The Role of the ebrd in Ukraine`s Transition

The European bank of Reconstruction and Development (EBRD) has already become the leading investor in the private sector in Eastern Europe and in the countries of CIS. Set up with the specific aims of assisting the transition ( moving towards a market economy), the Bank works with various partners. For example, the Bank works with foreign investors and local entrepreneurs, with the financial sector, and works to remove infrastructure bottlenecks, which hamper private sector development. It is succeeding in its endeavours.

The projects it finances include financial institutions, telecommunications, energy-saving, power generation, transport construction, manufacturing and agriculture. Taking into account the participation of other investors, the overall total benefit to the countries in which it operates is ECU 13.7 billion.

The EBRD has been participating in Ukraine`s development since December 1991 and it opened its office in Kiev in May 1993. With its key mandate of helping to foster the transition to an open market-oriented economy, the Bank has been keen to assist Ukraine in its initial steps towards independence, nationhood and the market system. But the Bank cannot work alone. It relies on the government to create the framework within which a market economy will prosper. As the Bank`s President Jacques de Larosiere highlighted at the 1994 Annual Meeting in St. Petersbourgh, “Structural reform requires a stable macro-economic framework and the control of inflation. The success of economic reforms presupposes sustained effort and a coherent approach to implementation”; this has unfortunately not been the case in Ukraine until now. Things may be about to change. The recent agreement with IMF is testimony to this. With this new commitment to reform, the Bank in all its activities seeks to encourage the transition process.

Meeting the needs of private export-oriented industries and small and medium enterprises is important for the development of a vibrant local private sector. Recognizing this, the Bank has at the heart of its business strategy a strong emphasis on its activities in the financial sector. This is because an essential ingredient to the functioning of any efficient private sector must be a sound financial system. Without the basic financial infrastructure in place, transition cannot succeed.

The EBRD therefore works closely with domestic financial institutions. If conditions permit, the Bank takes an equity stake that is participates in a company`s profit through shares or commits long-term debt-financing to new or existing domestic banks. If long-term direct investments are not possible, the Bank seeks other means to support local businesses, while strengthening the domestic private sector. In Ukraine, the Bank is currently working on a number of such projects, some of which may be soon finalized. The Bank seeks to increase the availability of much needed equity finance for the local private sector by investing in various venture capital funds in the region. For example, the Bank took an equity subscription of ECU 2.9 million in the Ukrainian Venture Capital Fund. Signed in March 1993, the fund had already approved 18 investments, in everything from nail manufacture to sail making.