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Doc. 9322
21 January 2002
Council of Europe Development Bank:
towards a Europe of greater social cohesion
Recommendation 1524 (2001)
Reply from the Committee of Ministers
adopted at the 780th meeting of the Ministers’ Deputies (16 January 2002)
1. The Committee of Ministers has taken due note of Parliamentary Assembly Recommendation 1524 (2001) on the Council of Europe Development Bank: towards a Europe of greater social cohesion. It wishes to inform the Assembly that it concurs with its views on the trend in the activities of the Council of Europe Development Bank (CEB) and follows with interest its growing activity in favour of transition countries. The Committee of Ministers reiterates its support to this financial institution and welcomes the entering into force of the Bank’s capital increase. It also wishes to express its interest for the developments in the Bank's co-operation programme with Directorate General III - Social Cohesion.
2. Aware that the CEB's capacity for action can only be increased if more member states of the Council of Europe join the Bank, the Committee of Ministers encourages the authorities of those states which have not yet acceded to it to initiate or, where applicable, continue the necessary procedural steps.
3. The Committee of Ministers has moreover communicated Parliamentary Assembly Recommendation 1524 (2001) to the member states' governments, so as to draw their attention to the measures recommended by the Assembly in paragraph 9 (ii)
4. With the same aim in mind, it has transmitted the recommendation to the Bank's Governing Board, which, at its last meeting in December 2001, commented at length thereon. The Committee of Ministers took note with interest of the information provided, in particular concerning the Bank’s activity in the transition countries and the intensified synergy with other financial institutions. The Assembly is invited to take cognisance of the Bank’s comments, as appended to this reply.”
ANNEXE
The Governing Board took note of the Recommendation 1524 (2001). It wishes to comment in particular on the following items of the recommendation:
Item 1
“.. in conformity with the recommendations of the 2nd Summit of Heads of State and Government (…) enhanced lending to projects furthering social cohesion is now a new priority for the bank.”
The Governing Board welcomes the PA’s endorsement of the CEB’s new political priority of increasing lending to projects furthering social cohesion. It wishes to recall that the Bank’s statutory priorities, as expressed in Article II of its Articles of Agreement – i.e. aid to refugees and victims of natural catastrophes – remain unchanged by the Summit’s recommendations. Article II may in fact only be changed by the Committee of Ministers of the Council of Europe. In this context, the Governing Board wishes to assure the Committee of Ministers that it will be on guard against watering down the Bank’s social mandate. The Governing Board finally wishes to recall the Bank’s successful ongoing cooperation with the Council of Europe in the field of social cohesion in the framework of the joint programme partially financed by a contribution of € 1.5 million from the Bank’s Selective Trust Account.
Item 2
The Governing Board is pleased to note that 27 countries representing 86.85% of the participating certificates have participated in the capital increase by 30 September 2001 and expresses its hope that the remaining countries will take advantage of the special provisions in force until 30 April 2002 in order to replenish their participation.
Item 3
The Governing Board shares the Assembly’s assessment of the importance of safeguarding the Bank’s top ratings, as the Bank depends entirely on the capital markets for its funding. Any downgrading would lead to higher borrowing costs for the CEB, and thus also for CEB’s borrowers, which would be especially detrimental to the most socially-oriented projects financed by the Bank.
Item 4 (“dramatically low level of aid given to refugees, displaced persons and migrants”)
The Governing Board is also concerned that a higher share of the CEB’s loans are not requested for projects to aid to refugees, displaced persons and migrants, which is one of the Bank’s two statutory priority fields of activity. However, it wishes to recall that the Bank has never turned down a loan request in this field. Despite actively seeking out projects in its priority fields, the Bank has to accept the fact that it can only finance projects that are transmitted to it by its member states. The Bank’s possibilities of lending at advantageous market terms are in competition with grant funds provided bilaterally and multilaterally. The challenge for the Bank will be to devise ways and means to combine its own lending, subsidised in appropriate cases through the Selective Trust Account, with funds available from other donors.
Item 5
The Governing Board confirms that the CEB continues to welcome applications for membership from all the member states of the Council of Europe. It recalls that some advantageous accession conditions are offered to countries in economic transition. Contacts with a view to accession are currently under way with several countries.
