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Doc. 9114
6 June 2001
Council of Europe Development Bank: toward a Europe of greater social cohesion
Report
Committee on Economic Affairs and Development
Rapporteur: Mr Karoly Lotz, Hungary, Liberal, Democratic and Reformers’ Group
Summary
The Council of Europe Development Bank, currently joined by 34 of the Council’s 43 member states, has since its launch in 1956 granted over € 15 billion in loans. The Bank’s sound financial results, reflected in its top ‘AAA’ credit-rating and the recent rise in its subscribed capital to € 3.2 billion, must now, says the report, be used to expand its lending capacity, particularly in transition countries and toward projects concerned with migratory movements, emergencies and social cohesion.
The report welcomes the Bank’s major involvement in the Stability Pact for south-eastern Europe and calls for a “lasting commitment” to the region. It notes, however, that nine Council of Europe countries are not yet members of the Bank and asks that everything be done to enable them to join.
The Bank’s growing co-operation with other international financial institutions is welcomed - in particular that with the European Bank for Reconstruction and Development for which the Assembly likewise serves as parliamentary forum.
With many countries in central and eastern Europe still in painful stages of transition, the report concludes, the solidarity of the whole of the continent is still essential. The Council of Europe Development Bank is a primary example of what can be achieved and deserves to be better known by the European public.
I. Draft recommendation
1. The Assembly, in its capacity as the parliamentary body accompanying the Council of Europe Development Bank (CEB), welcomes the Bank’s expanded range of activities in favour of Europe’s social and economic development. It notes that, in conformity with the recommendations made by heads of state or government at the 2nd Council of Europe Summit in 1997, enhanced lending to projects furthering social cohesion now forms a new priority for the Bank.
2. The Assembly notes with satisfaction the sound financial results and laudable overall performance by the Bank over the 1998-2000 period. It trusts that the increase in the CEB’s subscribed capital to € 3.2 billion and the corresponding rise in its own assets to € 4.1 billion will allow the Bank to consolidate further its financial basis and to expand its lending capacity, especially in the transition countries.
3. The Assembly commends the CEB on its top ‘AAA’ credit rating, which the Bank should do its utmost to preserve, as it provides both relatively safe loans and less secure credits in higher-risk countries where its social mandate summons it to operate. It recognises that the practice of maintaining a relatively large share of lending to more secure borrowers helps the Bank to comply with the highest prudential standards and hence to offer less economically advanced borrowers better conditions.
4. The Assembly reiterates its support for the Bank’s three-pronged strategy for the future, namely to refocus on its priority objectives, aim at a better geographical and financial distribution of its loan portfolio and intensify operations in the countries of central and eastern Europe.
5. The Assembly welcomes the Bank’s new shareholders in central and eastern Europe and hopes that countries not yet members - Andorra, Armenia, Austria, Azerbaijan, Georgia, Ireland, Russia, Ukraine and the United Kingdom – may soon be in a position to join.
6. The Assembly hopes that the trend towards stepping up the Bank’s operations in transition countries will progress further, not least through a more intensive use of the Selective Trust Account and a gradual shift in focus toward the less well-off countries and regions. It in particular welcomes the use of the Account for increased financing of the CEB’s statutory priorities, including aid to countries faced with problems resulting from the forced movement of populations or from natural disasters and for programmes aiming to integrate minorities, especially the Roma community.
7. The Assembly hails the Bank’s assistance to the countries of south-eastern Europe within the framework of the Stability Pact for that region. It hopes that the Bank’s wholehearted involvement in the Pact will translate into a lasting commitment to the region.
8. The Assembly strongly supports the Bank’s increasingly close co-operation with other international financial institutions, in particular the World Bank, the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD), as regards project preparation, evaluation and co-financing. In this context it welcomes the Bank’s signing of a Memorandum of Understanding with the EBRD and of a Multiparty Agreement with the European Commission, the EBRD, the Nordic Investment Bank (NIB) and the International Finance Corporation (IFC), so as to co-ordinate action in countries seeking European Union membership. The Assembly also welcomes the possibility of the European Community’s and the EIB’s becoming shareholders of the Bank.
9. The Assembly in conclusion recommends that the Committee of Ministers:
i. invite those member states of the Council of Europe which are not yet members of the CEB to consider joining;
ii. invite the Bank’s member states:
a. to ensure speedy subscription to the increase in capital by countries having not yet done so, and to prepare already for an eventual further increase in the Bank’s capital;
b. to increase their voluntary contributions to the Selective Trust Account and to use it more extensively;
c. to step up co-operation with multilateral financial institutions such as the World Bank, the EIB, the EBRD and the NIB, as well as with international humanitarian organisations such as United Nations specialised agencies and the International Organisation for Migration, for the purpose of preparing, co-financing and evaluating projects;
d. to cooperate more closely with the Bank in the implementation of national development strategies, in particular as regards the integration of minorities, especially the Roma, and in the CEB’s shaping of sectoral and country strategies;
e. to permit an increase in the Bank’s staff so as to allow improved project preparation;
f. to consider providing guarantees, either alone or within international consortia, for projects to be carried out in countries not capable of guaranteeing these projects on their own;
g. to improve, where necessary, their national laws so as to remove administrative impediments to the timely use of CEB loans;
iii. invite the Bank:
a. to enhance practical assistance to new member countries wishing to submit projects to the CEB;
b. to expand lending to countries in transition;
c. to intensify its partnerships with other international financial institutions and humanitarian organisations in project preparation, evaluation and co-financing;
d. to improve its analytical and forecasting capabilities in order better to identify macroeconomic and social development trends in transition countries;
e. to strengthen efforts to inform about the Bank’s potential to assist, especially in new member states;
iv. invite the Secretary General and the various bodies of the Council of Europe, to draw the general public’s increased attention to the Bank’s activities and to do the same in their contacts with member states and international organisations as regards this recommendation.
