Transcripts

EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

PRESS CONFERENCE

 BY

JEAN LEMIERRE, PRESIDENT

&

MR STEVEN KAEMPFER, VICE PRESIDENT, FINANCE

ON THE ANNUAL FINANCIAL RESULTS FOR

THE YEAR ENDED 31 DECEMBER 2003

THURSDAY 4 MARCH 2004

Mr Jean Lemierre, President

Mr Steven Kaempfer, Vice President, Finance

Mr Jeff Hiday, Head of Media Relations

MR LEMIERRE: May I welcome you to the Bank.

We had a good year last year.  Steven will explain the reasons for that.  The conclusion I draw is that the Bank has become stronger at the end of 2003.  We are able to look at 2004 and 2005 positively and we have good projects.

I suggest that Steven explains to you why 2003 was a reasonably good year and then I will try to tell you what we have in mind, how we see the challenges for the years to come, and of course what the core of the Bank’s Annual Meeting will be in six weeks’ time in London.

MR KAEMPFER:  You have had the press release, although not for very long.  You have probably been able to see that this has been a rewarding year for the Bank’s activities.

Why do I say that?  It has been a strong year in terms of the volume of activity. We have done €3.7 billion of new business in more projects than ever before in a single year – 119.  That shows that demand for our intervention has been good.  We have been active in every country in which we operate, and virtually every sector has been vigorous.

Some of these figures are somewhat distorted compared with prior years. As you know, part of our business is in US dollars but we report in euro. Therefore things such as volume, the portfolio of commitments and so on will show a lower progression when the dollar is weaker than when it is stronger.  Let us look at the impact on 2003, for instance: if the dollar had stayed where it was at the beginning of the year (1.05 versus 1.26 at year end) the €3.7 billion volume achieved would have topped the €3.9 billion of 2002.  That shows that we have continued at the vigorous rate of the previous year.

It is important to realise that not just the quantity but the quality of the business has been good.  We evaluate quality by assessing the impact of our projects on the transition process.  For the past year, we regard a very large proportion, over 80 per cent, as being likely to make a very good impact on the transition process.  This is crucial.  

That is important for the catalytic role that our Bank must play in the transition process.  This has been a very successful year for mobilising other resources.  We have had a record year in commercial co-financing - the work we do with other financial institutions.  We attracted €2.7 billion of their money into our projects, which is some 30 per cent more than the previous record.  That has had a good effect on the total activity of the Bank.  If you take account of what other co-investors invested with the Bank last year (commercial financial institutions as well as equity investors and strategic sponsors of projects), then the volume represents a project value of over €9 billion.  That has strongly contributed to the total cumulative volume of new commitments by the Bank since its inception, which approached €23 billion at the end of last year. Some of this is no longer outstanding because it has been repaid and so on.  We have committed €23 billion cumulatively to date.  That represents a total project value of €68.5 billion at the end of last year.  You could say that is €23 billion of our money and €45 billion of co-financiers’ or co-sponsors’ money.  For every €1 we have put in, they have put in €2.  That is important for an understanding of the additionality and the catalytic strength of the Bank’s activities.

All this has translated into a strong financial result.  You will have seen that we are reporting a net profit of €378 million, which compares with €108 million in the prior year.  The reason why we are pleased with that is, as you well know, that we do not exist to produce maximum profit; we exist to be financially viable and to have transition impact in our region.

This result for last year makes a good contribution to the risk-bearing capacity of the Bank, allowing it to do more projects and take the risks that arise from its strategy, which is gradually to move east and south into the less advanced transition economies.  The Bank is all about strengthening its risk-bearing capacity in this way and re-investing in new projects. And so that gives us reasonable satisfaction about the year.

May I make a few points on what has driven these results?  Four factors have been key drivers of enhanced profitability, two of which are operational.  We have had a good return, once again, on the equity portfolio of the Bank, through both dividends that accrue as income and a few exits from transactions where we have completed our transition work and where we therefore exited the market in the normal way to regain the money invested to re-invest it in new projects and new risks.

The second driver was a steady return from the Treasury portfolio.  

