In typical bureaucratese, the pensive EBRD analyst ventures with the
appearance of compunction: "A number of projects have fallen short of acceptable
standards (notice the passive, exculpating voice - SV) and have put the
reputation of the bank at risk". If so, very little was risked. The outlandish
lavishness of its City headquarters, the apotheosis of the inevitable narcissism
of its first French Chairman (sliding marble slabs, motion sensitive lighting
and designer furniture) - is, at this stage, its only tangible achievement. In
the territories of its constituencies and shareholders it is known equally for
its logy pomposity, the irrelevance of its projects, its lack of perspicacity
and its Kafkaesque procedures. And where the IMF sometimes indulges in oblique
malice and corrupt opaqueness, the EBRD wallows merely in avuncular inefficacy.
Both are havens of insouciant third rate economists and bankers beyond rating.

Established in 1991, "it exists to foster the transition towards open market
oriented economies and to promote private and entrepreneurial initiative in the
countries of central and eastern Europe and the Commonwealth of Independent
States (CIS) committed to and applying the principles of multiparty democracy,
pluralism and market economics. The EBRD seeks to help its 26 countries of
operations to implement structural and sectoral economic reforms, promoting
competition, privatization and entrepreneurship, taking into account the
particular needs of countries at different stages of transition. Through its
investments it promotes private sector activity, the strengthening of financial
institutions and legal systems, and the development of the infrastructure needed
to support the private sector. The Bank applies sound banking and investment
principles in all of its operations. In fulfilling its role as a catalyst of
change, the Bank encourages co-financing and foreign direct investment from the
private and public sectors, helps to mobilize domestic capital, and provides
technical co-operation in relevant areas. It works in close co-operation with
international financial institutions and other international and national
organizations. In all of its activities, the Bank promotes environmentally sound
and sustainable development."

Grandiloquence aside, the EBRD was supposed to foster the formation of the
private sector in the revenant wreckage of Central and Eastern Europe, the
Balkan, Russia and the New Independent States. This it was mandated to do by
providing finance where there was none ("bridging the gaps in the post communist
financial system" to quote "The Economist"). Put more intelligibly, it was NOT
supposed to transform itself into a long-term investment portfolio with equity
holdings in most blue-chips in the region. Yet, this is precisely what it ended
up becoming. It avoided project financing like the plague and met the burgeoning
capital needs of small and medium size enterprises (SMEs) grudgingly. And it
refuses to divest itself of stakes in the best run and most efficiently managed
firms from Russia to the Czech Republic. In a way, it competes head on with
other investors and commercial banks - often crowding them out with its
subsidized financing.

One of its main mistakes, in a depressingly impressive salmagundi, is that it
channelled precious resources to this budding sector (SMEs), the dynamo of every
economy, through the domestic, decrepit, venal and politically manhandled
banking system. The inevitable result was a colossal waste of resources. The
money was allocated to sycophantic cronies and sinecured relatives (often one
and the same) and to gigantic, state-owned or state-favoured loss makers. Most
of it lay idle and yielded to its hosts a hefty income in arbitrage and
speculation. As banks went bankrupt, they wiped whole portfolios of EBRD SME
funds, theoretically guaranteed by even more bankrupt states.

Thus, the only segments of the private sector to benefit handsomely from the
EBRD were lawyers and accountants involved in the umpteen lawsuits the EBRD is
mired in. It is a growth industry in "countries" such as Russia. This is the
melancholy outcome of indiscriminate, politically-motivated lending and of a
lackadaisical performance as both lenders and shareholders. In the spirit of its
first chairman, the suave and titivated Attali, the bank is in a constant road
show, mortified by the possibility of its dissolution by reason of irrelevance.
It aims to impress the West with its grandiose projects, mega investments, fast
returns and acquiescence. In thus behaving, it is engaged in a perditionable
perfidy of its fiduciary obligations. It lends to criminal managers, winking at
their off-shore shenanigans and turning a blind eye to the scapegrace slaughter
of minority shareholders. It throws good money after bad, cosies up to oligarchs
near and far and engages in creative accounting. Instead of Westernizing the
Easterners - it has been Easternized by them. Its sedentary though peregrinating
employees are more adept at wining and at dining the high and mighty and at
haughtily maundering in the odd, tangential, seminar - than at managing a
banking institution or looking after the interests of their nominal shareholders
with the tutelary solicitude expected of a bank.

Consider two examples:

MACEDONIA

The nascent private sector is nowhere to be found in the list of projects the
EBRD so sagely chose to falter into here. The Electricity and Telecoms
monopolies are prime beneficiaries as is the airport. The EBRD is also a passive
shareholder in both big universal banks - until recently, conduits of state
mismanagement. The SME and Trade Facilitation credit lines were conveniently
divvied up among five domestic banks (one went belly up, the managers of two are
under criminal investigation and one was sold to a Greek state bank). Despite
vigorous protestations to the contrary, none of this money reached its
proclaimed entrepreneurial targets. Two loans were made to giant local firms -
the natural preserve of commercial lenders and equity investors the world over.
The EBRD contributed nothing to the emergence of a management culture, to the
development of proper corporate governance, to the safeguarding of property
rights and the protection of minority shareholders here. Instead, it colluded in
the perpetuation of monopolies, shoddy and shady banking practices, the
pertinacious robbery titled "privatization" and the pretence of funding
languishing private sector enterprises.

RUSSIA

Its 2 billion US dollars portfolio all but wiped out in the August 1998
financial crisis, the EBRD has now returned with 700 million new Euros to be -
conservatively but not more safely - lent in major energy and telecom behemoths.

The historic, pre-1998, portfolio appears impressive. Almost 11 billion US
dollars were generated by the EBRD's less than 4. The bottom line reads 94
projects. Yet, when one neutralizes the infrastructural ones (including the gas
and energy sector) - one is left with less than 50% of the amount. Add
"infrastructure-like" projects (water transportation and the like) - and less
than 30% of the portfolio went to what can be called proper "private sector".
Moreover, even these investments and credits were geared towards traditional and
smokestack industries: mining, food processing, pipelines, rubber and such. Not
an entrepreneur in sight. And the EBRD's meagre loan-loss provisions and
reserves cast serious doubts regarding the mental state of both its directors
and its auditors.

To varying degrees, these two countries are typical. Development banks, like
industrial policy, import substitution and poverty reduction, have gone in and
out of multilateral fashion several times in the last few decades. But there is
a consensus regarding some minimum aims of such bureaucracy-laden establishments
- and the EBRD achieves none. It does not encourage entrepreneurship. It does
not improve corporate governance. It does not enhance property rights. It does
not allocate economic resources efficiently. It competes directly with other -
more desirable - financing alternatives. It is not equipped to monitor its vast
and inert portfolio. By implication it collaborates in graft, tax evasion and
worse. It is a waste of scarce resources badly needed elsewhere. It should be
administered a coup de grace. And its marbled abode - so out of touch with the
realities of its clients and its balance sheet - should be sold to someone more
up to the task. A bank, for instance.