10. Finally, the Assembly calls on its own members and, through them, on national parliaments to spread information in their countries about the CEB’s role and potential to assist.
II. Explanatory Memorandum by the Rapporteur
Contents
1. Introduction
2. The Bank: its mission, priorities, resources and functioning
3. Follow-up to earlier Assembly texts
4. The Bank in the 1998-2000 period
5. Co-operation with other international institutions
6. Shaping the future action: conclusions and suggestions
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1. Introduction
1. At the beginning of the new century, there is growing political concern over disparities in wealth and social protection in Europe. With many countries in central, eastern and south-eastern Europe still in painful stages of transition, the need for greater solidarity and social cohesion has become a top priority for the Council of Europe and its member states.
2. Protecting the rights and human dignity of the weak in society has become an essential part of the Council of Europe’s work. The Council of Europe Development Bank (formerly called the Social Development Fund and hereafter to be referred to as the ‘CEB’ or the ‘Bank’), is a financial instrument uniquely suited to favour social cohesion, in line with the guidelines given by the 2nd Council of Europe Summit of Heads of State and Government in Strasbourg in October 1997.
3. In pursuance of Assembly Resolution 1235 (2000) on the terms of reference of Assembly committees, the Committee on Economic Affairs and Development is now ensuring the Assembly’s direct accompanying role of the Bank, after this function was assured for many years by the Committee on Migration, Refugees and Demography. The latter Committee will henceforth provide opinions. The present report will review the results of the Bank’s activities over past few years and will present a number of recommendations on policy directions the Bank might usefully adopt. The Rapporteur wishes to thank the representatives and Secretariat of the Bank - and especially Mr Kari Nars, Chairman of the Governing Board, and its Governor Mr Raphaël Alomar - for the most valuable information they provided in the course of discussions.
2. The Bank: its mission, priorities, resources and functioning
Mission
4. The CEB is a multilateral development bank with a social vocation. Set up in 1956 by the Council of Europe’s Committee of Ministers as a Partial Agreement to ease the at the time major refugee problem in Europe, it has expanded its membership from originally eight to currently 35 member states1. Among them are 14 countries in central and eastern Europe that started joining in 1994. The Bank’s headquarters are in Strasbourg, while its administration is based in Paris. Although it is attached to the Council of Europe and subject to its supreme authority, the Bank enjoys full autonomy in decision-making and management.
5. Previously entitled the Council of Europe Social Development Fund, the institution since 1999 calls itself the Council of Europe Development Bank, which better reflects its evolving priorities. The Bank’s mission is financing social development and reconstruction. By funding social projects and responding to emergency situations, the Bank contributes to the improvement of living standards in the less favoured and disaster-stricken regions of Europe. As previous Assembly rapporteurs have rightly observed, the Bank needs to find a middle way between being a pure bank and a pure fund. If it were too much of the former it would risk losing its political and social raison d’être and would become ‘just another bank’, of which there are many. On the other hand, with too great a social orientation neglecting sound banking principles, it would risk losing its top credit ratings and hence its ability to provide ‘good value for money’ loans for socially oriented projects. Preserving the right balance between the two is therefore vital for this Bank.
Activities and Priorities
6. On top of the Bank’s traditional priority fields of action – loaning to countries facing problems of refugees, displaced persons or migrant presence and suffering natural catastrophes or acts of war – another area has lately gained in prominence, namely social cohesion, in particular in the area of job creation and maintenance in small and medium-sized enterprises.
7. The accession to the Bank of countries from central, eastern and south-eastern Europe with their special transition needs has caused a rapid diversification of tasks. Thus, over the last decade the Bank has become more involved in projects dealing with public health, education, social housing, deprived urban areas, environmental protection, rural modernisation and, more recently, the protection and restoration of the historical and cultural heritage. Assistance toward transition and social cohesion has formally become a new priority following the 2nd Council of Europe Summit.
Resources
8. As the Bank receives no annual contributions from its member states, its work is based on paid-up capital, reserves, profits and capital raised on financial markets. Following the Governing Board’s decision of 9 November 1999, a major increase in capital is under way. When the subscription period ends on 30 September 2001, the Bank’s own assets (equity) should reach € 4.1 billion from the present € 2.4 billion, as the subscribed capital rises from € 1.4 billion to € 3.2 billion and € 200 million of reserves are incorporated into the paid-up capital. The increase in the CEB’s capital became effective on 14 March 2001 when the threshold of 66.6 % of subscribed certificates was reached. By 19 April 2001 the subscription rate stood at 75.9 %.
9. Starting with a capital equivalent to € 5.7 million in 1956, the Bank has since issued over € 15 billion in loans. The latest capital increase is meant to strengthen the Bank’s financial base, to improve conformity with international prudential standards and expand activities in transition countries. Improving the Bank’s gearing ratio (the proportion of outstanding loans to funds owned) is particularly important. This ratio, which cannot exceed 6, stood at 3.41 for 2000, compared to 3.25 for 1999. It is hoped that the capital increase will permit the bringing down of the gearing ratio to 2.5. Moreover, the debt-equity ratio (total debt against own funds in the broadest sense) - which cannot exceed 6 - remains comfortably below the permitted ceiling (although it has been rising from 4.45 in 1999 to 4.91 in 2000). Finally, the Bank’s liquidity ratio, which stood at 72% on 31 December 2000, is well above the required minimum of 50%.
