Ministers double EBRD's money

Western finance ministers yesterday agreed to dig deeper into their pockets to finance economic development in eastern Europe. At the annual meeting of the European Bank for Reconstruction and Development meeting in Bulgaria yesterday, they formally agreed to double the bank's capital base from ecu 10bn (pounds 8.2bn) to ecu20bn.

The increase was welcomed even by Kenneth Clarke, Chancellor of the Exchequer, who has in the past raised doubts about the need for the EBRD. But Mr Clarke said this first increase in its capital would also be the last.

"Three years ago such an increase would have been inconceivable," he said, alluding to the bank's reputation for extravagance under its former president, Jacques Attali. He paid tribute to the achievements of Jacques de Larosiere, the current president, in transforming the EBRD while holding running costs constant.

In future, ministers intend the EBRD to be self-financing, like other international organisations such as the World Bank.

All ministers from the 57 member countries have agreed to the capital increase, a process made more palatable to financially strapped treasuries by agreeing to spread payments over an eight-year period, starting in April 1998, and by allowing 60 per cent of payments to be made in promissory notes.

Mr de Larosiere received countless other plaudits for turning the bank around since he took over the helm three and a half years ago. He has transformed Mr Attali's "glistening bank" - noted for the luxury of its London headquarters - into a model of fiscal respectability.

Overheads have dropped from 30 to 24 per cent of the operating budget, allbeit at the cost of levelling staff salaries, and much of the "glitter" is being torn out of the headquarters building to prepare floors for sub- letting.

Mr de Larosiere's hair-shirt approach to running the institution has even earned the approval of the US delegation, which stopped its payments to the bank during Mr Attali's tenure.

The assistant secretary for international affairs at the US treasury, David Lipton, said that bank payments had been restored and "the administration will be asking Congress to pay down the rest of the appropriation".

The only note of dispute in Sofia came over the question of "graduation" for the more advanced central European countries, notably Poland, the Czech Republic, Hungary and Slovakia. Western ministers are urging bank officials to seek out investments in the more "difficult" countries of the former Soviet Union. They want central European countries to switch to commercial borrowing as they achieve investment grade status.

Polish and Hungarian delegates are concerned that the bank will fund fewer of their projects.

Mr Clarke added that east European countries should do better in liberalising their economies to encourage foreign investment.