind the future of VTB. We have had an exchange of views. The Russian authorities wish to change the ownership of the company from the Central Bank to the state, which should be done before the end of the year. We have agreed to continue discussions on cooperation to prepare for these changes. It was a short exchange of views, simply to confirm our commitment to working together on the future of VTB, but he has confirmed the target.

I thank the Romanian journalists for the attention they have paid to the Bank, and I am grateful to the non-Romanian journalists for being with us in Bucharest. It is a beautiful city; it is sunny, and there are very good opportunities for investment. Enjoy your stay.

I have forgotten something, and I do not know if the questioner is here, but two years ago I was asked this: "Do you want to recruit ladies in the Executive Committee of the Bank?" Last year I recruited one, and this year I have recruited a second one!