10. If the CEB is able to grant loans on particularly attractive conditions, it is because of its excellent standing. In recent years there has been a noticeable improvement in the Bank’s rating: the top - ‘AAA’ - ratings with Standard & Poor’s, Fitch IBCA and Moody’s have been attained. These enable the Bank to access the financial markets on the best possible terms and thereby to minimise the cost of loans to its clients.
11. The Bank’s profit grows steadily, principally due to the significant expansion of the loans portfolio, moderate increases in operating expenses and relatively low releases from provisions (€ 1.8 million in 1999 as compared with € 2.6 million in 1998 but € 5.9 million in 2000). The net profit in 1999 stood at € 91.4 million and € 81.4 million in 1998. Profitability has continued to grow in 2000: the net profit - € 95 million – was up by 4% on the previous year and 17% on the year before that. This places the CEB among the best performing multilateral financial institutions in terms of return on equity.
Functioning and management
12. The Bank operates by granting loans to its members or to public or private institutions, including local and regional authorities, banks and other financial establishments approved by members. Loans are granted in accordance with a set of precise criteria. Requests for project financing must be submitted via the Secretary General of the Council of Europe by the national authorities of the country concerned, along with an approval of both the project and the applicant. Applications must be backed by guarantees deemed acceptable by the Bank. Although it is the applicant’s responsibility to prepare the application, the Bank can exceptionally co-ordinate the preparation of a project.
13. The rates for the loans granted, whether fixed or variable, are based on the Bank’s cost of funds – at present at ‘AAA’ conditions (comparable to the London Inter-Bank Offer Rate or LIBOR) – plus a modest margin which in particular cases can be further lowered through an interest rate subsidy facility (see description of the Selective Trust Account below). The duration of credit may extend to up to 15 years, with a grace period of 5 years. The loan conditions of the Bank are very advantageous in comparison with those of other international financial organisations. At present the Bank appears to be two to four times more competitive in terms of a margin on the cost of funds (0.2% - 0.25%) when compared to similar institutions – such as the World Bank and the European Bank for Reconstruction and Development – that provide loans with, respectively, a 0.57% and 1% margin. Borrowing from the CEB is therefore considerably more favourable.
14. After examination from the financial and technical points of view by the Bank’s staff, each application is submitted for approval to the Administrative Council, with the Secretary General of the Council of Europe giving an opinion as to the project’s admissibility from the political and social points of view.
15. The CEB’s management is assured by the following organs: the Governing Board, chaired currently by Mr Kari Nars and comprising one representative per member state; the Administrative Council, chaired at present by Mr Heinrich Harries and also comprising one representative per member state; the Governor, Mr Raphaël Alomar, who is assisted by three Vice-Governors; and the Auditing Board, which consists of three members chosen from among the member states in turn. Staff members of the Council of Europe provide the Secretariat of this Partial Agreement. At the end of 2000, the Bank had 111 permanent members of staff, a very modest figure when considering the volume and diversity of its activities.
The Selective Trust Account
16. With the admission of the first member states from central and eastern Europe, the Bank in 1995 set up a “soft loan window” called the Selective Trust Account. It is designed to provide interest rate subsidies for certain loans to projects that comply with its priority objectives. The Account is maintained essentially through allocations from the Bank’s profit and by voluntary contributions from member states. € 55 million had been mobilised by the year 2001 for the benefit of projects in countries of central and eastern Europe, including Albania, Bulgaria, Hungary, Poland, Slovakia, Bosnia and Herzegovina and, lately, “the former Yugoslav Republic of Macedonia”.
3. Follow-up to earlier Assembly texts
17. The Parliamentary Assembly has on a number of occasions over the past few years drawn attention on the work of the Bank. Thus, the Assembly,
- in its Recommendations 1455 (2000) and 1499 (2001) called on the CEB to assist Crimean Tartars returning to their homeland and to help in the reconstruction of Chechnya; it therefore asked the Committee of Ministers to invite Ukraine and Russia to join the CEB;
- in its Resolution 1209 (2000) called on international financial institutions, including the CEB, to “reinforce their ‘early attention’ role as regards any departure from democratic standards in individual countries especially as it may affect the soundness of an economy and its financial system”;
- in its Recommendation 1473 (2000) welcomed the Bank’s economic assistance to Croatia in the framework of the Stability Pact for South-eastern Europe;
- in its Recommendations 1447 (2000) and 1448 (2000) welcomed the rapid relief provided by the CEB to Turkey in the wake of the devastating earthquakes of 1999 and urged the Ministers to invite the members states to continue assisting this country;
- in its Resolution 1230 (2000) asked the CEB to provide emergency aid to the Federal Republic of Yugoslavia;
- in its Recommendation 1463 (2000) recommended that the Committee of Ministers “step up involvement of the [CEB] in educational and social investment”;
- in its Opinion No. 221 (2000) recommended “that the [CEB] provide assistance where appropriate” to Armenia so as to help this country to honour its commitments and obligations as a member state of the Council of Europe;
- and, in its Recommendation 1378 (1998)2, inter alia, invited the Bank to “pay up a greater proportion of the subscribed capital”, “increase the subscribed capital” and “support an increase in [the Bank’s] staff to allow greater involvement in project preparation in the field”; as for the Bank, its organs were asked to enhance co-operation with other international organisations and “to take a more active part in project preparation, including a stronger presence of technical advisers in the field”.