A third driver, which ought not to be neglected, is that our expenses have been very well controlled.  They are lower than the prior year, although that was partly helped by one or two special factors related to our building.  We received a credit for the last year from a tenant on one of our floors who gave up the sub-lease.  Much more important than that, we renegotiated our Headquarters’ lease last year with our landlords, British Land.  That good discussion came to completion in the middle of the year and helped reduce our expenses for half of the year as well as for every year looking forward.

By far the most important contribution to the change in the Profit and Loss Account of the Bank compared with the prior year was at the level of provisioning charges against impairment.  That is important because provisioning charges are, in a way, a good reflection of what is happening in the region.  Our provisioning charges last year were, as you will have seen in the handout, €22 million.  That compares with €187 million the previous year.  Crucial to understanding this is that we have experienced very limited new impairment in our portfolio.  On top of that, we took some very substantial provisions in prior years, especially in the wake of the events of 1998 in Russia.  We have worked very hard with our work-out team in the intervening years to regain impairment on projects provided against, and we have had re-flows, in other words recoveries, of these projects for several years now.  The result in 2003 was also strong, and so we were able to release some provisions that we had taken in prior years.  I do not expect that to be a continuing process but it has certainly been a good contributor to last year’s results.

My overall view on this is that it reflects the strength of our region.  The region has been very robust now for several years in comparison with the much slower economic growth and rate of growth in the rest of the world.  This has been noted by the international investment and financial community, which has strongly participated with us in projects throughout the region.  That reflects well on the region and has also created an environment in which there was a lot of work for us.  Our pipeline is strong and that is the harbinger of a lot more work for us.  We have strengthened our capacity to do this in various ways, including our ability to bear risk.  That is the story of last year.  To put it in perspective, that profit represents about a 6 per cent return on equity.

For those of you wearing a financial and analytical hat, may I give you one guide to looking at our Profit and Loss Account?  May I ask you to turn to that?  You will see that one way to understand what is really happening is to look at the top end, at operating income before the allocation of return on capital.  You will see that our results, in operating income terms, show good progress over last year: they represent a jump of about 10 per cent.  Thus the progress of the revenue-generating capacity of the Bank is normal, but on financial lines we have made significant advances that translate into a much greater advance in the Profit and Loss Account than you would see from the revenue generating capacity.  The result is that our reserves are now approaching €1 billion versus €661 million the year before.  I think that closes the story on the financial results.

May I say a last word on the impact of the fluctuations in the foreign exchange markets to which I have referred?  As I have already mentioned, on volume, we are in line with and a touch ahead of the prior year if you assume that the exchange rate has remained constant during the year.  The impact is particularly strong when you look at some of the stock figures of the Bank.  By “stock” I mean the portfolio of commitments or the level of operating assets outstanding.  For instance, we report the portfolio at the year-end as €14.8 billion, which would indicate very little growth when in fact, if you measure it at the 1.05 exchange rate prevailing at the start of the year, that is virtually a 10 per cent increase to €15.9 billion.  Similarly operating assets would have been reported at €10.1 billion instead of €9.4 billion.  Disbursements, which are also a key element, would have been €2.3 billion instead of €2.1 billion.  

That is a short summary of some of the key figures in front of you.  There is more information for you in the press release.  To close, we take strength from these results, but challenges lie ahead.

MR LEMIERRE:  I have a few remarks.  First, may I stress what Steven has said, that the region is good.  Clearly, we have been able to develop projects and attract private sector investment at the highest level.  That may be because of our work but it is mainly because of what is happening in most of the countries of the region.

My second remark is that the Bank is stronger today and so we can take more risks.  May I say a word about the Bank’s profits?  The level of profits, which is high, is not due to our not taking risks; it enables us to take more risks.  Perhaps I owe you a short explanation.

You can see, from Steven’s explanations, that most of these profits come from assets we have built up over time, especially in central Europe, and that, in accordance with  the Bank’s normal strategy, we sell those back to the private sector; we disengage.  By doing that, we make profits and create reserves which enable us to take more risks elsewhere.  This is crucial in the EBRD system over time.  You see that now it is working well.  It has taken time to build up these assets, and there are some clear examples:  most of you have commented on the fact that we have sold some of the shares we had in PKO in Poland, for instance.  That enables us to build reserves, to be stronger, to take more risks, and this is very important in the system.

