Kurt Bayer’s 100th Commentary

This 100th posting in my blog will take an unusual format: instead of dealing with a single topic, or event, it will discuss a number of important topical items occurring during mid-April 2011. It talks about the recent World Bank Development Report, the BRIC Meeting in China, the Pledging Session on the occasion of 25 years Chernobyl Disaster and EBRD’s 20th Anniversary.The Importance of Gainful Employment for Development and Transition

 The recent publication of the 2011 World Development Report by the World Bank is entitled ”Conflict, Security and Development” and deals with the specific development problems of countries involved in internal and/or external conflict – which after all affects around 1.5 billion persons. Based on previous pioneering work by Paul Collier and others at the beginning of the millennium, the report lays out the devastation in terms of human and economic wellbeing as a result of conflict, and especially deals with “fragile” countries which are affected by recurring episodes of conflict, where a downward spiral of violence, underdevelopment, poverty, recruitment of soldiers, lawlessness and institutional breakdown drags people down. The importance of outside help in building institutions, in creating security and fighting lawlessness is stressed. Even more important are the findings (not surprising, but nonetheless important) that in addition to anti-corruption and fighting the evils of the “resource curse” the build-up of social safety systems, and especially employment are very potent antidotes against conflict occurring in the first place.

Development and transition policies pursued by the multilateral development banks and EBRD (which sees itself not as a development, but a transition bank whose mandate is not poverty alleviation, but building sustainable market economies) in the past have put much more effort into generating economic growth and enabling business than in job creation. Thus, while they have achieved remarkable success (and also failures) in some areas, they find that the persons in the countries where they operate frequently do not judge their work a success. The 2006 “Life in Transition” Survey of EBRD, for example, found that more than 50% of the many thousands surveyed found that since liberalisations their standard of living had deteriorated – 15 years after the breakdown of the communist system. It will be interesting to see the results of the 2010 survey which should be available very soon.

In all EBRD’s performance benchmarks and transition indicators, employment generation does not play a role. All indicators are geared towards the business climate and business conditions. Important as these are, if MDB activities do not reach those who should be the object of multilateral efforts, something might be missing.

It is very timely – if very late – that the new Development Report pledges for the World Bank to put more emphasis on employment generation. Other MDB should follow!.


3rd Annual BRIC Meeting in China.

As a preparation to the forthcoming G-20 Meeting in Washington, D.C. ministers from China, India, Brazil, Russia and South Africa met in Sanya, Hainan, China on April 14. Together they now combine around 10 trillion $ GDP, around 1/6 of global output. While the internationally contentious issue of exchange rates was not discussed – this was left to the meeting in Washington, host country China very decisively shaped the agenda according to its interests, which consists in stabilizing and increasing its trade with the other 4 countries. South Africa was invited for the first time, as a representative for all of Africa, which is both a source of raw materials and a market of Chinese manufactured goods. In this sense, South Africa’s inclusion in this exclusive club, in spite of its (relaitively ) diminutive GDP of 350 bn $ (relative to nearly 6 trillion for China and 2 trillion $ for Brazil), may be a positive sign of having a voice in shaping BRIC policy and positions towards the G-20. Whether it will be able to play an active role in this group remains to be seen. One effect of being “among themselves” was that attending countries decided to extend credit to each other in their own currencies rather than U.S. dollars.


Pledging Session and 25th  Anniversary for Chernobyl

On April 17, a pledging session is major donors is convened in Kiev, in order to close the remaining financing gap of nearly 800 million € to build the “final” containment for the Chernobyl nuclear ruin and the depository for spent fuel. EBRD which administers the international donor funds for Chernobyl has opened a foto exhibition in its cafeteria. Pictures of the disaster area, of abandoned cities, of lymphoma patients, of handicapped children remind the viewer of this horrible disaster, made even more relevant after the recent events in Fukushima.