Item 6
The Governing Board wishes to assure the PA that intensive work is under way in the Bank’s competent organs aimed at amplifying the shift, which is already engaged, of the Bank’s lending activities to its less well-off countries. Inter alia, a reform of the rules governing the Selective Trust Account approved in September 2001 will further facilitate its use in favour of the most vulnerable groups in low-income countries. In the first 10 months of 2001, 29 % of the total volume of projects approved concerned the region of Central and Eastern Europe, against 14 % in 2000. 24 projects, for a total amount of € 400 million, i.e. 38 % of all projects approved for these countries, have received an interest subsidy from the Selective Trust Account.
Item 7
The CEB is indeed strongly involved in the Stability Pact where it is a recognised partner in its own right. It participates actively in the Steering group for refugees matters, in the Initiative for social cohesion and the Infrastructure Steering group. The CEB has presently committed € 318 million in the region, thus exceeding its pledge of € 300 million made in the financing conference in March 2000. Its action is focused on supporting the countries in the region in the social field. An action plan in favour of social cohesion was presented on 26 October 2001 at the 2nd financing conference in Bucharest.
Item 8
The CEB’s efforts to increase cooperation with other IFI’s are pursued systematically, on the basis of the agreements mentioned by the PA. In the same way, the possibility of the European Community and the EIB becoming shareholders of the Bank continues to be explored, though this may take some time due to, in particular, the difficult budgetary decisions required on the side of the European Community.
Item 9. ii. “invite the bank’s member states:”
a. to ensure speedy subscription to the increase in capital by countries which have not yet done so, and to prepare for a possible further increase in the bank’s capital;
As at 30 September 2001, 27 member states had subscribed to the capital increase, representing 86.85% of the participating certificates on offer. Whilst the subscription period for the 5th capital increase ended on 30 September 2001, those member states, which have not participated in the 5th capital increase but wish to replenish their capital shares to the level they would have if they had participated may benefit to this effect from special provisions approved by the Governing Board in July 2001, which will be in effect until 30 April 2002.
As to the invitation to member states to prepare for a possible further increase in the Bank’s capital, the Governing Board considers this as somewhat premature, given that the present capital increase was designed to cover the Bank’s activities as foreseen in the medium-term development plan. The CEB’s financial basis is also strengthened each year by the accumulation of its reserves by the allocation of the bulk of its annual profits (€ 75 million per annum according to the Development Plan). If, on the other hand, the Bank’s member states were to decide to increase the Bank’s lending volume, or the share of its lending in favour of less well-rated countries beyond what has been decided so far, they would indeed have to address the question of the financial resources needed to underpin any such increase.
b. to increase their voluntary contributions to the Selective Trust Account and to use it more extensively, in particular for projects in favour of refugees, displaced persons and migrants – including provisions for education and training;
It is true that the allocation the Bank itself can make to the Selective Trust Account (STA), from its annual profits, are rather limited, as the Bank must also continue accumulating reserves to underpin the development of its activities. As indicated above, an increase in the Bank’s capital is not foreseen in the near future.
Any voluntary contributions to the STA by the Bank’s member states are therefore especially welcome. The member states’ budgetary constraints are well-known. Bilateral or regional initiatives such as the setting-up of the “Finland Trust Account” earmarked to finance projects development support in favour of the Baltic countries are an avenue that could be pursued further.
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;
The Bank’s member states have lent the Bank their good offices in stepping up cooperation with other IFI’s partly sharing the same membership.
d. to co-operate more closely with the bank in the implementation of national development strategies, in particular as regards the integration of minorities, especially Roma/Gypsies, and in the CEB’s shaping of sectoral and country strategies;
The Bank is generally pleased with its member states’ cooperation in the elaboration and setting-up of country and sectoral strategies. Furthermore, the Bank’s ongoing cooperation with the Council of Europe in the framework of a specific agreement in the field of social cohesion is a valuable opportunity to further improve project quality in the above-mentioned fields.
e. to permit an increase in the bank’s staff so as to allow improved project preparation;
The Bank's administrative budget for 2002 comprises 6 new positions: 2 Country Managers, 1 Ex-post Project Evaluation Director and 3 positions to reinforce, considering the aforementioned arrivals, the administrative support. The 2 Country Managers will enable the Bank to fulfil the quantitative as well as qualitative objectives set for expanding the activity in the transition countries. The Ex-Post unit will be an instrument to objectively assess the effects of existing projects and a monitoring tool for future projects: through cross-fertilization effects, it should also contribute to improve project preparation in the future.