It is important because, as you can see in this year’s results, we are moving towards the east and the south-east – Steven said the south but I would say the south-east – and this is the Bank’s clear strategy.  This is very important in this year of accession to the EU of eight countries in our region.  This year we have invested €1.1 - €1.2 billion in central Europe.  We intend to maintain a commitment to central Europe in the coming years to support central Europe in the last stage of transition, but probably at a lower level.  We have in mind €1 billion and probably a decreasing amount.  It is difficult to know what the speed will be.  The market will tell us.

We maintain a commitment to central Europe, highly focused on the private sector, on medium sized companies and on the development of the regions and the sound implementation of EU funds – all these missions are crucial in restructuring old activities. We are working on many projects, but the level will be lower than previously.  May I remind you of two figures?  Three years ago we invested €1.6 million and two years ago the result for the year was €1.3 million, so we are doing less.  We are maintaining a commitment but at a lower level and we are increasing what we do elsewhere.  This is the Bank’s permanent challenge, and one we have met again last year.  This year we will try to do more.

We face many challenges, and I would like, briefly, to mention three.  The first is to go to all the regions more.  I have said this about central Europe.  I will give one example.  The eastern border of Poland is a region in which we need to do more, for instance. But in Russia, the need is obvious.  Everywhere – and Russia and Ukraine are two good examples - development is needed to attract investment, not only in the big cities, but elsewhere.  Last year, we were able to implement some projects in the regions, and we need to do more.  That means more policy dialogue.

Our second challenge is to work more with domestic investors.  We are doing that today but I think we should do more and be able to support more the new generation of entrepreneurs in the region to expand their businesses.

The third challenge concerns what we call the early transition countries, which are lagging behind.  I hope you do not see this as a negative comment.  When we look at the region, we see countries that are moving forward, but these countries have difficulties.  They are Moldova, Georgia, Tajikistan, Kyrgyzstan, to a certain extent Azerbaijan, and Armenia.  These countries are in a dilemma.  On the one hand, the state cannot borrow money because the state is highly indebted; on the other hand, major foreign investors have no specific projects to invest in these countries.  We have to find a better way within our mandate to support these countries and to do more to improve the transition process.  That is why, with the huge challenge of moving east and south-east, and with these specific elements, it is good that the Bank is strong at the beginning of this year and that we were able to make capital gains mainly on the equity stakes we took in central Europe a few years ago.  By doing that, we can redeploy these investments and make new investments elsewhere in the region.

I am sure you have questions.  I am sure there is one on Uzbekistan, for instance, to which we have paid great attention.

We have tried to do what we said after the Annual Meeting last year – to keep up the momentum of policy dialogue.  The Secretary General of the Bank has made two missions to Uzbekistan, one before and one after the summer, and there was a Board visit in February.  We are making an assessment of what we see in Uzbekistan.  The Board of the Bank will take a decision in the next few weeks on the conclusion we draw from what we have seen.

What are the main views on this?  There is a debate.  We may see some progress but I am told by some that it is mixed.  At the end of the day, the situation is not good, even if there is perhaps some progress.  Clearly we need to consider how to react to this situation in the context of the normal half-term update of  strategies (after one year) and we have to make decisions on the difficult situation we see, even if the willingness of policy dialogue from the Uzbek point of view has been maintained.  The situation is difficult.  That is where we stand on Uzbekistan.  I am sure that the Board will take a decision in the next few weeks, before the Annual Meeting, because we do the updates before the Annual Meeting.

MR HIDAY: If I could just remind you to use the microphone and identify yourselves when asking a question. Robert?

MR ROBERT KERTESZ (Hungarian news Agency):  Mr President, you mentioned a strategy of slow pull-out from the EU accession countries by the EBRD.  When do you expect the EBRD fully to disengage from these countries of operations?  Can you imagine EBRD being present in the next five or perhaps ten years?  What is a realistic timeframe?

MR LEMIERRE:  Our view is that we shall be present as long as we are needed.  We do not decide this; it is decided by the market.  We respect very strict rules of additionality, and that is key on this point.  If the market can do the finance, then we have nothing to do.  If we are needed, we shall give support. We try to see what we can do efficiently.  That is why I mentioned some sectors:  restructuring old activities, in some cases perhaps helping some new investment if that is needed, medium-sized companies, development of the regions, support for the implementation of EU funds.  We know, fortunately, that the whole transition and accession process will make us less needed than before.  That is normal; it is graduation.  But this is not finished, and so we have to be there to provide support if investors need it.