The pictures brought to my own mind again my visit to the larger Chernobyl area in 2003, when we travelled (as a World Bank delegation) from Kiev to Minsk, stopping by Chernobyl and the Belorusian Gomel area. Within Belarus a 40 km2 area is cordoned off and completely off-limits to persons, with the exception of occasional, short-term visits. Today, driving through this area gives you the impression of driving through a nature reserve. Unfettered nature has taken over, deer jump around, bushes and trees and beautiful flowers grow. And then you drive through villages, where the houses were abandoned at short notice: doors open, implements lying around, children’s toys on the floors, roofs caved in and trees growing through windows: a modern Pompei and Herculaneum, but without human bodies. Outside the inner perimeter there is another 40 km2 zone where originally people were evacuated, but where many have come back to occupy the abandoned housed: these are the people who could not get a foothold in the areas to which they had been evacuated, single mothers, frequently with sick children; old retirees; many foreign immigrants who enjoyed free accommodation. The devastating side effect: in many of the gardens around these houses where the soil is contaminated for thousands of years, people were growing vegetables for their own consumption (and maybe for selling at the nearby markets?). (This reminds me of seeing (ostensibly) foreign workers on May 1, 1986 picking mushrooms in the park opposite Schönbrunn Palace in Vienna, 2 days after the Austrian population had been informed about the nuclear fallout spreading from Chernobyl to Austria. Either these people had not heard these announcements, of they underestimated or ignored the risk to their health.) Local authorities tolerate this re-occupation of the houses, because they cannot forcibly eject people. The Belorusian government supports these people with (extremely meagre) social assistance payments, but prevented the World Bank from developing projects which could have improved the income situation of these people – because they did not want to incentivize them to stay (or, as the WB suspected, they did not want outsiders snooping around this area). The most depressing aspects were the visits to a children’s home where abandoned children with severe mental and physical handicaps lived and to a hospital where young and old cancer patients were being treated. Even now, tears well up my eyes. The EBRD pictures bring this back to mind.

EBRD will pledge a very sizable amount to the international (and Ukrainian) effort. G-7 countries have pledged to fill this gap. It is to be hoped that national budget constraints will not prevent the fulfilment of this.

On this occasion I would like to remind readers that EBRD does not finance nuclear power stations. The administration of the Chernobyl funds and of the decommissioning funds for nuclear power stations in some of the countries of operation are EBRD’s only connections to the nuclear industry.


EBRD’s 20th Anniversary

On April 15, 1991, the Inaugural Governors’ Meeting of EBRD took place in London. In its 20 years of operations, the bank has invested 60 bill € in its (today) 29 countries of operation, helping them in 3000 individual projects to build the foundations for a sustainable market economy. In addition, around 115 bill € were mobilized from other financiers for a total investment volume of 180 bill €.

EBRD interventions initially focussed strongly on privatizations, on the bulding up of viable financing institutions and improving infrastructure. As countries have advanced on their transition paths, and outside conditions have changed, new initiatives, like energy security and energy efficiency, municipal infrastructure, industrial diversification, unleashing the agricultural potential of the region and – lately – local currency financing and building up local/national financial markets have been effectively pursued.

The 1998 Russia crisis nearly bankrupted the bank, the 2008-10 crisis caused significant financial loss, but overall the flexibility and adaptability of the bank staff have enabled the bank to pursue its mandate with vigor. Moving South and East into smaller, more difficult and less developed countries in our region of operations will further tax the flexibility of the Bank. Recent discussions of extending the regional mandate into Northern Africa will – if they come to a positive conclusion – tax the adaptability of EBRD further.

International assessments of EBRD’s activities are throughout very positive. Strong leadership, a highly professional and dedicated staff and strong political support for its mission from its governors have combined to make this a unique private-sector oriented institution, albeit with a public-sector mindset.

