Emerging European economies face their worst crisis since the end of communism, the head of the European Bank for Reconstruction and Development said on Tuesday, adding that the bank might be open to new requests from its members.
Set up in 1991 to help former Soviet-dominated economies in Central and Eastern Europe, often through lending to or taking stakes in small and medium enterprises, the bank faces a full-year loss because of recent falls in investments and the prospect of non-repayment of some of its loans.
Perceived until recently as some of the most promising emerging markets, eastern and central European economies are now seen among the most exposed to global turmoil that is pressuring their currencies, economies, borrowers and banks as investors withdraw funds.
"Clearly, this is the deepest and most complex crisis we have faced since our inception," bank president Thomas Mirow told Reuters in an interview, referring to the situation in the economies the bank covered. "This time the crisis has not emanated from the emerging markets but they are feeling the heat. I think anyone who predicts a date when things will turn around is not being very responsible."
He said the bank should not see a significant impact on its activities as it was one of the best-capitalised international financial institutions, with total assets of 33.6 billion euros ($42.04 billion), supported by 13.1 billion euros in paid-in capital and reserves and 14.6 billion euros in callable capital.
The EBRD has continued to add new recipients as far afield as Mongolia as more developed eastern and central European economies had no problems attracting capital. On Tuesday, the EBRD board approved Turkey as a new recipient, saying it would make $600 million of investment in the country by the end of 2010.
Eight Eastern European EU members either had stopped or were due to stop receiving EBRD funds by 2010, and though Mirow said it was too soon to say that will be reversed, the bank would be open to new requests from its recipients. "I would not like to be seen as heading an institution which is grasping the first opportunity to reverse major strategic decisions," he said. "But if after an assessment of what the crisis has done...countries themselves appeal to the bank... then clearly continued engagement would be needed."
Mirow said some countries were showing clear risks, although he was reluctant to give details about individual states or necessary action. "Ukraine we are obviously particularly worried about because of the mixture of economic and political problems," he said.
"At least one of the countries in the Western Balkans will probably have problems. The Baltic states are particularly vulnerable and we have also seen problems in Hungary." Mirow said the bank would stick by its current partners and support them through the crisis, as well as providing advice and working with other entities such as the International Monetary Fund.
Ukraine, Hungary, Serbia, Belarus and Turkey are all seen talking to the IMF about either rescue or standby packages. He said structural reforms made since 1991 would not literally be "getting back to zero" but there were risks. "It is clear that some or almost all of these countries will have to undergo time is of austerity," he said. "We are talking about damage in terms of people's belief that structural reforms will always bring benefits."