May I make another comment that might explain our views to you, and that is how we see central Europe today.  There is progress and growth, but there are also questions and difficulties, which you know about.  We think that the growth process should be driven more by investment than by public spending.  It is key for central Europe to create more jobs and develop new investment and create additional capacity in the private sector to be able to transform the old sectors.  That is why we have a commitment to support that process of investment and job creation in central Europe.  For how long will we do that?  We are humble.  We have views for the next five years, and I look forward to discussions with you in a few years’ time when we shall tell you how we see the situation.  In fact, you will see it in the figures year after year, so it is easy.

NORBERT HELLMANN (Börsenzeitung):  You mentioned that you are willing to work more with domestic investors and support entrepreneurs possibly in the early transition countries and you have the funds ready because of equity investments that worked out well.  What exactly is it you can do in these countries which are difficult to invest in?  Do you have any experience from the past when you started as a bank working on strategies and methods that you can now apply to these early transition countries?  Would it be banking investment that might trigger a positive start?  What do you think about micro-financing?  Since you want to foster entrepreneurs, micro-financing seems to be one way forward in these counties.

MR LEMIERRE:  That is a good question.  Our views are built on the picture that, on the one hand, states cannot borrow money because they are highly indebted and so there is very limited room for lending with a sovereign guarantee.  Incidentally, other institutions do it, and it is normal for them to do it.  On the other hand, the recipe that has been and is being used in many countries, namely the support of large foreign investors, is absent.  

Our strategy is focused on, first, local entrepreneurs and local banks.  In most of these countries, the banking system has been improved over time.  There are small banks, most of them private, with which we do work:  in Moldova and Georgia, and the situation is improving in Kyrgyzstan, for instance.  They are a very good mechanism for us to put in place facilities to finance micro, small or medium sized companies.

Today we have tools to finance micro-credit, and this has been developed in all of these countries.  We have put in place facilities to finance small business.  We are considering an approach involving the financing of investments that are of larger importance but are still small by international standards – less than $1 million.  These are very important for these countries.  They are bigger than SMEs and can only be domestic.  We have already taken a first step in Georgia, where we have put in place a fund, which you may remember in the context of BTC, to support activity in Georgia after the construction of BTC.  We shall promote this type of approach.  It is a big change for the EBRD because it means going to smaller deals, mobilising the support of donor countries to prepare the projects, to train the entrepreneurs, to create efficient small companies.

 

NORBERT HELLMANN (Börsenzeitung):  The large ones can be done for more than a year but smaller ones probably need people on the spot.

MR LEMIERRE:  There is a reallocation of resources.  We have taken the decision to put new people in some offices in these countries, and we shall do so in the future.  If you want me to go a step further, you need not only a number of people but people who know how to work in these countries and have the skills and mindset to do it.  This is within our mandate; it is private sector but going to small projects in countries in which that is the only hope they have of creating jobs and fighting against poverty.

MR RAYMOND LLOYD (The Parity Democrat, Westminster):  I would like to ask, on the same subject, slightly different questions.  From your press releases, it is obvious that you are increasing your work in micro-finance.  Do you have a breakdown by country and year of the value of these micro-finance projects?

MR LEMIERRE:  We have that.

MR KAEMPFER:  I do not have it in front of me but I am sure if you are interested, we can provide the details.  You have correctly spotted that it is the centrepiece of the Bank’s activities throughout the region, first in the advanced transition economies and in the less advanced ones and in Russia.  You will have seen that we did nearly €1 billion volume in that sector, small and medium sized enterprises, and in particular micro-sized enterprises.

MR RAYMOND LLOYD (The Parity Democrat, Westminster):  I am particularly interested in the micro-finance, of course, because that affects women entrepreneurs perhaps more than any other.

MR LEMIERRE: May I make a comment on this?  Not only do we have strong micro-finance activities, but we intend to add to this two new series of activity.  One is small municipalities.  The large municipalities can borrow money in various ways but there is always a difficulty for the very small ones.  Even in Poland and Lithuania it is very difficult. With the EU, we are putting facilities in place to finance the very small municipalities.  That is my remark on the regions.  The second element is that we are now moving into a new area, which is small, in rural agricultural activities.

