The European Bank for the Retardation of Development

In typical bureaucratese, the pensive EBRD analyst ventures with the appearance of compunction: "A number of projects have fallen short of acceptable standards (notice the passive, exculpating voice - SV) and have put the reputation of the bank at risk". If so, very little was risked. The outlandish lavishness of its City headquarters, the apotheosis of the inevitable narcissism of its first French Chairman (sliding marble slabs, motion sensitive lighting and designer furniture) - is, at this stage, its only tangible achievement. In the territories of its constituencies and shareholders it is known equally for its logy pomposity, the irrelevance of its projects, its lack of perspicacity and its Kafkaesque procedures. And where the IMF sometimes indulges in oblique malice and corrupt opaqueness, the EBRD wallows merely in avuncular inefficacy. Both are havens of insouciant third rate economists and bankers beyond rating.

Established in 1991, "it exists to foster the transition towards open market oriented economies and to promote private and entrepreneurial initiative in the countries of central and eastern Europe and the Commonwealth of Independent States (CIS) committed to and applying the principles of multiparty democracy, pluralism and market economics. The EBRD seeks to help its 26 countries of operations to implement structural and sectoral economic reforms, promoting competition, privatization and entrepreneurship, taking into account the particular needs of countries at different stages of transition. Through its investments it promotes private sector activity, the strengthening of financial institutions and legal systems, and the development of the infrastructure needed to support the private sector. The Bank applies sound banking and investment principles in all of its operations. In fulfilling its role as a catalyst of change, the Bank encourages co-financing and foreign direct investment from the private and public sectors, helps to mobilize domestic capital, and provides technical co-operation in relevant areas. It works in close co-operation with international financial institutions and other international and national organizations. In all of its activities, the Bank promotes environmentally sound and sustainable development."

Grandiloquence aside, the EBRD was supposed to foster the formation of the private sector in the revenant wreckage of Central and Eastern Europe, the Balkan, Russia and the New Independent States. This it was mandated to do by providing finance where there was none ("bridging the gaps in the post communist financial system" to quote "The Economist"). Put more intelligibly, it was NOT supposed to transform itself into a long-term investment portfolio with equity holdings in most blue-chips in the region. Yet, this is precisely what it ended up becoming. It avoided project financing like the plague and met the burgeoning capital needs of small and medium size enterprises (SMEs) grudgingly. And it refuses to divest itself of stakes in the best run and most efficiently managed firms from Russia to the Czech Republic. In a way, it competes head on with other investors and commercial banks - often crowding them out with its subsidized financing.

One of its main mistakes, in a depressingly impressive salmagundi, is that it channelled precious resources to this budding sector (SMEs), the dynamo of every economy, through the domestic, decrepit, venal and politically manhandled banking system. The inevitable result was a colossal waste of resources. The money was allocated to sycophantic cronies and sinecured relatives (often one and the same) and to gigantic, state-owned or state-favoured loss makers. Most of it lay idle and yielded to its hosts a hefty income in arbitrage and speculation. As banks went bankrupt, they wiped whole portfolios of EBRD SME funds, theoretically guaranteed by even more bankrupt states.

Thus, the only segments of the private sector to benefit handsomely from the EBRD were lawyers and accountants involved in the umpteen lawsuits the EBRD is mired in. It is a growth industry in "countries" such as Russia. This is the melancholy outcome of indiscriminate, politically-motivated lending and of a lackadaisical performance as both lenders and shareholders. In the spirit of its first chairman, the suave and titivated Attali, the bank is in a constant road show, mortified by the possibility of its dissolution by reason of irrelevance. It aims to impress the West with its grandiose projects, mega investments, fast returns and acquiescence. In thus behaving, it is engaged in a perditionable perfidy of its fiduciary obligations. It lends to criminal managers, winking at their off-shore shenanigans and turning a blind eye to the scapegrace slaughter of minority shareholders. It throws good money after bad, cosies up to oligarchs near and far and engages in creative accounting. Instead of Westernizing the Easterners - it has been Easternized by them. Its sedentary though peregrinating employees are more adept at wining and at dining the high and mighty and at haughtily maundering in the odd, tangential, seminar - than at managing a banking institution or looking after the interests of their nominal shareholders with the tutelary solicitude expected of a bank.

Consider two examples:

MACEDONIA

The nascent private sector is nowhere to be found in the list of projects the EBRD so sagely chose to falter into here. The Electricity and Telecoms monopolies are prime beneficiaries as is the airport. The EBRD is also a passive shareholder in both big universal banks - until recently, conduits of state mismanagement. The SME and Trade Facilitation credit lines were conveniently divvied up among five domestic banks (one went belly up, the managers of two are under criminal investigation and one was sold to a Greek state bank). Despite vigorous protestations to the contrary, none of this money reached its proclaimed entrepreneurial targets. Two loans were made to giant local firms - the natural preserve of commercial lenders and equity investors the world over. The EBRD contributed nothing to the emergence of a management culture, to the development of proper corporate governance, to the safeguarding of property rights and the protection of minority shareholders here. Instead, it colluded in the perpetuation of monopolies, shoddy and shady banking practices, the pertinacious robbery titled "privatization" and the pretence of funding languishing private sector enterprises.