18. Although it is somewhat early to judge the follow-up to most of the texts adopted by the Assembly this or last year, it is clear that the concerns expressed in the Assembly Recommendations 1455 (2000) and 1499 (2001), the Resolution 1230 (2000) and the Opinion No. 221 (2000) would be best addressed if the countries concerned could accede to the Bank (in the case of Yugoslavia this should follow the country’s eventual accession to the Council of Europe). Although these countries have been encouraged to become members of the Bank, it is in the last analysis up to them to try to speed up efforts towards such membership. As regards aid to Turkey following the earthquakes of 1999, we know that the Bank approved an emergency loan of € 300 million within a few days after the first quake and proceeded, in mid-2000, to the disbursement of € 121.4 million for the rebuilding of destroyed housing.
19. Concerning the proposals made by the Assembly in its Recommendation 1378 (2000), the Rapporteur draws attention to the fact that the process of a projected increase in the subscribed capital of the CEB is well under way, with two-thirds of member countries having already subscribed to it. However, nothing has to date been done to endow the Bank with the additional staff it needs in order to cope with an ever increasing workload due to the accession of new member countries, and to be able to enhance its participation in project preparation in the field. The Rapporteur hopes that, with the possible accession of the European Union and the EIB to the CEB, the latter will in due course be able to surmount these challenges through joint efforts.
4. The Bank in the 1998-2000 period
Trends and projects
20. At the 2nd Council of Europe Summit, held in Strasbourg in October 1997, many heads of state and government hailed the role performed by the CEB and asked to see its activities expanded, especially in the area of social cohesion. As it happens, this is an area where the Bank’s and the Council of Europe’s objectives fit most closely. To address the challenge of social exclusion resulting from unemployment and poverty, the Bank fostered its support to investment in SMEs, the principal source of new jobs, and in the development of human capital, especially through vocational training and education. In so doing, it set itself the objective of earmarking € 1 billion for the promotion of employment projects over a three-year period.
21. Steady economic recovery throughout Europe in the 1998-2000 period strengthened the platform for the Bank’s action. The introduction of the euro in the European Union in 1999 had a further positive effect on the Bank’s operating environment3, especially with the worldwide recovery from the financial crises that had hit Asia, Russia and Brazil. The Bank successfully mastered these turbulences in international financial markets and even saw an increase in the number of projects approved and loans disbursed during the difficult period in question (see appendix 1).
22. In 1998-2000 eight countries4 – all from central and eastern Europe - joined the Bank. This meant a considerable enlargement of the CEB’s geographical sphere of action and a much more diverse economic, social and cultural environment in which to operate. While taking on this expanding ‘transition wing’, the Bank has naturally exposed itself to the balancing act between the need to boost operations in the transition countries and the enhanced financial risks incurred in certain transition countries with, at stake, the possible loss of the hard-won ‘triple A’ rating.
23. 1998 was a year of solid growth in activity and in the commitment to serving social cohesion. It brought stable profits and a continued effort to reduce risk. For the third consecutive year the Bank scored a record number of projects approved, totalling 2.3 billion ecus. Moreover, disbursements exceeded 1 billion ecus, representing an increase of 23 percent in relation to the previous year. In line with the Bank’s three-year target to promote employment-conducive projects, 21% of project approvals and 34% of loan disbursements concerned job creation and job preservation. Efforts to improve the geographical distribution and quality of the loans portfolio continued, as seven new projects were approved in the transition countries (compared to five in the previous year), representing a total of 100 million ecus. This notwithstanding, the Bank’s involvement in the countries of central and eastern Europe still lagged significantly behind that in western Europe.
24. In 1998 the Bank approved a total of 42 new projects and global disbursement loan programmes and updated five ongoing projects. Projects involved fifteen member states and one non-member state (Bosnia and Herzegovina). Spain, for which the Bank approved sixteen projects worth a total of 681 million ecus was clearly the principal beneficiary of the funding, both in terms of the amount (30 percent of the total sum approved) and the number of projects. Other recipient countries shared the financing as follows: Germany (17%), Italy (15%), France (13%), Greece (7%), Belgium (3.2%), Cyprus (2.6%), Malta (2.4%), Portugal (2.2%), Iceland (2%), Hungary (1.8%), Croatia (1.5%), Romania (0.9%), San Marino (0.8%) and Slovenia (0.2%).
25. Projects approved in 1998 covered all of the Bank’s fields of action. Thus, for the traditional priority fields – aid to refugees, migrants and victims of natural or ecological disasters – the CEB approved the financing of 243 million ecus destined for seven projects. Allocations earmarked to facilitate the return of refugees to Bosnia and Herzegovina and Croatia amounted to 39.3 million ecus or 1.7 percent of the total amount approved in 1998. Through other projects Spain, Greece, Italy, Romania and Slovenia were to receive 197 million ecus (or 8.7% of the total amount approved in 1998) for aid to victims of natural disasters. Moreover, over 80 % of the funding approved in 1998 was focused on sectors with high social impact, such as health, housing, protection of the environment, education, job creation in SMEs and vocational training. Significantly, about 262 million ecus were earmarked for the job promotion projects, in line with the objective the Bank had set itself after the 2nd Council of Europe Summit.
26. 1999 produced excellent results in terms of lending volume, which increased by 62 percent, and as regards profits which grew by € 10 million to reach € 91 million. This enabled the Bank to double its allocation to the Selective Trust Account (€10 million compared to € 5 million in the previous year) and replenish reserves with the remainder. The Bank also embarked on several important undertakings, including the change in name. A major capital increase, from € 2.4 to 4.1 billion, was decided in order to enable the Bank to streamline and consolidate its action. Another strategic decision taken was to reduce the number of project approvals and disbursements as of 2001.