The recent crisis will further test EBRD’s ability to learn from mistakes, to follow too easily prescribed consensus about economic policy and to give more voice to cultural, geographic and historical context in its activities. The above-mentioned consideration of what EBRD’s activities mean to the people “on the ground”, and how to improve their lives, will be an absolute must for the future, if EBRD’s acceptance – so important for successful project implementation – is to be maintained. The international character of EBRD (it is owned by 61 countries and two EU institutions) is a tremendous asset in this respect.

Good luck for another 20 years: The mission is not accomplished by a long way.



Filed under Global Governance, Socio-Economic Development

5 responses to “Kurt Bayer’s 100th Commentary

  1. In your post you suggest that EBRD does not finance nuclear power stations. But is it really so? Indeed, EBRD would not finance a project entitled “new unit complition”. What EBRD does is calling it differently. Like “safety upgrade”. That is what happened with K2R4 reactors in Ukraine where safety upgrade project was approved by the EBRD before the units were completed. Similarly
    EBRD is now considering NPP Safety Upgrade Programme in Ukraine.This program is to provide safety upgrades to 13 Soviet-era nuclear reactors in the country, majority of which will expire by 2020.Ukrainian government is planning for their lifetime extensions (one was already extended in 2010) and safety upgrade is indispensable part of this lifetime extension plan. So this EBRD’s loan will actually contribute, cover part of the total cost for this lifetime extension plan!

    EBRD wants to fool itself by saying that operation of units will be prolonged by Ukraine anyway, so that it will be better to improve safety of those reactors. But in fact political decision is not sufficient to operate reactors beyond the lifetime. The nuclear regulator has to license that operation. And it will only do so, when a list of costly modernisation measures will be implemented. Ukrainian nuclear company would not be able to allocate such a sum from its won resources, and counts on EBRD financing.

    Would the Bank be serious of improving safety, it would only consider safety upgrades after the units get licences for operation beyond design. Any money before that will contribute to measures to extend lifetime which is opposite to improving safety. Decommissioning of these old reactors – this is where EBRD money and political weight is needed.

    CEE Bankwatch Network (www.bankwatch.org ) has issued a report highlighting the details and raising public concerns with such EBRD’s potential contribution http://bankwatch.org/documents/IgnoringChernobylsLessons.pdf

    • kurtbayer

      Iryna: well, obviously this is a question of definition; EBRD does not finance any new nuclear stations, but helps to make existing ones safer. You should also not forget EBRD’s very strong efforts to administer the shutdowns and transitions of Ignalina, etc. and – of course – the tremendous efforts vis-a-vis Tchernobyl where EBRD has spent a lot of its own capital to close the recent financing gap.

  2. Employement generation should be the object of multilateral efforts. Tragically, the younger generations hardly benefit from outside aid, and from any aid at all, for that matter.
    In developing countries (as well as in developed ones), many Government officials, advisers of all kinds, and board members of major companies, are well into their 60s and 70s. These personnalities move from one position to another, accumulate appointments and salaries, and it is impossible to challenge their talents or knowledge of the field. Their compensation is high and usually not discussed.
    In the meantime, the younger generation strives to be given a chance, and is underemployed.
    At a time of economic recession and high unemployment rate, it is essential for social stability and cohesion that there be more transparency and accountability in the higher sphere. Too much social injustice could seriously disrupt the fundamentals of a democratic society.

    • kurtbayer

      I agree completely on the importance of employment generation: both developed countries’ after-recession policies and developing countries and international financial instutions’ aid policies put by far too little importance on employment generation. The reason is that the still reigning orthodox theory maintains that economic growth automatically creates employment (see the “employment less recovery in the US”, and IFI policies), and that government-induced employment policies do not fit the genreal anti-government activity mood. It is high time to see that support for market reforms and human welfare require paid employment.

  3. Werner Kiene

    Congratulations Kurt on having reached the respectable mark of 100 postings.
    Thank you for this labor of love of sharing so much interesting and important ideas and materials with us.

    Happy continuation !


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