Mar 09, 2013, 06.05 PM | Source: CNBC-TV18
The EBRD bank's President Sir Suma Chakrabarti is visiting India first time after 2007 for exploring investment possibilities with Indian companies in other emerging economies.
Chakrabarti, who has observed European crisis very closely says that next two years will be much better for many European countries, given that they focus not only on fiscal but also structural reforms.
Chakrabarti is visiting India first time after 2007 for exploring investment possibilities with Indian companies in other emerging economies.
"My basic point though is that we are not doing enough with Indian investors, it is only billion dollar over 22 years," Chakrabarti told in an interview with CNBC-TV18. Partnering with Indian companies is not just with an intention of getting investment but also for getting expertise. "We are looking for raising standards," he says. The bank has already partnered with several Indian corporate.
Formed, after fall of Berlin wall to help the communist countries transition into market economies, EBRD has now spread its winds not only in European countries but also in several emerging economies in North Africa. The bank has grown enormously and now has USD 40 billion asset under management.
Below is the verbatim transcript of the interview
Q: Give me an idea of how different is the EBRD from the International Monetary Fund (IMF) or the World Bank?
A: The European Bank for Reconstruction and Development (EBRD) was set up 22 years ago after fall of communism, fall of Berlin Wall to help the transition of Eastern Europe from communism to open market economies. So, unlike the World Bank or Asian Development Bank (ADB), we focus very much on the private sector. So, 80 percent of what we do in terms of new investment is on the private sector. Even the 20 percent that is on the public sector is to try and make the public sector more commercial, more efficient and also quite often for making privatisation or corporate restructuring. So, it is a very private sector focused organisation and very project based.
Q: You look for partnerships for people to put in more capital. I read that since the European crises began you almost doubled your annual investment. So, is there more because you get partners to also put in money?
A: It is roughly at the moment about USD 10.5-12 billion a year. Yes, it is true we went up from 6 to that number, mainly because of the crises, and to try and help those economies survive. We try to attract other investors in. We have a very big catalytic world so for every dollar we put in; we get another USD 2.5 from other investors. Because of our good name people want to come in with us and that is quite powerful catalytic investment.
Q: You put money as debt?
A: We do debt and equity. We do all sorts of financial instruments, most of it is debt but we also have 12 percent of equity at the moment and we can take more.
Q: Do you just bring in money? Do you bring in expertise?
A: We bring expertise as well. That makes us a bit different from a commercial bank or an investment bank.
Q: So you are part private equity, you are part venture capitalist?
A: Yes, and we are partly a public policy organisation. If we are going in with a company, we will not just be worried about a good rate of return, we are worried about making them fit in terms of their energy efficiency also.We might provide some donor funding for energy audits, we might try and get their accounting standards up to International Financial Reporting (IFRS) accounting standard. Their corporate governance should be of world class standards. We put in all of those extras in a way that a commercial bank probably would not focus on.
Q: Where do you raise your money from?
A: Often from shareholders, but in terms of what they call corporation funding. So they have special parts of money like a grant which they want to use for providing loans to these companies, so that they can get high class standards.
Q: How worried are you about the crisis? Lots of people tell us that Europe is now on the way back up. Is it that simple or is it far more complex?
A: It is clearly complex and each country is very different. As a general statement I would say that the crisis is bottoming out in many of our countries. If you look at Eastern Europe I think most countries, nearly all will register positive rates of growth in 2013 after a pretty bad 2012. My expectation is most of them will do even better in 2014 provided they continue to reform both on the fiscal side and structural side.
Q: That is a big condition especially after what we saw happened in Italy. The electorate voted out a man Monti, who was a technocrat, who has really came and helped the country come back to some kind of fiscal stability and brought back people who are possibly largely responsible for the crisis that the country is in. What incentive is there for politicians or reform?
A: The difficulty for all the politicians is that they work on electoral cycles. So they have to put the national interest above the party political interest. The good news from Eastern Europe is many politicians are doing exactly that. They are persevering with fiscal consolidation and also undertaking some difficult structural reforms. We need to see more structural reforms. More improvement in the investment climate, that is for sure, but it is not as if they are avoiding these difficult issues.
This leads to difficult situation. Italy is a classic one at the moment, but if you look at Greece the government there is taking extremely difficult decisions now and it is not going to be popular, but they are sticking with it. Same in Bulgaria, Serbia and various other countries as well, Poland will be another good example and of course the Baltic states which did a lot of this. Italy, I think we have got a major issue there.
Q: Are you worried it could have a domino effect through the rest of Europe?
A: I don’t see that happening as yet. There are elections in various countries which have taken place already, some are to come. I don’t see that domino effect happening yet. Italy does matter, it is a big economy so what we now need to see is whether the parties are going to come together, form some sort of national government, form some credible plans because Monty did do a lot of good in his government. Or whether they need to have another election may be in a few months time just to resolve this issue, this impasse.
Q: Growth or austerity that is something that Finance Ministers grapple with all over the world, we have had our FM grapple with that, we had Moody's just downgrade Britain just a week ago because apparently they felt that there wasn’t enough being done for growth. What is your view here?
A: My view here is this is a false tradeoff, you got to do both. It is very difficult to avoid some measure of fiscal consolidation, given the size of the fiscal deficits in many of these countries. One can argue about the pace of that in a situation like this, but it is difficult to argue that you shouldn't tackle it. In Eastern Europe the countries are really doing that.
Now at the same time they do need to improve the investment climate. If you take Eastern Europe, 2014 is likely to be a year when the global economy is expected to recover a little. Many of those economies in Eastern Europe are quite small, they are very unlikely to be able to recover of their own free will and they need the global economy to recover. So they need to take advantage of the recovery to attract new investment into their countries both domestic and foreign investment. To do that they have to reform on the structural side as well not just the fiscal side. That is hard but you have to do the two together.