27. 1999 was marked by numerous humanitarian disasters and natural calamities, to which the Bank’s response was swift and substantial. € 743 million were approved for projects to assist victims of natural disasters, such as earthquakes and floods; € 6.8 million were allocated for priority humanitarian help combined with aid to minorities and local development. Furthermore, in 1999 the Bank continued its support in favour of job creation and job preservation through projects worth € 260 million, a figure similar to that of 1998. The Bank’s action in favour of strengthening social cohesion, including social housing, urban infrastructure, national heritage, health, education, protection of the environment and rural modernisation sectors, amounted to € 1046 billion, or half the total value of projects.
28. In 1999 the Bank approved 30 new projects worth € 2052 million. The financing approved breaks down as follows: Spain (34%), Italy (26%), Turkey (7%), Germany (5.8%), France (5.2%), Belgium (4.9%), Portugal (4.9%), Poland (4.7%), Hungary (2%), Cyprus (1.6%), Slovakia (1.5%), “the former Yugoslav Republic of Macedonia” (1%), Bulgaria (0.7%), Lithuania (0.1%), Romania (0.07%) and a non-member state Bosnia and Herzegovina (0.1%).
29. As regards the traditional priority fields of action, the Bank in 1999 approved eight projects concerned with the reconstruction of infrastructure damaged by natural disasters. Thus, flooded Hungary, Poland and Slovakia benefited from € 217 million in emergency aid; another € 400, 300 and 80 million were approved to help, respectively, Italy, Turkey and Greece after the disastrous earthquakes. As the Kosovo crisis erupted, the Bank’s rapid reaction mobilised an exceptional donation (from the Selective Trust Account) of € 2 million to alleviate the plight of refugees from Kosovo. Two more millions, again from the Selective Trust Account, were donated to Albania to assist in its accession to the Bank and € 1 million was granted to improve the living conditions of abandoned children in Romania. A special loan of € 1.9 million was issued through a German financial institution to assist, through a housing programme, the voluntary return of Bosnian refugees from Germany to Bosnia and Herzegovina. More than 63% of the financing approved in 1999, representing a total of € 1306 million, centred on job creation and preservation, as well as on strengthening social cohesion, especially through support to social housing, health and education sectors and environmental protection projects.
30. 2000 stands out as a year of a number of remarkable achievements, in line with the Bank’s development orientations contained in the adjusted medium-term development plan for the 1997-2004 period. Firstly, the commitment to increasing the volume of operations in transition countries has resulted in a strong growth in disbursements to these countries. Secondly, the Bank’s involvement in favour of employment has increased, reaching 30 percent of projects approved. Thirdly, the Bank responded promptly to emergency situations, especially the refugee problem in south-eastern Europe through participation in the Stability Pact for the region. Fourthly, the Bank was upgraded from AA1 to AAA rating by Moody’s and proceeded to a major capital increase while stabilising the levels of project approval and loan disbursement so as to continue improving the gearing ratio. Last but not least, the CEB has expanded its international contacts and embarked upon promising talks on possible accession to the Bank by the European Community and the European Investment Bank.
31. Compared with previous years the volume of the Bank’s operations in 2000 dropped slightly (see appendix 3), to a total of € 1888 million. However, the level of disbursements rose to € 1855 million so as to nearly close the gap between projects approved and loans disbursed. Financing for the Bank’s two traditional priority areas (in favour of Croatia, Turkey, Hungary and Slovenia) amounted to € 203 million. At the same time disbursements reached € 340 million, marking a strong increase over the previous year. In close co-operation with the Council of Europe the Bank has also been participating in the work of the Stability Pact for South-Eastern Europe. Toward this end it will be contributing € 300 million, an amount which stands up well when compared with the € 2.4 billion mobilised by the Stability Pact as a whole. The Bank’s action in favour of job creation has more than doubled compared to 1999, reaching about € 548 million. All in all, the Bank’s allocations over the 1998-2000 period for funding employment projects amounted to € 1089 million, fully in line with its commitment following the 2nd Council of Europe Summit. Throughout 2000, operations in the statutory and new priority fields represented about 80% of loans disbursed and 95% of projects approved (see Appendix 5).
32. A major share – 35 % – of the Bank’s financing approved in 2000 concerned Germany (see appendix 5). Although this may surprise at first glance, an in depth analysis reveals that most of the financing (two project of each € 250 million) will be implemented to support SME development and the restoration of hospitals, schools and old people’s homes in the eastern Länder (the territory of the former German Democratic Republic), that can be seen as a region in transition. Two-thirds of the funding being made available to Spain – another major borrower of the Bank – will be spent on the building and renovation of medical and educational facilities.
Activities in central and eastern Europe
33. Among the Bank’s 35 member countries, 14 are in central and eastern Europe where the CEB has been gradually increasing its operations (see appendices 2 and 4). Thus, through projects approved in 1998, Croatia, Hungary, Romania and Slovenia were to receive 4.4 % (or 99.6 million ecus) of the Bank’s funding and nearly 5.8 million ecus were actually disbursed in Bulgaria, Bosnia and Herzegovina5, Lithuania and Romania. In 1999 some 10.1% of the financing (€ 207 million) were earmarked for projects approved in Bosnia and Herzegovina, Bulgaria, Hungary, Lithuania, Poland, Romania, Slovakia and “the former Yugoslav Republic of Macedonia” and nearly € 93 million were disbursed in Bosnia and Herzegovina, Croatia, Hungary, Lithuania, Poland, Romania, Slovenia and “the former Yugoslav Republic of Macedonia”. In partnership with the Council of Europe, and building on the “Social Cohesion” priority established by the Council in 1998, the CEB approved an additional € 1.5 million towards several pilot projects to promote social cohesion. Two – one in the Czech Republic and the other in Croatia – have already been started.