MR HIDAY:  We extended the micro and small enterprise programme to four particular countries last year:  Croatia, Macedonia, Serbia and Montenegro and Tajikistan.

MR KAEMPFER:  Can I just add a word to what MR LEMIERRE has just said?  We do a lot more in this sector than only provide finance.  For instance, we devote a lot of time and attention to training loan and credit officers on how to evaluate small enterprises, how to provide finance at the grass roots level, at what pace they should take decisions, because in many of these countries there may be some money available but you have to wait months as a young entrepreneur to start a business.  Even in the most advanced of our transition countries, a lot of further work needed to be done.  For instance, in the last couple of years alone we have trained some 3,000 loan officers in a programme that we run together with the European Commission to provide finance through the local banking system to small and medium-sized enterprises, whereas in other areas we offer business advisory services and help companies on the actual business management side, not only the financing side.  It is a fairly comprehensive approach.

NORBERT HELLMANN (Börsenzeitung):  On the accession countries of eastern Europe, this is a slightly different question:  is the Bank using the accession date of 1 May for the eight eastern European countries as in some way a target date for making all of these countries net contributors to the Bank, all eight of them plus Croatia being considered as advanced countries of operations?

MR LEMIERRE:  What do you mean by “net contributor”?

NORBERT HELLMANN (Börsenzeitung):   That they would be financing projects in other countries.  I think you gave some examples in previous years of Hungary financing projects further east through the Bank.

MR LEMIERRE:  Yes, especially in the Balkans you have the beginning of very active cross-border investment. You have Slovenia investing in other countries and also Croatia investing in Serbia and Serbian companies investing in other countries.  You can see this.

NORBERT HELLMANN (Börsenzeitung):   Does this show up in the Bank?  In other words, are they contributing funds to the Bank for that purpose?  

MR LEMIERRE:  What we do, for instance, is support Slovenian or Hungarian investors investing cross-border.

MR HIDAY:  Felix?

FELIX SCHÖNAUER (Handelsblatt):  Could you say something about the level of German commercial co financing activity?  Are you happy with that because that did not seem to be the case in the past?  Can you also make a comment on the recent developments surrounding Horst Kohler?

MR LEMIERRE:  There are two German questions there!  On the first one: yes, I am sure Steven has the figures and we will give those to you.  I can say that the volume of activity and the relationship with German banks and German business in general are really improving.  With the very strong support of the German authorities, especially the German Directors in the Bank – Mr Radermacher and now Mr Saupe – and with the very strong support of the German business community, there have been many meetings and conferences, and I think there is a much better understanding.  There is a strong attitude in favour of the east among the German business community and we have developed very good and strong projects everywhere in the region.

You may know that I was in Sweden at the beginning of the week and I will be in Germany next week to meet businessmen.  When I talk with them, it is clear that they consider investing in Russia and Ukraine in a different way from even a year ago.  They are more positive and they are considering it.  They would like to have a partner.  That is why we have discussions with them.  This is probably one of the reasons why we have increased our cooperation so much with the German business community.

On your second question, I did read some news at 11 o’clock this morning.  You will understand that I have no specific remark to make.

FELIX SCHÖNAUER (Handelsblatt):  Would you be a good candidate?

MR LEMIERRE:  I am used to not making comments about political and domestic situations.  

PAUL HANNON (Dow Jones Newswires):  You referred earlier to the decline in provisions reflecting a reduction in the impairment on your portfolio last year.  I was just wondering if you could give any numbers to reflect that.  To what degree have write-offs, if that is how you express them, fallen in the last three to four years?  Could you elaborate on that as a reflection of the risk return profile for investors in the region?

I have another separate question to do with Uzbekistan.  I noticed that yesterday or the day before on the website there was a project summary document posted for a CIS7 group fund, something to do with small businesses, and Uzbekistan was mentioned in that.  That indicates that you are still working on the basis that you will be doing business in Uzbekistan later this year.  Am I reading more than I should into that or is this just something you have to keep on doing until you make a final decision one way or the other?

MR LEMIERRE:  We have not made any decision on Uzbekistan yet.  Do not see the document you mentioned as an indication of the flavour of a decision.  The Board has not made a decision.  That is not the case.  Of course, if there is a decision by the Board, this type of document will be modified.  It is not an anticipation of a position.

