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Doc. 8128
2 June 1998
Council of Europe Social Development Fund:
activities and outlook
Opinion1
Committee on Economic Affairs and Development
Rapporteur: Mrs Lisbet Calner, Sweden, Socialist Group
1. Introduction.
1. The purpose of the present opinion is to contribute a few additional viewpoints to the excellent report prepared by Mr Gross, on behalf of the Committee on Migration, Refugees and Demography, on the activities of the Council of Europe's Social Development Fund (Doc. 8124). As these lines are written, the report is not yet final, but the main thrust of the recommendations that Mr Gross and the committee he represents will eventually make is clear.
2. This opinion, like the report of the Migration Committee, is very much inspired by the highly informative Conference on the Social Development Fund held in Prague from 12 to 14 March 1998 at the kind invitation of the Czech Parliament. The focus of the Conference was on the Fund's activities and potential for action in the countries of Central and Eastern Europe. It did, however, also give a clear picture of the Fund's priorities and concerns in a rapidly changing Europe.
2. A Bank With a Social Vocation
3. The first point to be made concerns the unique character of the Social Development Fund, hereafter to be referred to as only the “Fund”. The term used in Prague was that it is a "bank with a social vocation": too much "bank" and it loses its "soul" and it becomes just another commercial bank; too much social zeal, and it risks losing the top credit rating it enjoys and hence its ability to loan below commercial market rates for socially worthy projects. This, then, is the balancing act which the Fund has to perform as it tries to contribute to the better Europe of tomorrow which we all seek.
4. This being said, today's and tomorrow's Europe does and will need financial institutions with precisely the kind of "social vocation" which is the hallmark of the Fund. The reason is that lasting economic development cannot take place unless it is accompanied also by social development and social justice. Private investment typically - and understandably - tends to focus on projects that show a promising, and preferably a more immediate, return. It tends to assume, as it can in many richer countries, that public or social investment will be taken care of by public interests. It may realise that such investment is important, but that it is not the primary responsibility of private investors.
5. However, in many countries in the new Europe the level of development is such that there is little or no money left for social investment. This may lead to a lopsided development where certain private sectors of the economy will prosper over the short term but are unable to do so over the longer term due to lagging infrastructure or widening social disparities. These may eventually cause overall economic development to come to a halt and even lead to political instability. This is why endeavours such as the Fund can in no way be described as only "charity", as "palliatives" or there only to soothe the consciences of politicians. On the contrary, they are increasingly necessary if the transition process in central and eastern Europe is to be successfully completed, and if all the parts of our continent are to grow together in harmonious fashion.
6. In a sign of the above, the Fund has in recent years been asked to enter new areas, such as favouring social cohesion and mitigating the effects of unemployment - not only in central and eastern Europe but increasingly also in a western Europe where these needs have of late resurfaced.
7. The growing role of the Fund in assisting small and medium-sized enterprises in central and eastern Europe was brought home to the Committee on Economic Affairs and Development at a colloquy it held in Budapest in October 1996. Mr Giorgio Ratti, the Chairman of the Fund's Governing Board, called the Fund’s action in this field a “deliberate policy for pan-European financial solidarity”, on behalf of budding business undertakings which suffer from the ‘twin handicap’ of small scale and country risk.
3. Back to the Origins
8. The Fund is living through a moment of its thirty-two year history which is as complex as it is challenging. Indeed, the new Europe in which it operates bears some startling resemblances to the one in which it was created in 1956. At the time, the resettlement of refugees in the wake of World War II was a major priority and a major reason for the establishment of the Fund which until 1993 bore the name "The Resettlement Fund". The resettlement of refugees and migrants at the time went rather smoothly. It was aided by the general economic upswing in the Fund's then mainly western European member states, with its resulting need for more labour and a generally welcoming attitude on the part of receiving countries.
9. Today, over half a century later, when the continents east-west division has been overcome, new conflicts and unrest have occurred, such as in the former Yugoslavia, leading to new streams of refugees. Now, however, the employment situation in the receiving countries is much more difficult, a circumstance which no doubt contributes to what is on the whole a less welcoming attitude on the part of domestic populations. The result is, anyhow, that the ‘new-old’ refugees problem obliges the Fund again to place resettlement at the centre of its concerns.
10. Another original mission which is now coming back with a vengeance is to assist countries in the regions suffering natural catastrophes, such as earthquakes and flooding. The Pacific Ocean current El Niņo - held responsible for much of the climatic mayhem that has visited various regions across the world over the past few months - may be back only once every seven years or so. But if long term global warming is indeed upon us, then we can expect more natural disasters in the future like the 1997 flooding of large areas in eastern Germany, Poland and the Czech Republic. Indeed, as these lines are being written, the Rapporteur hears reports of new floodings in Poland due to unceasing rainfall. We were told in Prague by a member of the Czech government that that country had badly wished, in 1997, that it had been a member of the Fund already. The natural disaster mission of the Fund naturally depends on its being quick and unbureaucratic.
4. New tasks on Top of Old
11. If more recent events - refugees, migrants and disaster relief - have brought the Fund back to some of the missions for which it was originally created, then the years immediately following the fall of the wall of Berlin caused a rapid diversification of its tasks. Thus, in the early 1990's it became active in projects dealing with public health, education and environmental protection. Parallel to this the Fund saw a most welcome widening of its membership. As Mr Gross points out in his report, the Fund now has 29 member states, eight of which are so called "transition countries" in central and eastern Europe. (Hungary joined the Fund just before the Prague Conference, Estonia did so in April 1998, and Poland and the Czech Republic are about to do so.) Indeed, the imminent widening – and future ones if and when they occur – may well be the result of the Prague conference, and it one which we must all welcome. The Conference was convened not only to enable central and eastern European countries to familiarise themselves with the Fund, but also, and more importantly, to be able to benefit from it through membership.