34. The stock-taking on the use of the Selective Trust Account (STA) shows that, since the establishment of this facility in 1995, the Bank has set aside € 55 million of ‘social dividends’ in favour of priority projects in the less well-off transition countries. Following the granting of STA subsidies to seven projects in 2000, total commitments under the STA amounted to € 30 million. In 2000 this account was used for the first time to subsidise projects benefiting the Roma community (in Bulgaria and the Czech Republic). Other uses of the account in the same year centred on helping refugees in Croatia and victims of natural disasters in Hungary and Slovenia. In 2001, € 1 million has been granted from the STA to help displaced people in the “the former Yugoslav Republic of Macedonia”.
35. 2000 saw further intensification of the Bank’s activities in the transition countries. If, up to 2000, the total value of projects approved since 1994 stood at € 420 million, the twelve projects (in Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Poland, Romania, Slovakia and Slovenia) approved in 2000 boosted this figure by another € 256.7 million. Similarly, disbursements (in Bulgaria, Croatia, Hungary, Lithuania, Poland, Romania, Slovakia, Slovenia and “the former Yugoslav Republic of Macedonia”) in 2000 grew by € 123 million, exceeding the sum of all disbursements over the five previous years (€ 104 million). The first loan to Latvia – one of the new shareholders in the Bank – was approved this year.
36. It is important to note that 40% of project approvals and 71% of loan disbursements in the transition countries concerned the traditional priority sectors, through the reconstruction of areas hit by natural disasters and through aid to vulnerable groups (refugees, abandoned children, the elderly and the disabled). The remaining share of CEB funding in the transition countries extended mostly to social projects. The Bank’s contribution to the reconstruction efforts in south-eastern Europe is also part of its action under the Stability Pact. Thus, in 2000 the countries in the region that benefited from the Bank’s support under the Pact were Croatia (€ 67 million) and Bulgaria (€ 8 million).
37. Some may wonder why such a relatively large proportion of projects approved is in favour of better-off European countries. One main reason is that the Bank needs to preserve its AAA rating. This means that it has to have a number of relatively safe loans on its books as a counterbalance to some more risky loans at advantageous rates to less developed countries in central and eastern Europe. This may sound as a paradox, but it is nevertheless a financial fact which benefits everyone. Obviously, there is great potential for expanding the Bank’s activities in the transition countries, especially through its co-financing of projects with other international financial institutions. The Rapporteur is confident that these welcome trends will continue in the future.
5. Co-operation with other international institutions
38. In addition to the CEB’s natural and statutory collaboration with the Council of Europe, the past few years have witnessed intensified partnerships between the CEB and several international institutions, not least through information exchanges and the co-financing of projects, especially in the countries in transition. Thus, the Bank enjoys observer status on the World Bank’s Development Committee; participates in the meetings of the Institute of International Finance; is a partner in the Stability Pact for south-eastern Europe, especially in the Working Table on economic reconstruction, development and co-operation; works together with the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD), the Nordic Investment Bank (NIB) and the European Union in the framework of the latter’s PHARE programme and its ‘SME Facility’ in Central and Eastern Europe.
39. 1999 and 2000 were particularly fruitful years as concerns the Bank’s formalising its links with other institutions. Following the signature in 1999 of a Memorandum of Understanding with the EBRD, it is hoped that the two Banks will act together on a programme for SMEs and on the protection of the environment. Moreover, a multiparty agreement has been signed with the European Commission, EBRD, NIB and IFC (International Finance Corporation) in order to co-ordinate action in the countries seeking membership of the European Union. Another important development on the horizon is the possibility of the European Community and the EIB becoming shareholders of the Bank. The interest shown in the CEB by these two institutions testifies to the mature position the CEB has achieved.
40. In pursuit of its traditional priority objective of aiding refugees and migrants, the Bank has long-standing links with United Nations specialised agencies such as the UNHCR (Office of the High Commissioner for Refugees) through a joint task force established in 1998, and the UNDP (United Nations Development Programme), and the International Organisation for Migration (IOM). These organisations are - due to their specialisation, expertise and network of field offices - ideal partners for developing joint projects. More recently, these contacts have been used to distribute, together with the UNHCR and the UNDP, CEB donations to refugees from Kosovo residing in Albania and “the former Yugoslav Republic of Macedonia”.
6. Shaping the future action: conclusions and suggestions
41. The new name of the institution - Council of Europe Development Bank – is more explicit on the banking nature of this organisation. The change, however, has in no way affected its vocation which was and remains social. On the contrary, greater emphasis on projects furthering social cohesion now firmly features as a new priority of the Bank, alongside its statutory priorities, such as aid to countries facing refugee problems or that have suffered from natural disasters. During the 2000 financial year, operations in these fields accounted for 80 % of loans disbursed and 95 % of projects approved.
42. Because of its banking character, the CEB must insist on avoiding excessive financial risk in higher-risk countries where its social mandate summons it to operate. The widening of the Bank’s membership and the diversification of its tasks resulting from the 2nd Council of Europe Summit have rendered this balancing act even more difficult. Nonetheless, over past few years the Bank has shown excellent financial results, high competitiveness and laudable overall performance.