The second element is this.  You know that even in the countries where we have many difficulties, we maintain the financing of SMEs.  You know that this is the case in Turkmenistan and Belarus, for instance, where we do not operate except for SMEs because we believe it is necessary for the minimum flow not only of money but of change because we think that they could bring something.  Where these concern SMEs or micro-finance, it is even clearer, but that does not mean we have made a decision one way or the other on Uzbekistan.

MR KAEMPFER:  On your question on write-offs, and you are right to ask the question, of course, to some extent they are a barometer of what happens in a portfolio.  If you look at the write-offs in 2003, our write-offs on the portfolio, that is not taking a provision against possible loss but actually written off, the figure was €63 million.  The year before the figure was €45 million and the year before that €70 million.

What is perhaps more interesting is to look at the cumulative write-offs the Bank has taken to date on its portfolio of operating assets throughout the region, all 27 countries.  That total figure at the end of 2003 stands at €364 million.  In fact, for a portfolio of the kind of market – advancing operations that we do, often very risky ones, the write-off experience has been relatively moderate.

MR LEMIERRE:  That shows that 1998 was a real difficulty, as you know, and that the Bank has been able to get back its money in many operations.  The Bank has worked hard.  It also means that some of these investors have paid back and respected their commitment.

MR KAEMPFER:  You know, because you know our Bank very well, that in the wake of the 1998 events, when we engaged in the recovery business, it was not only a question of having some capable bankers working on how to extract value from the structure of a project that had become impaired. Rather, it was also a very important opportunity for the Bank to have a secondary transition impact in the pursuit of recovery, such as testing in the courts and getting bankruptcy legislation applied, and that was an important aspect of that experience.

STEFAN WAGSTYL (Financial Times):  I have a couple of questions.  One is about the accession countries.  Do you think that the fact of accession will make much difference to foreign investment in the accession countries or not, because so much has happened already?

The second question is about Russia.  Conditions now are very good.  What possible black clouds are there on the horizon?  Quite a few people have raised questions about the levels of Russian corporate debt.  Is that something that you are worried about?

MR LEMIERRE:  On the first question, the accession date is very important in itself because it has been in preparation for a long time and it was the driving force of progress in many countries, the acquis communautaire, the commitment to reform and so on.  In itself, it is the achievement of the process by which so many things have been made possible.

To a large extent, it is also a starting point.  There is life after 1 May 2004 and it may have started.  There are also difficulties.  In some cases, you have many successes and in some cases there are macro-economic tensions.  These have to be resolved.  Yes, it is an achievement, but it is one step.  To that extent, it does a lot for investors because there is a real change; it is the EU.  Yes, it is certainly a change and we see this in the minds of investors.  We see investors who were previously perhaps not willing to invest outside the EU but they now say, “This is the EU and we will invest”.  Of course that is very important for investors.  At the same time, investors look at the reality, at the processes and decisions, and the long-term commitments and reforms.  They look at many countries.  It gives them many opportunities, so there is some competition among the countries.  That means that the reform process must go on. The level of financial intermediation is not high enough and has to be improved.  Many old industries have to be restructured. The agricultural sector must be reformed, for instance in Poland.  Infrastructure has to be improved to attract investment.  That is obviously so in Poland, and in Slovakia too it must be improved.

The other change is the very strong support the EU is going to bring to central Europe.  If I am correct, the level of EU funds which are going to be channelled over the next three years must be €11 billion or €12 billion.  That is a large amount of money to finance many projects.  That is good for the countries.  It will also create activity and growth.

Yes, there is a change and sound macro-economic management must be achieved.  The business climate must be improved further and transition must be completed.  That is the reason why we are committed to providing support.

On your question about Russia, we have confidence about the situation in Russia.  Russia is in a good macro-economic situation.  The price of oil is high, which is helpful to Russia.  I think there is a good understanding by the authorities, and mainly by President Putin, about the fact that that is key to attract investment, that the future of Russia will be based on the capacity to develop many sectors and restructure many sectors.  The future of Russia will be based on diversification, not only on oil and gas. Even if oil and gas are key, that is not enough.  If you want to create jobs, fight poverty and improve the situation in Russia, you need to invest in many sectors.  They know that they have devoted a lot of time over the last three years to improving the predictability of Russia.  They know that is an asset.  We are confident that not only is there strong understanding but also a willingness to promote this.

