The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank will provide up to €24.5 billion ($31 billion) to help central and east European banks and businesses cope with the global financial crisis.
“We have a special responsibility for the region and because it makes economic sense,” EBRD President Thomas Mirow said a joint statement issued by the international organizations today in London.
“For many years, the growing integration of Europe has been a source of prosperity and mutual benefit and we must not allow this process to be reversed.”
The EBRD will provide about €6 billion, the EIB about €11 billion and the World Bank about €7.5 billion, the statement said. The aid will take the form of equity and debt financing, credit lines and political risk insurance.
East European nations are struggling to refinance foreign- currency loans taken out by borrowers during years of prosperity through 2007, when economic growth averaged more than 5 per cent.
The International Monetary Fund, which has bailed out Latvia, Hungary, Serbia, Ukraine and Belarus, warned on Jan. 28 that bank losses may widen as “shocks are transmitted between mature and emerging-market banking systems”.
The global credit crisis that has left banks with more than $2 trillion in losses and writedowns and triggered a simultaneous recession in the euro region, the US and Japan, is taking its toll on emerging economies.
The region will have a recession this year as demand for exports collapses, the IMF said in January. The economies will shrink 0.4 per cent, the IMF forecast. The slump combined with rising unemployment and falling currencies increases the risk of more borrowers defaulting on their loans.
The EBRD was created in 1991 to invest in former communist countries from the Balkans to Asia to help them transform their economies. The IFC is the World Bank’s private-sector lending arm and the EIB is the European Union’s lending vehicle.
The EBRD is investing a record €7 billion in central and east Europe this year to help the region weather the global economic crisis, compared with about €5.8 billion last year.
Almost half of that amount will be used to help recapitalize the region’s banks, stung by the credit crunch to revive the flow of credit to companies, the lender said.
Reuters