43. At the annual Joint Meeting in June 1998, the Bank’s organs updated the medium-term development plan so as to adapt it to the three-pronged development strategy outlined earlier by the Assembly. The strategy comprised the following objectives: (1) refocusing activity on its priority objectives, (2) aiming at a better geographical and financial distribution of its loan portfolio, and (3) intensifying its operations in the transition countries and overall action to promote social cohesion in Europe. Along with the efforts to moderate the lending activity – after several years of accelerated growth - the strategy implies a certain redeployment of projects from wealthier toward transition countries and a gradual decrease in the number of projects approved and annual disbursements. Accordingly, the Bank foresees to bring the number of projects approved in 2001 to € 1.7 billion and the amount of loans disbursed over the same year to € 1.6 billion.
44. The increase of activity in transition countries was particularly spectacular last year when the disbursements for projects exceeded the total amount of financing made available to these countries over the five previous years. The stronger financial base, resulting from a major increase in capital and going hand in hand with increased credibility on the capital markets, will enable the Bank to propose loans on even more favourable terms to the most needy countries.
45. The trend toward stepping up financing in the transition countries should progress further. This could be achieved through a more intensive use of the Selective Trust Account (STA) and a gradual shift in focus towards the less well-off countries and regions. Member countries should therefore be encouraged to supplement the resources available through voluntary contributions to the STA. Since Moldova at present seems to be the only transition country that has not so far benefited from its membership, the CEB should give priority to identifying worthy projects in this country, on condition that its contribution to the capital be fully paid..
46. As regards aid to refugees and displaced persons, the Bank’s action has found a natural expression through a role assumed in the work of the Stability Pact for South-Eastern Europe. The CEB intends to provide € 300 million in financing or co-financing projects under the Pact and hopefully the Bank’s involvement will turn into a lasting commitment to stimulate growth and development in that region.
47. It is important to continue efforts to raise awareness of the Bank’s potential for action, both in CEB member and non-member countries, with the latter group including Andorra, Armenia, Azerbaijan, Austria, Georgia, Ireland, Russia, Ukraine and the United Kingdom. This group of countries needs to understand that CEB activities will usefully complement national development assistance programmes and that they form an excellent tool of solidarity between the needy and the more fortunate populations. It would therefore be important for these countries eventually to consider joining the Bank.
48. As the Bank’s activities usefully supplement those of other international and national financial institutions in the area of aid in emergency situations and social development, working in tandem carries great potential for all sides. The Bank should therefore continue to intensify co-operation with such institutions, in particular the EIB, the EBRD and the World Bank, especially as regards project preparation and co-financing, so as to optimise the impact on transition in the countries in central and eastern Europe. This will permit economies in the preparation and evaluation of projects, reduce risks taken by any one institution and facilitate the development of new co-financing operations..
49. Boosting the Bank’s action in all fields necessitates adequate resources, both financial and human. True, moderation in lending following the ongoing increase in capital leaves rather little space for manoeuvre and requires the Bank to be even more selective in the preparation of projects. However, there is clearly a limit beyond which the capacity of the Bank’s present staff cannot be stretched. The Bank’s human resources need to be reinforced in order to analyse and forecast the macroeconomic and social development trends in transition countries in close co-operation with these countries. Co-operation between the Bank and its shareholders in shaping sectoral strategies as regards social housing and policies concerning minorities (especially Roma) is particularly important.
50. More than ever, the global strategy of the Bank should continue to be focused on priority objectives (statutory priorities, assistance toward transition and greater social cohesion in Europe) and the recommendations of the Council of Europe. The future changes in the structure and further development of the Bank’s operations should serve such a global strategy.
Appendix 1
Key figures as regards CEB activities
(in million euros)
1998 1999 2000 2001*
_______________________________________________________________________________________________________________
Loans disbursed during the year 1056 1712 1855 1600
Projects approved during the year 2257 2052 1888 1700
Loans disbursed since inception 11 861 13 573 15 428 17028
Own assets (after allocation of results) 2283 2381 2466 4100
Subscribed capital 1400 1400 ===>** 3200
Paid-in capital 152 155 ===>** 355