RUSSIA

Its 2 billion US dollars portfolio all but wiped out in the August 1998 financial crisis, the EBRD has now returned with 700 million new Euros to be - conservatively but not more safely - lent in major energy and telecom behemoths.

The historic, pre-1998, portfolio appears impressive. Almost 11 billion US dollars were generated by the EBRD's less than 4. The bottom line reads 94 projects. Yet, when one neutralizes the infrastructural ones (including the gas and energy sector) - one is left with less than 50% of the amount. Add "infrastructure-like" projects (water transportation and the like) - and less than 30% of the portfolio went to what can be called proper "private sector". Moreover, even these investments and credits were geared towards traditional and smokestack industries: mining, food processing, pipelines, rubber and such. Not an entrepreneur in sight. And the EBRD's meagre loan-loss provisions and reserves cast serious doubts regarding the mental state of both its directors and its auditors.

To varying degrees, these two countries are typical. Development banks, like industrial policy, import substitution and poverty reduction, have gone in and out of multilateral fashion several times in the last few decades. But there is a consensus regarding some minimum aims of such bureaucracy-laden establishments - and the EBRD achieves none. It does not encourage entrepreneurship. It does not improve corporate governance. It does not enhance property rights. It does not allocate economic resources efficiently. It competes directly with other - more desirable - financing alternatives. It is not equipped to monitor its vast and inert portfolio. By implication it collaborates in graft, tax evasion and worse. It is a waste of scarce resources badly needed elsewhere. It should be administered a coup de grace. And its marbled abode - so out of touch with the realities of its clients and its balance sheet - should be sold to someone more up to the task. A bank, for instance.

About The Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.

His web site: http://samvak.tripod.com

---

To Grow Out Of Unemployment

There is a connection between economic growth and unemployment. There... Read More

Pilot-Less and High Speed Train Transportation Systems; Better Strategy Needed

We recently saw another ferry accident, this one in NY... Read More

Faith in Our Government

Many have lost faith in the government and are completely... Read More

Bush Panders America?s Kids to Saudi Pederasts

President Bush and Secretary Powell should hang their heads in... Read More

US Army in Catch 22 on Gays Issue

Many of those who wish to fight for our country... Read More

Think You Dont Need A License for A Wireless Microphone? Think Again

Believe it or not, every theatre, church, or Britney Spears... Read More

Public Sector Economies in Transition

In the previous article, we described the various methods developed... Read More

The FTC Purports and Misrepresents Their Law Enforcement Experience as It Attacks Business

We should all give much kudos to the Federal Trade... Read More

The Halakah and Neo Cons

These leaders like the Rothschilds who backed Crowley's Hermetic Order... Read More

Why Do US Media Ignore Secret UK Government Memo On A Mega Iraq War Conspiracy?

The blogosphere has been jumping around the story like crazy... Read More

Religion, Wars and Civilization

Many are quick to point out the benefits of religion... Read More

Environmentalism and Roads in Our Forests

Many environmentalists are against roads through the forest because it... Read More

Arbitrageous Outrageous and Immoral

Back-Dooring the CSIS:The US and Israel have admitted they back-doored... Read More

A Component of Liberty is a Strong Social Contract with Governing Body

Recently I got to talking with a gentleman at a... Read More

Colts? Stadium Short on Horse Sense

The predominant discussion in the Indianapolis media over the proposed... Read More

Will Gay Marriage Slow Down AIDS Crisis

It is widely known in the Homosexual Male Populations that... Read More

America Needs Election Reform to Ensure Congressional Honesty

America must implement a policy on Election Reform that is... Read More

Great Melting Pot Indeed

An interesting conversation that I thought I must share with... Read More

Mexican Trucks in the United States; NAFTA Trade and Problems

Expected new applications for Mexican trucks to enter the US... Read More

Government Regulation Helps People

Well the title is absolute Bull Crap, but this article... Read More

The Fed and Other Garbage

"The Jesuit priest John H. Surratt, proven to be the... Read More

The Power of Media: Russian Perspective

Journalism, as it is often said, is the 'fourth branch... Read More

Nurturing Global Disequilibrium

This brings to our consciousness, issues concerning the ever rising... Read More

Famous Filibusters in Political History

The filibuster as a political delaying tactic has been a... Read More

Liberal Agenda and Communism; Lance Rants

If we go hog wild towards the liberal agenda where... Read More

World Moving from Socialism to Capitalism

The recent Jakarta summit of Asia and Africa brought remembrance... Read More

How to Tell When Government Regulators are Shopping You

In this day and age of tattletale, whistleblower heroes and... Read More

Government Credit Card Abuse

Veterans Affairs Employees using government credit cards on personal items?... Read More

The Mother of All Political Battles Has Begun!

News is spreading of the retirement of Supreme Court Justice... Read More

Maryland State Legislator wants to kill jobs and small business

Last year a Maryland State Legislator whom I presume never... Read More

Government Overregulation of Broadcast Content Could Backfire

Rush is right! The government's stepped up bid to regulate... Read More

Chinese Rhetoric Over Taiwan, Back At You

It appears we are getting a little bit of Sun... Read More

US Trade Deficit with Bordering Neighbors

The trade deficit with Canada is now 50 Billion per... Read More