When I talk with investors, they hold the same views.  All the companies – telecom, agribusiness, automotive – now see Russia more and more as a place where they can invest and where there is a market.  The results last year show that.  All the discussions I have had indicate this.  The banking sector in Russia is growing.  You have many foreign banks.

You had a specific question about the pool of corporate bonds.  I would simply say today that this point has to be monitored.

MR CHRISTIAN SCHUBERT (Frankfurter Allgemeine):  You gave us figures for central and eastern Europe where for three years investment has come down, from €1.6 million to €1.1 million.  Do you have figures for any other region showing a corresponding increase?

The second question is a personal question.  Your contract, I understand, is coming to an end.

MR LEMIERRE:  That is true.

MR CHRISTIAN SCHUBERT (Frankfurter Allgemeine):  How does the future look?  Are you willing to extend and are the shareholders willing to extend?

MR LEMIERRE:  I will answer the second question first, or I may forget it.  The shareholders of the Bank have been kind enough to ask me to stay.  The Board of Directors voted on Tuesday – and I was not there – for a resolution proposing that my contract be renewed at the Annual Meeting of the Board of Governors.  I can simply comment that I am very proud of this.  This is a very good institution with very good people who are dedicated to a great mission.  I am very proud to serve this Bank.

MR CHRISTIAN SCHUBERT (Frankfurter Allgemeine):  You will extend, even if they offer you the IMF job, for example?

MR LEMIERRE:  This is not a question but a remark you are making.  I consider that a remark.  

MR CHRISTIAN SCHUBERT (Frankfurter Allgemeine):  It is a question.

MR LEMIERRE:  I do not have the answer to this question.  We have all seen that this morning.  I do not want to make any comment.

On your first question, what years can we use to explain this to you?  Do you want to see the present or the future situation?

MR CHRISTIAN SCHUBERT (Frankfurter Allgemeine): Three years, the shift?

MR LEMIERRE:  I will take 2001, 2002, 2003 and I could tell you perhaps what we have in mind for 2006.  In the first year, 2001, for central Europe, what we call the advanced countries were at 45 per cent; Russia was at 22 per cent and early and intermediate at 33 per cent.  If I take 2003, to make it easier, advanced were at 31 per cent, Russia 30 per cent, early intermediate, 39 per cent.

MR CHRISTIAN SCHUBERT (Frankfurter Allgemeine):  Are these disbursements?

MR LEMIERRE:  These are commitments.  Let us take 2005, for simplicity: we have in mind 24 per cent for advanced, 34/35 per cent for Russia and 42/43 for early intermediate.  When you take 2001 and 2005, you will see there is a division almost by 2 from 45 per cent of the total of the Bank’s commitments to 24 per cent for advanced.  Russia would jump from 22 to one-third and early intermediate from one-third to 42/43.  You can see the trend.

Josué is the master of the strategy of the Bank.  I am speaking under his control  Josué, do you agree with this?

MR JOSUE TANAKA (EBRD Corporate Director):  These are the numbers.

MR PAUL HANNON (Dow Jones):  This question is to do with the long-term future of the region.  One of the more worrying recent developments is the rapid rise of HIV AIDS in substantial parts of the region: Uzbekistan in Central Asia being one of those countries.  This has wreaked havoc on Africa, as you know.  Can you see any comparable impacts in your region of operations and what on earth could an institution like the EBRD do to help tackle this problem?

MR LEMIERRE:  That is a very good and important point.  Your question is a broader one than just about HIV and it is a serious one.  It is about the quality of the health systems in the region.  I totally agree with you.  I do not see this as a major threat to investment over the coming years but certainly it is a key point to which policy makers need to pay a lot of attention everywhere in the region.

What can we do?  You know that we do not have a mandate to deal with this.  But there is something we can do.  When you invest, when you create jobs and improve the situation, and when you fight poverty, it helps to improve the situation because in many cases there is poverty and despair.  Improvement of the macro economic situation, investment and job creation, the capacity to export – exactly what we do – are all necessary.  In our region in many of these countries, and I can take Kazakhstan in particular and Russia, it works.  We can see that investment is coming.  Moreover, they have resources, thanks to oil and gas.