Profit 81.4 91.4 95
Selective Trust Account 35 45 55
_______________________________________________________________________________________________________________
*objectives
**subscription to the capital increase in process
Appendix 2
Projects approved and loans disbursed by the CEB in the transition countries 1995 - 2000
Source: The CEB
Appendix 3
Source: The CEB
Appendix 4
Projects approved by country from 1998 to 2000
|
Country |
1998* |
% |
1999** |
% |
2000** |
% |
|
Albania Belgium Bosnia & Herzeg.*** Bulgaria Croatia Cyrus Czech Republic Estonia Finland France Germany Greece Hungary Iceland Italy Latvia Lithuania Malta Moldova Poland Portugal Romania San Marino Slovakia Slovenia Spain Sweden FYROM Turkey |
- 73 521 - - 34 463 59 531 - - - 300 498 383 417 158 000 40 000 45 146 333 314 - - 54 217 - - 49 377 20 000 19 152 - 5 210 681 029 - - - |
- 3.26 - - 1.53 2.64 - - - 13.31 16.99 7.00 1.77 2.00 14.77 - - 2.40 - - 2.19 0.89 0.85 - 0.23 30.17 - - - |
2000ª 100 000 1 917ª 15 000 - 32 695 - - - 106 098 117 462 - 40 000 - 540 000 - 2 328 - - 96 600 100 000 1 450 - 30 000 - 706 189 - 20 113 141 725 |
n/a 4.87 n/a 0.73 - 1.59 - - - 5.17 5.72 - 1.95 - 26.32 - 0.11 - - 4.71 4.87 0.07 - 1.46 - 34.42 - 1.00 6.91 |
- 120 000 - 4 000 67 000 - 1 000 10 000 150 000 222 000 660 000 4 000 50 000 - 20 000 - - - - 45 000 6 000 10 000 - 8 000 2 000 329 000 58 000 - 122 000 |
- 6.36 - 0.21 3.54 - 0.05 0.53 7.95 11.76 34.96 0.21 2.65 - 1.06 - - - - 2.38 0.32 0.53 - 0.42 0.11 17.43 3.07 - 6.46 |
Total |
2 256 875 |
100.00 |
2 051 577 |
100.00 |
1 888 000 |
100.00 |
* in ECU thousand
** in thousand euros
***A non-member country
a: financing approved from the Selective Trust Account
Appendix 5
Projects approved by sector from 1998 to 2000
|
Sector |
1998* |
% |
1999** |
% |
2000** |
% |
|
Traditional priorities - Aid to refugees & migrants - Aid to regions affected by natural disasters Sub-total New priority - Job creation in SMEs - Social housing - Health - Education - Vocational training - Improving living conditions in disadvantaged urban areas Sub-total Other activities - Protection of the environment - Rural modernisation - Historic heritage Sub-total |
46 491 196 326 242 817 261 627 354 921 369 529 293 425 202 396 50 763 1 532 661 314 163 136 081 31 153 481 397 |
2.06 8.70 10.76 11.59 15.73 16.37 13.00 8.97 2.25 67.91 13.92 6.03 1.38 21.33 |
1 917 742 858 744 775 260 229 359 506 141 612 105 211 - 76 619 943 117 270 998 61 599 31 028 363 625 |
0.09 36.21 36.30 12.70 17.52 6.90 5.13 - 3.73 45.98 13.21 3.00 1.51 17.72 |
30 000 173 000 203 000 548 000 148 000 398 000 269 000 - 231 000 1 594 000 63 000 5 000 23 000 91 000 |
1.59 9.16 10.75 29.03 7.84 21.08 14.25 - 12.24 84.44 3.34 0.26 1.22 4.82 |
Total |
2 256 875 |
100.00 |
2 051 577 |
100.00 |
1 888 000 |
100.00 |
* in ECU thousand
** in thousand euros
Reporting committee: Committee on Economic Affairs and Development.
Reference to committee: standing mandate
Draft recommendation unanimously adopted by the committee on 29 May 2001.
Members of the committee: Ms Zapfl-Helbing (Chairperson), Stepova, Kirilov, Blaauw (Alternate: Duivesteijn) (Vice-Chairpersons), Adam, Agius, Agramunt (Alternate: Yanez-Barnuevo), Akgönenç, Aleffi (Alternate: Lauricella), Aliyev, Anusz, Arnau, Aylward, Berceanu (Alternate: Baciu), Billing, Blattmann, Bonet Casas, Braun, Brunhart, Budisa, Burbiené, Calner, Cerrahoglu, Clinton-Davis, Cosarciuc, Cunliffe (Alternate: Etherington), Cusimano (Alternate: Turini), Dokle, Elo, Eyskens, Freyberg, Gülek, Gusenbauer, Haupert, Hoffmann, Hovhannisyan, Hrebenciuc, Jung, Kacin, Kestelijn-Sierens, Kittis, Kosakivsky, Leers, Liapis, Lotz, Makhachev (Alternate: Slutsky), Mateju, Mitterrand (Alternate: Durrieu), Mortensen, Naumov, Patarkalishvili, Pereira Coelho (Alternate: Cesário), Ponsonby (Alternate: Jones), Popa, Popescu, Popovski, Prokes, Puche, Ragnarsdottir, Reimann, Riccardi, Rigo, Schmitz, Schoettel-Delacher, Schreiner (Alternate: Mariot), Schütz (Alternate: Behrendt), Seyidov, Squarcialupi, Stoyanova, Suslov, Tallo, Townend, Tsekouras, Ustiugov, Valleix; Wielowieyski (Alternate: Wojcik).
N.B. The names of those members present at the meeting are printed in italics.
Head of the secretariat: M. Torbiörn
Secretaries of the committee: M. Bertozzi, Ms Ramanauskaite and Mrs Kopaçi-Di Michele.
1 Albania, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Holy See, Hungary, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Slovenia, Slovak Republic, Spain, Sweden, Switzerland, “the former Yugoslav Republic of Macedonia” (FYROM) and Turkey.
2 This recommendation is contained in the report (Doc. 8124) on the activities of the then Council of Europe Social Development Fund prepared by Mr Gross on behalf of the Committee on Migration, Refugees and Demography. It was adopted by the Assembly on 25 June 1998.
3 The Bank was the first multilateral financial institution to launch a sizeable bond issue of € 500 million, in the new currency, as early as 7 January 1999
4 Those eight countries are: Albania, Czech Republic, Estonia, Hungary, Latvia, Moldova, Poland and Slovakia.
5 Although Bosnia and Herzegovina is not a member of the Bank, the CEB’s Articles of Agreement make it possible to grant loans to this country subject to the approval of the borrower by the Bank’s member government and provided the loan is guaranteed by one or more member states or carries other guarantees deemed acceptable by the CEB’s Administrative Council.