EBRD warns of headwinds in former Soviet region

The European bank in charge of assisting growth in ex-Soviet bloc nations warned on Friday of stiff headwinds facing the region as it tries to match the soaring growth ratess in other emerging economies The European Bank for Reconstruction and Development (EBRD) revised up the 2011 growth outlook of nations from Central Europe to Central Asia from 4.2 percent to 4.6 percent.
But its president also warned this improvement was perilously dependent on Western Europe's ability to solve its debt crisis and the local governments' own success at cutting waste. "The EBRD region is faced with growing competition for scarce investment and in relation to other emerging markets its economic performance is lagging behind," EBRD President Thomas Mirow told the annual meeting.
"Our region can and should learn from the experience of others." The London-based group was formed in 1991 to help former communist nations in their unprecedented transition to market economies. It tends to invest in private enterprises together with commercial partners and oversees a region that now groups 29 states. Its latest meeting came in Astana - the gleaming capital of Kazakhstan that veteran leader Nursultan Nazarbayev built up from a dusty village in just over a decade.
Resource-rich Kazakhstan has enjoyed a spectacular decade of 8.5-percent annual growth that has seen the government channel funds into both pet projects and a select group of social programmes. But the bank noted that Kazakhstan remained "largely excluded from foreign borrowing" and expressed concern about the region's inability to integrate itself more closely with the global economy.
Mirow said recent studies had found many of the region's countries "moving in the wrong direction" and others paying mere lip service to transparency and the rule of law. "The most innovative and dynamic enterprise can only flourish in the right business environment. There is a need for predictability, the rule of law and transparency," the EBRD president said.
Some investors attending the conference questioned the very investment strategy backed by the EBRD. They noted that the region's growth rates - particularly those in Russia and other energy-producing republics - were tied strongly to global commodity prices and especially vulnerable to economic downturns in the West. "In the last few years, we saw the financial crisis cause more doubts about the economic vulnerability of the region," said Bankwatch research co-ordinator Pippa Gallop.
"The model promoted by the EBRD is not stable enough to withstand shock," Gallop told AFP. A regional breakdown by the EBRD showed booming growth in Turkey but continuing problems in neighbouring countries of the Balkans. The bank also revised up its growth forecast for Central Europe and the three Baltic nations from 3.2 percent to 3.5 percent. It said the good news was that recent growth came primarily from stronger consumer demand - an improvement on earlier figures showing a higher dependence on foreign trade.
But it warned starkly that Western Europe's failure to solve its current debt crisis would see the recovery in Central Europe and the Balkan nations "stall." The bank's representatives were due to meet again on Saturday to approve a change in its statutes allowing for investments in North African countries following popular uprisings there.
The decision would shift the group's historic focus from a post-Cold War recovery to Arab growth - a move formally welcomed this week by the United States. "The experience with transition is something that can and should be shared. The people in that region, as in ours, deserve to see their political aspirations matched by palpable economic gains," Mirow said.