12. To the Committee on Economic Affairs and Development, this development is of course extremely welcome. In all the three conferences which the committee has organised on the Assembly's behalf to promote the Economic transition in central and eastern Europe - Budapest in 1990, Helsinki in 1993 and Warsaw in 1996 - we have called on the countries concerned to join the Fund, and on the Fund to do its utmost to assist them.
13. It is all the more heartening that the Fund - following the difficulties it encountered a few years ago and which the Assembly's Committee on Migration, Refugees and Demography did so much to help remedy - should now be in a financially much more solid position and even show profits that can help increase the capital base. It would of course be even better if member states were to agree to increase the latter. The Fund's subscribed capital of ECU 1.3 billion indeed looks minuscule compared with, say, that of the EBRD which amounts to 20 billion ECUs (recently doubled from 10 billion) or that of the European Investment Bank of 62 billion ECU. What EBRD member states could do for the London-based bank, surely the Fund's member states can do for it.
14. In the introduction to her Opinion, the Rapporteur spoke about what could be called a specialised sphere of activity of the Fund, when compared with other international financial institutions or private banks - a "niche" of a few areas where this ‘bank with a social vocation’ had gained special competence. The fact is that over the last few years that "niche" has widened considerably, in the face of growing economic challenges on our continent. Refugees, migrants, natural disasters, social cohesion, unemployment and SMEs and all the other areas we have mentioned combine to turn that ‘niche’ into a ‘breach’. And the Prague participants were moved by several statements by new and prospective Fund members about their many urgent needs, such as when a Bulgarian representative spoke about the shortage of funds for even high-priority social projects in the wake of that country’s recent economic crisis, or when a Slovenian representative warmly thanked the Fund for having assisted in the construction of school buildings.
5. Co-operation with Others
15. In such a situation it becomes even more necessary for the Fund to work with other financial institutions on joint projects. Indeed, one major benefit of the Prague conference was that it permitted institutions such as the World Bank, the European Investment Bank and the European Bank for Reconstruction and Development to present their activities and describe how co-operation between them and the Fund might be intensified.
16. This is all the more interesting for the Committee on Economic Affairs and Development as it has privileged relations with EBRD and the Bretton Woods Institutions in particular, and is building up its contacts also with the European Investment Bank. As in the past, the Economic Committee will no doubt do its utmost also in the future to encourage co-operation between these bodies and the Fund. Such co-operation would be more than symbolic, for co-financing reduces the risks taken by any one institution, and permits economies to be made in the evaluation and preparation of projects. That is, rather than handling a project all on its own, the Fund can have the groundwork carried out by, say, the EBRD or the World Bank, or it can perform this service for them.
17. Co-operation with the EBRD seems particularly worthwhile. Mr Gross mentions the EBRD's activities in the private sector, now amounting to close to 70% of the Bank’s total operations. However - and this has always been the sentiment of the Economic Committee and the Parliamentary Assembly as a whole - the EBRD also has a mission in the public sector. Through increased cooperation between the Fund and the EBRD in the public sector both institutions, and the countries concerned, will stand to gain.
18. The Prague conference took to heart the pledge made by the Fund’s Governor, Mr Alomar, to have the Fund pursue a three-pronged strategy consisting of 1) renewed focus on its original priority missions, 2) enlargement into central and eastern Europe and 3) a better geographical balance in its project portfolio. As regards the last objective, it seems highly needed. When one adds together the projects approved for Spain, Germany and Italy in 1996, one finds that they amount to 65% of the Fund's total number of projects approved for that year. The corresponding percentage for projects approved in 1997 for Germany, Italy, France and Spain amount to all of 83%!
19. The Fund's projects are thus rather seriously slanted in favour of countries in western Europe that are relatively well off; and there would seem to be an equally serious case for reaching a better geographical balance with countries in greater need, such as in central and eastern Europe. This being said, it is of course not unwelcome that the "old" Fund member states have "rediscovered" the Fund; and since they are major payers one can barely argue that they should not be in a position to use it. Indeed, to the extent that they do they may even be encouraged to increase their contributions to it. However, the imbalance is there and it needs to be corrected.
6. Concluding Remarks
20. This brings the Rapporteur to her final point, also raised by Mr Gross. It is that the Fund, to the extent that it wishes to reach out more into central and eastern Europe, finds itself hamstrung by two circumstances. The first is that projects must normally be approved by the national authorities of the country concerned. Many more recent Fund members – let alone future ones - may not have the administrative resources to do this, not least due demands on their time placed by numerous other international financial institutions, banks, etc. The second consideration is that, as a result of the first, projects become part of politics. It is not certain, for instance, that a given country will give sufficient priority to, say, refugees or ethnic minorities (such as the Roma) when compared to more politically palatable projects, especially as they may be equally deserving.
21. In conclusion, then, the Rapporteur welcomes the fact that the Fund has found a series of challenges compatible with, indeed going beyond, its capabilities. This is all a healthy sign, since the Fund will then have to focus its work and seek priorities. We must also rejoice in its healthy economic state and wish both it and the Assembly's Committee on Migration, Refugees and Demography every success in ensuring that it continues. Every ounce of the Fund's resources - material and human - will be needed in a Europe where old problems have come back to haunt us, and where new ones keep cropping up. Mr Gross's report has the virtue of making all of this abundantly clear, and for this he earns our commendation.
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Reporting committee: Committee on Migration, Refugees and Demography (Doc. 8124)
Committee seized for opinion: Committee on Economic Affairs and Development
Reference to committee: Order No. 494 of 26 January 1994
Opinion approved by the committee on 7 May 1998.