US leads attack on European bank's extravagance: Attali promises to implement reforms

THE UNITED STATES yesterday led an unprecedented barrage of criticism of the European Bank for Reconstruction and Development and urged its president, Jacques Attali, to restore lost confidence in his institution.

During the first day of the bank's annual meeting in London, Roger Altman, the US Deputy Treasury Secretary, delivered the strongest public criticism yet by a leading shareholder country of the EBRD's lavish start-up spending.

'I would like to express concern regarding recent reports of extragavant spending at the EBRD,' he told delegates at the annual meeting. 'We expect institutions to which we have entrusted public money to use this money wisely.'

Speaker after speaker, from rich industrial countries and the emerging Eastern European nations, delivered similar criticisms, an unprecedented event for an annual meeting of an international financial institution.

The wave of concern about the EBRD's damaged image seemed lost on Mr Attali, however. He said merely that recent criticisms were constructive and promised to implement rigorously last week's reforms aimed at containing costs.

Mr Altman said later: 'There has been a loss of confidence in the bank, and the need is to restore it.' But he brushed aside suggestions that Mr Attali should step down, saying instead that the issue was to improve the running of the bank. Despite the protests at EBRD spending, no leading country has yet suggested that Mr Attali should go.

More gentle public rebukes on EBRD spending were made by John Major and Theo Waigel, the German Finance Minister and current EBRD chairman. Some borrowing countries, including Russia and Hungary, also expressed concern at the sluggish pace of EBRD lending and the conditions under which loans were made.

There were also misgivings expressed at the low rate of equity investment in the region, and also in high-risk but ultimately viable projects. Other Eastern European countries said EBRD loan requirements were often rigid and sought more loans to small and medium- sized business.

The US and other leading countries urged the bank rapidly to implement G7 proposals for a dollars 300m fund for small business in Russia. Mr Waigel said the EBRD had been instructed to use the fund for high-risk investments if need be, but also to use it as a model for a new Russian bank to promote small enterprises in which the EBRD would have a stake.

Britain is expecting support from other leading industrial countries in pressing for stronger control of International Monetary Fund and World Bank spending following revelations of lavish spending by the EBRD.

A senior Treasury official said Britain would press for more rigorous oversight of spending by the IMF and World Bank at high-level talks in Washington this week, including a meeting of G7 finance ministers.