We work in close coordination with the World Bank and the World Health Organization on these matters.  I know that they are paying more and more attention to this.  I can tell you that in some countries leaders are now talking to me about it.  It is becoming a concern, and there is greater awareness.  A country like Kazakhstan is very much aware of the danger and it comes from various kinds of traffic.  There is the disease and there are also drugs, and there is a relationship between the two.  Clearly the fight against drug traffic from Afghanistan is a crucial element in that picture.  That is crucial in Central Asia.

MR RAYMOND LLOYD (The Party Democrat, Westminster):  In 2003, the Bank signed nine projects for Serbia and Montenegro.  Has your lending taken account of the fragile nature of democracy in Serbia, including the US delay in committing funds until persons indicted as war criminals are handed over?

MR LEMIERRE:  This has been done in a very transparent and clear way.  The decision taken by this Bank and the Board of this Bank, after the fall of Milosevic, is to support the democratic process in Serbia and Montenegro.  This decision has been taken by many institutions – the World Bank, EIB and the EU Commission and so on.  Of course, there are questions in Serbia now.  I have no specific reaction today.  We are monitoring what is happening.

MR HIDAY: We have time for one more question.

MR LEMIERRE: Or maybe two!

MR HIDAY:  Norbert?

NORBERT HELLMANN (Börsenzeitung):   From a portfolio diversification or risk management view, over what threshold would you not want the Russian commitments to go?  They have expanded quite a lot in the last couple of years.  I am wondering about Ukraine and Kazakhstan, which have similar economic features:  you might get to a point where people say that you have a risk cluster of 50 or 60 per cent that is really tied together.  Where is the end to that expansion?

MR LEMIERRE:  We think we have the capacity today to invest on a yearly basis €1.3 billion to €1.4 billion a year in Russia, which is one-third of our business.  The size of the Russian portfolio within the Bank’s overall portfolio is 23 per cent.  That is a different approach.  I have told you that, looking ahead, I have a flow approach:  we have the capacity to invest year after year €1.3 billion to €1.4 billion in Russia.  There is a very interesting shift in Russia.  If you look at what we were doing two or even three years ago, the public sector share of the flow of business in Russia was quite important.  We have financed new equipment and roads, which were necessary for Russia.  The flow is becoming more and more private.  I believe this year, for instance, that it will mainly be private.  That is because Russia has a budget surplus, thanks to the price of oil.  It finances its public equipment itself, and that is good.  We support the development of the domestic or foreign private sector.

MR YAMATO SATO (Nikkei):  My question is a little different.  What do you think about Clare Short?  I ask this question because the Japanese Government simply did not like the way Clare Short, and perhaps you, acted at the Tashkent meeting.  The Japanese Government’s opinion is that perhaps the EBRD does not know about Asia because it is simply not the tradition in Asia to criticise the host country in public.  The Japanese Government states that it is still committed to supporting Uzbekistan.  That is not because the Japanese do not place weight on democracy but perhaps the Japanese know that it is more complicated.  What is your opinion?

MR LEMIERRE:  The question is about Uzbekistan and not about Clare Short.  Clare Short said what she thought she had to say.  She was the Chair of the Board of Governors of the Bank.  At that time she was a British minister.  She made her point.  I think we have to respect what she said.

What have I said and what do we say in the EBRD?  We say a few things and these are clear.  There is no sustainable progress without progress toward more democracy and progress towards respect for people.  We do not think that opening the debate, which was totally open, is wrong, provided it is done with full respect for the people of the country.  This institution has been working now for more than ten years in very difficult countries, including in Central Asia.  We know these countries and we respect the people.  What I have said in public I have said in private many times, and so there was no surprise.  There was no desire to criticise but simply to make a point, which is how we see the way forward.  I think we were right to do that.  It is better to be engaged than not, and that is all.  I have listened to the comments made by the Japanese minister and he was clear, too, and he had a good message, which I share.  That is all.  We do respect Central Asia.  We are in Central Asia and we have teams and investments in Central Asia.  The question today is:  do we stay engaged or not and how do we stay engaged?  There is a debate, but we are in Central Asia.  I think it is better to be there than not, and I will not go further, but some are not there.

This year we are not going to Tashkent.  The Annual Meeting will be in London.  I hope we meet before the Annual Meeting and certainly at the Annual Meeting.  Thank you.