The Role of the European Bank for Reconstruction and Development (EBRD) in the Transition of the Banking and Financial Systems

Abstract

The European Bank for Reconstruction and Development (EBRD) was established in 1991 when the disintegration of the communist regimes of Central and Eastern Europe and the ex-Soviet states gradually revealed the need for support of the transition towards democracy and a market economy. What does the term "transition process" mean? Transition economics is a branch of development economics: the EBRD works in countries that cannot be defined as underdeveloped in the conventional sense of the word, but are instead countries that have grown in a planned economy, albeit with different levels of development. The EBRD is the largest single investor in the region and, in addition to its own financing, it is in a position to mobilise significant foreign direct investment. Sixty countries and two intergovernmental institutions (the EIB and the European Commission) hold stakes in it. Despite its public sector shareholders, however, it invests mainly in private enterprises, generally together with commercial partners. In addition, it provides financial services for banks and businesses, both new companies and existing ones. It works towards improving municipal services, restructuring state-owned firms, and supporting their privatisation. Furthermore, the Bank relies on its close relationship with governments in the region to promote policies that will support the transition towards democracy.

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