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;
Such a guarantee by one or several other member countries would indeed be helpful for the Bank, enabling it to finance projects in countries not able to guarantee the repayment of the loans on their own. Nevertheless, it must be recognised that such guarantees encounter similar national budgetary limitations as voluntary contributions to the Selective Trust Account. The STA has been used in the past for projects in non-member states, but such a use must remain exceptional in order not to jeopardise the STA’s normal functioning as a source of interest subsidies for priority projects in the Bank’s poorest member countries.
g. to improve, where necessary, their national laws so as to remove administrative impediments to the timely use of CEB loans;
This is a question that each member state has to address separately and, in this respect, the Bank will welcome every initiative aimed to improve the timely use of its loans.
Item 9. iii. invite the bank:
a. to enhance practical assistance to new member countries wishing to submit projects to the CEB;
The Bank has stepped up its assistance to the transition countries in projects preparation. In December 1999, the Bank’s Governing Board appointed a new vice-Governor, whose duties include “promoting the different forms of the Bank's activity in the Central and Eastern European countries”. From 18 December 2001, this post will be filled by a person elected from a new member country (Poland).
The Bank will also continue to organise workshops in potential member countries and new member countries, in order to familiarise the borrowers with the Bank’s requirements and procedures.
Numerous missions are organised by the Bank’s operational services in order to assist member countries in the preparation of projects.
The funds made available by the CEB for the joint programme with the Council of Europe in favour of social cohesion (€ 1.5 million) are also made available for accompanying measures aimed at aiding the implementation of priority projects in the Bank’s new member states.
b. to expand lending to countries in transition;
The Bank’s activities in the countries in transition, most of which acceded to the Bank in 1996 – 1999, are sharply on the increase, both in terms of loans approved and loans disbursed. To date the Bank has approved over €1.1 billion in loans for transition countries, a steep increase compared to the level of a few years before (in 1998 the total amount approved in favour of those countries was €104 million). € 432 million of the €1.1 billion have been approved in 2001. On the loan disbursements side, the trend is also upward: of the roughly € 450 million disbursed to this group of countries since 1995, half has been paid out in the last 11 months.
The Bank is considering further measures to increase the share of projects in favour of less well-rated countries, in particular those in Central and Eastern Europe.
c. to intensify partnerships with other international financial institutions and humanitarian organisations in project preparation, evaluation and co-financing;
The Bank is actively seeking to establish good working relations with other international financial institutions. It has signed a memorandum of understanding with the European Bank for Reconstruction and Development, a memorandum of understanding with the World Bank and a Multiparty Agreement with the European Commission, the EBRD, the Nordic Investment Bank (NIB), Nordic Environment Finance Corporation (NEFCO) and the International Finance Corporation (IFC). The Bank is also currently considering signing memorandum of understanding with the Nordic Investment Bank and a memorandum of understanding “On cooperation for the Western Balkans”. A number of projects is jointly financed with the EBRD, the World Bank and the European Investment Bank.
Very close cooperation is in place with the UN humanitarian organisations, namely the UN High Commissioner for Refugees and UNDP. They were instrumental in helping to deliver the Bank’s donations from the Selective Trust Account to the refugees in Albania, “The former Yugoslav Republic of Macedonia” and Kosovo.
d. to improve its analytical and forecasting capabilities in order better to identify macroeconomic and social development trends in countries in transition;
The Bank intends to further develop its own economic analysis capabilities, continuing to rely also on information and studies available from other international organisations, such as OECD, European Central Bank and the World Bank.
e. to strengthen efforts to publicise the bank’s potential to assist, especially in new member states;
The Bank continuously develops an internet site, which makes information available on the Bank’s financing rules and capacity. The Bank is also publicised, especially in the new member countries, through workshops and visits of the Bank’s management and the Chairman of the Governing Board.