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March-May 2008
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HOME  EDITORIAL Investing in people
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Investing in people |
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by Pavel Antonov
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Friday, 27 June 2008 |
Leaving something behind—be it a place, job, or stage of life—often
brings a sense of freedom to talk more openly about the things one
finds important. In this sense, the parting words of the outgoing
president of the European Bank for Reconstruction and Development
(EBRD) are worth considering. Having accepted the EBRD’s top post in
2000, Jean Lemierre has over the years earned the respect of even the
bank’s toughest critics—mostly for his ability to balance opposing
views on what a mandate-driven bank should or should not do.
The EBRD’s latest annual meeting in Kiev revealed a paradoxical picture of the region that the bank has invested in since 1991. With a few exceptions, the economies of most countries from the former Soviet block seem to be on the rise. The bank’s best student in market economics—the Czech Republic—officially ‘graduated’ in 2007, thus leading the way for the rest of Central Europe’s ‘Class of 2010.’ But impressive figures come from even further east, with Azerbaijan, for instance, projecting a recordhigh growth of 20 percent for 2008.
At his farewell press conference, Lemierre spoke—somewhat atypically for a banker—not only about figures, but about people. One reason for this might be that the bank’s most recent ‘Life in Transition’ survey revealed that it’s not clear whether or not a majority of the region’s people feel that their lives have improved as a result of the transition. This finding casts a sizeable shadow on the EBRD’s otherwise sunny economic outlook for the region.
Satisfaction levels differ from country to country, but a general feeling of frustration is evident. It’s not just about new roads, higher incomes and access to consumer goods; it’s rather about a sense that life remains much the same—or is even more difficult—despite economic transition, the survey suggests. One factor is endemic corruption, which in many countries is perceived to be worse than in 1989. There is diminished trust in politicians, public officials and fellow citizens, and greater overall demand for further investment in healthcare, education and social benefits.
What is routinely called transition has turned into a painful, permanent everyday reality for many in the region, despite positive macroeconomic figures provided by their governments. Perhaps the contrast is most visible in former Soviet societies, where economic growth and market principles appear to have little connection with human rights, good governance and functioning democracy. But problems of a similar nature also persist in the EU’s newestmember states, with Bulgaria and Romania still struggling to demonstrate real progress in fighting corruption and achieve compliance with European legal norms. Corruption has also increased in Hungary over the past five to ten years, according to a recent survey by Transparency International. With foreign investment flowing into the region, one question resounds: Is profitability worth these substantial social and environmental costs?
While the EBRD’s mission from the beginning has been to link democracy and the free market, the bank has invested in countries labelled authoritarian, and in projects that environmental and social activists have criticised. But Lemierre urged that his former organisation imposes standards “not so much for the name of the EBRD but […] for the people of the region.”
Setting standards is essential, especially in societies where local authorities are unable or unwilling to do so. This is precisely the lesson learned from EU accession in many sectors, including nature protection. Public banks and international financial institutions have major roles to play here as well, especially in countries not focused on future EU membership. Getting investors to abide by social, environmental or safety principles is one of the few things that could possibly bring substantial change in quality of life and institutional accountability.
As part of a recent revision of its environmental and social policy, the EBRD has made a laudable effort to collect feedback on the rules it plans to impose on clients across the region. This sets a good example, and EBRD should further contribute to a process for investment institutions to adopt stricter rules and more responsible practices, noted Tibor Farago from Hungary’s Environment Ministry. Yet, according to Klara Sikorova from pressure group CEE Bankwatch, the revised policy doesn’t go far enough, and in some sections actually allows the bank to transfer more of its responsibility to local investors and national regulatory authorities.
Lemierre’s final remarks concerned volatility, which he described as “financial turbulence, inflation and political debates with the attendant uncertainties.” The outgoing president then promised a strong institution for the region that is committed and will provide more stability—a good promise for his successor to keep, for stability is indeed vital. But it should be the kind of stability that benefits not only incomes and investments, but also strong democracy, social and human rights, rule of law—and, of course, preservation of the environment.
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