Governor's Address to the European Bank for Reconstruction and Development
John B. Taylor
Under Secretary of Treasury for International Affairs
2003 Annual Meeting in Tashkent, Uzbekistan
May 5, 2003
President Lemierre, Secretary of State Short, fellow Governors, your Excellencies, ladies and gentlemen. The United States continues its strong interest in sustained economic growth and the creation of high-productivity jobs by the private sector in the EBRD's countries of operation. Creating an environment where businesses create jobs for people is the key to poverty reduction and rising living standards. The EBRD’s role is particularly critical for Central Asia given the need to catalyze the private sector. Real progress on regional integration is key to unlocking the region’s untapped potential.
As we meet to discuss the EBRD and its region, we cannot help reflecting as well on the contemporary challenges of Iraqi reconstruction and the war against terrorism. Our hope is that a free Iraq will embark on the same kind of transformation to democracy and free markets as many of EBRD’s countries. Promoting stable, market economies is also part of the war on terrorism. As President Bush has said, “Persistent poverty and oppression can lead to hopelessness and despair. And when governments fail to meet the most basic needs of their people, these failed states can become havens for terror.” The global war on terrorism is removing barriers to prosperity and poverty reduction.
The experience of the transition economies and the EBRD itself provides a basis for optimism for countries that heed the lessons of the last 12 years of transition. Growth in this region has picked up dramatically. This past year the average growth was 4.1 percent and output has increased in every country for the past three years, with the single exception of Macedonia in 2001.
The advanced transition countries of Central Europe and the Baltics have demonstrated that strong, consistent implementation of economic reform and democracy, aided by the prospect of global integration, can create self-sustaining growth. These countries are well on the road to successful transition and should be candidates for graduation in the near-term. The success of the advanced countries enables the EBRD to focus on opportunities in countries to the South and East, where the challenges remain formidable.
The experience of Russia and Ukraine over the past few years demonstrates that attacking key investment disincentives, agricultural reform in Ukraine or tax reform in Russia, can catalyze a dramatic private sector supply response. The challenge is to undertake other critical private investment-promoting structural reforms – both at the policy and corporate levels -- necessary to underpin sustained and more broad-based growth. The EBRD has an important role to play here, just as it did in the Central European economies in the 90’s.
The experience of oil and gas producing countries, including those in Central Asia, is that fiscal transparency and accountability are essential to ensuring that natural resource wealth is translated into growth, poverty reduction and macroeconomic stability. Kazakhstan and Azerbaijan’s oil funds, while relatively new, can be effective tools for achieving these goals.
Among the key lessons for the smaller transition economies is the need to establish the appropriate policies and institutions to take advantage of new trade opportunities. Armenia is a good example of a country committed to opening its economy through WTO membership and by further reducing trade barriers. It has achieved high rates of growth in recent years through expanding exports, despite few natural resources and difficult relations with some neighbors.
The recent history of the Balkans demonstrates the linkage between regional integration and economic transition. With the downfall of Milosevic and the creation of Serbia and Montenegro, the missing piece of the regional puzzle has been put in place and the restoration of regional ties begun. The recent assassination of Serbian Prime Minister Djindjic is a tragic reminder that criminal and terrorist forces still threaten the stability and trade relations. The global war on terrorism is overcoming these negative forces that prevent people from trading and prospering.
The potential benefits of regional economic integration are especially relevant for Central Asia. Geography, natural resources and history all point to the logic of a unified, liberalized market that can reestablish the region’s role as a trading center and attract outside investment. I will be participating in a meeting on Tuesday in the KyrgyzRepublic on regional cooperation, which I hope will result in agreement on some concrete steps toward that goal. Uzbekistan’s central location, resources and large population compel it to lead in creating a functioning trade market in Central Asia. We are hopeful that contradictory polices – moving ahead on liberalizing the exchange market while restricting trade -- will give way to a consistent, comprehensive program of economic liberalization. As Uzbekistan’s friend, the U.S. will strongly support such a program through the International Financial Institutions and our bilateral assistance.
We also have learned that the most dynamic sector of any economy, if properly nurtured, is small business. In early transition countries, the EBRD has shown its ability to help build economies and democracies from the ground up through micro and SME lending. I am looking forward to visiting such projects tomorrow, entrepreneurs who are creating jobs for people with the help of a local bank supported by the EBRD. We would like to see EBRD further expand its own financing of micro and SMEs and through the Direct Investment Facility.
Finally, but hardly least important, the EBRD’s mandate prominently recognizes the importance of both economic and political reforms. EBRD has shown leadership in upholding the principles of multiparty democracy, pluralism, and market economics, including in the country strategies for Belarus, Turkmenistan, and Uzbekistan. A sign of the importance of these seminal values is the attendance of independent NGOs, human rights groups, media, and other interested people at this annual meeting. Uzbekistan has much to gain by implementing democratic and economic reforms and respecting human rights and freedoms based on the universally recognized principles and norms of international law. The Government of Uzbekistan recently renewed its commitment under our governments’ joint “Declaration on the Strategic Partnership and Cooperation Framework” and the U.S. looks forward to Uzbekistan fully meeting those commitments to economic and democratic reforms and respect for human rights.
Beyond EBRD’s core work, EBRD as a public institution must pursue institutional governance policies that demonstrate accountability and transparency and provide assurance that its financing is used in an effective manner. We hope EBRD shareholders will support more progressive standards during future reviews of key governance policies recently discussed in the Board. We are disappointed that most shareholders recently agreed to fairly modest approaches relative to what they have pushed in the Boards of other Multilateral Development Banks. We believe that the new public information policy and independent recourse mechanism should be improved to provide greater disclosure, independence, and scope.
We applaud the EBRD’s work thus far to measure performance at the project level, and encourage efforts to improve upon and systematize the measurement of project results. We are pleased with the introduction of the new Transition Impact Monitoring System, and are hopeful this system will build the institutional capacity to produce measurable results.
In another aspect of governance, the Board of Governors has taken a decision that weakens its oversight and authority by approving a resolution that would allow the remuneration committee to approve future inflation-indexed increases in compensation for Executive Directors. We believe these multi-year, essentially automatic increases should be reconsidered and rejected.
Looking ahead, EBRD must seek to maximize transition impact and promote reform where it is most needed. We look forward to an increasing focus on countries in the early stage of transition is imperative if the Bank is to achieve its overall mission, and a continuing emphasis on the nurturing of small and medium sized businesses is essential to the long-run prospects for economic growth, job creation, and reform.
There is much work to do right here in Central Asia, and we look forward to greater Bank involvement in this region and continuing success in all countries of operations. We are fortunate to have President Lemierre’s sound judgment and effective leadership and are confident in his ability to help the Bank face the challenging times ahead.
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